Dada Nexus Limited
Q1 2021 Earnings Call Transcript

Published: 8 Jun 2021

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by for Dada's First Quarter 2021 Earnings Conference Call. As a reminder, today's conference call is being recorded. I'd now like to turn the call over to the host for today's call, Ms. Caroline Dong, Head of Investor Relations for Dada. Please proceed, Caroline.

[Caroline Dong:]

Thank you, Operator. Hello, everyone, and thank you for joining us today. Our first quarter 2021 earnings release was distributed earlier today and is available on our IR website at ir.imdada.cn as well as on global newswire services.

[Philip Kuai:]

Thank you, Caroline. And thank you all very much for joining us today. We are pleased to deliver a strong quarter to kick-off 2021. Over total net revenue for the first quarter reached 1.7 billion, which is beyond the high-end for guidance. The year-over-year growth rate was 52% despite the high base from Q1 of 2020. The two year compound average growth rate was 78% when calculated from Q1 of 2019. Revenue generated from JDDJ reached 778 million with a two year CAGR of 97%. I'm going to talk you through our different strategic cooperation with JD Group some highlights of the April 15 anniversary promotion and some recent progress of our two platforms, then I will hand the over to Beth to talk about our financial results. On March 22, we announced that JD.com will increase it stake in-house to 51% by investing a total of U.S.$800 million in newly issued ordinary shares. The increase investment market deepened cooperation between JD.com and Dada under the omni-channel strategy. Leveraging JD's devoted strategic support will better fuel demand for local on demand retail and its delivery on JD covering various scenarios and categories and expand our omni-channel cooperation with JD. Together with JD, we will continue to provide consumers with superior shopping experience, empower retailers and brand partners and achieve a win-win cooperation for all.

[Beck Chen:]

Thanks, Philip. Before we go over the numbers, just a few housekeeping items in advance. We believe a year-over-year comparisons are most useful ways to judge our performance, all percentage changes I'm going to give will be on a year-over-year basis. And all figures are in renminbi unless otherwise noted. The total net revenues increased by 52% to 1.7 billion. Net revenues from Dada Now increased by 51% to 894 million mainly driven by the increasing order volumes for our services to largest companies and intercity delivery services to chain merchants.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question comes from Ronald Keung from Goldman Sachs.

[Ronald Keung:]

I have two questions for this result. So first is, want to ask about our JDDJ growth in the second quarter. And you talked about the acceleration that we expect in the second half. So can you just give us maybe the drivers of that from say, ticket size, which we call AOD and user end user purchase frequency, particularly as we lacked that high AOD last year during COVID, but we're still delivering accelerating growth, just want to know whether we're seeing all the growth acceleration and the drivers behind? And then, my second question is, we did see some impact of community group purchase not on our business, but on mostly our merchants, which are the offline supermarket sales according to some public news, that their sales have seen some impact in the month of March. Just want to see how do we see our merchants, which are the offline supermarkets is also actually becoming an even larger pie of supermarket sales judging from our very healthy growth of JDDJ. So, how much O2O sales portion reach and how should we interpret the evolving shopping patterns of Chinese consumers between the different channels? Thank you.

[Beck Chen:]

So, let me address the first question and I will pass the same question to Philip to answer. So, in terms of the growth drivers of JDDJ future and also the second half of this year, we expect on a year-over-year basis, the AOD will slightly -- still will slightly increase. In Q1 actually the AOD is reaching . But, I would like to just attribute this factor to like the Chinese New Year sectors or even like the supermarket categories it's reaching historical high, but basically, compared to Q1, we think Q2 and also the second half of this year will not be that much high, AOD still on a year-over-year basis, it will increase. And second is, of course, the growth of the number of consumers and right now actually, for example, like 500 million active consumers of JD, and there is very, very small percentage of -- percent base was experiencing O2O on demand and retails before and we have target and also not so much target that to grow this percentage to much, much larger than before. So we believe for the second half of this year and growth of the number of active consumers on JDDJ will be a major contributor to the growth of the JDDJ platform.

[Philip Kuai:]

Okay. I'll address the second one regarding the community group buying impacts. And so first of all, we believe the market potential is huge. And as you can see, in Q1, we continue to grow fast. And in some of the province, like Hunan or Hubei, or Jiangshi. So those are the province that community group buying has been most actively doing business. So our GMV in those province continue to see a year-over-year doubling growth. So we grow more than 100% in those province. So I think the market potential is huge. And we have been doing well, despite or the community group buying. And I'm sure you have also noticed that the regulation in this sector has been more and more tight and we believe this will be beneficial for everyone in this market for the long-term sustainable healthy growth. And as you mentioned, some of the supermarkets certainly has been affected by the community group buying and as a result, so almost all of the supermarkets are even more willing to deepen partnerships with us. That's why we are now seeing more and more supermarkets are adopting Haibo system, or we're seeing more and more supermarkets are starting their partnership with us. So I think this is also helping us to deepen the partnership. At the same time, many of the supermarkets have tried community group buying on their own. But then, they realize that for supermarkets, the best way to improve their stock performance and to compete with community group buying is not to do community group buying on their own. Instead, they should be focusing on the store based on demand to retail. So that's another reason why almost all of the supermarkets are now strengthening their partnership with us. So I think overall, we are very much confident for our growth and also we are confident to help our partners to grow their business and to compete with community group buying. And certainly the percentage -- as the on-demand retail contribution to the supermarket is certainly growing. And I think the number will just keep growing for the foreseeable future. And at the same time, we are helping our supermarkets to improve their -- like profitability, etc by providing advanced technologists and operation support.

[Operator:]

Our next question comes from Eddie Leung from Bank of America.

[Eddie Leung:]

As you guys mentioned about your cooperation with JD, may I have two follow up questions. The first one is about the current use -- that the current status of your user acquisition channels, roughly speaking, how important is the JD channel for you guys, versus your own APP and other channels like mini program. And then, secondly, besides natural selection, which is more for the consumers, we also heard from JD in their own earning call that, they could be thinking more about logistics and backend cooperation with their subsidiaries, including you guys. So, beside the user acquisition channel any potential cooperation on the fulfillment and logistics side.

[Philip Kuai:]

So, I will provide some perspectives and if Beck will have anything to add. So first thing about the user acquisition and the penetration, so, as of today, the user penetration in JD.com, for the on demand of retail is very low, very low, like low single digits or even lower. So but at the same time, both JD and us are fully aligned and we have the same goal to increase to grow this penetration. And we plan to grow the penetration all the way to like 50% or even more. So strategically we're fully aligned. And historically, JD was not a like a very significant not even a dominant user acquisition channel for JDDJ. But since this year, we believe that JD will become a more and more important user acquisition channel for JDDJ. And I think -- this is will absolutely be mutual beneficial, because we're providing JD with the lots and lots of quality offline stores and inventory, which will help JD to grow the user frequencies and to grow the user base at the same time. So we will increase the penetration in JDs user base and JD will leverage our capabilities to grow the frequencies and to continue to expand their user base. I think it will definitely be mutual beneficial. And beyond the user partnership, we believe that more and more strategic partnership will definitely be seen in the -- like the next few quarters or the in the foreseeable future, the some of the scenes I will just give you some examples. So, the logistics as you mentioned. So, for some of the key or heavy products as JD.com, the order cost is very high as you can imagine delivery all the way from warehouse to warehouse to depot's and to customers, and those heavy and bulky or products require cold chain are already located in the stores near the customers like the three miles or even one mile radius. So leveraging our on demand, delivery capabilities and inventory already located in offline stores, certainly the logistic cost and the entire efficiencies will be like greatly improved. So I think this again, will be mutual beneficial for JD, for us, for retailers and for our brand as well. Another example that as we mentioned in the remarks in May 20, we have already had a very successful three way, partnership case with JD and Unilever, China, their brands called the World Solution. So, their ice cream or sodas in JD.com as well as JDDJ. So three offers partnered together to launch a joint marketing program. So this again, helps to improve the search performance as well as to improve the efficiencies. So things like that. So we are very much confident that a lot of strategic synergies can be seen from this JD partnership and we are very much looking forward to that.

[Beck Chen:]

More points from my side is, yeah, we just touched about like the marketing -- innovating marketing activities. So traditionally, we are just like separate two teams and JD is cooperating with some online team of the brand side and the JDDJ is cooperating with offline O2O team of the brand side. And there's some inefficiency between us. So in the future, we will actually collaborate together and to have a unified marketing campaign to work with the brands. And we believe that the potential for the marketing revenues for both sides is huge. And also, we mentioned in the prepared remarks that we are optimizing some access points and exposures and fine tuning the product offerings, because previously, we are a little like loose in the relationship, right now, with the tightening of the partnership of both sides. We expect there's some like huge, even huge opportunities ahead of us. So maybe you will see it soon. Yeah, so this is my addition.

[Operator:]

Next question comes from Thomas Chong at Jefferies.

[Thomas Chong:]

Thanks management for taking my questions and congratulate on a strong Q2 guidance. Given our cooperation with JD, may I ask about how we should think about unit economics of JDDJ and the monetization potential or JDDJ, of course, the different line like commission marketing, delivery and how we should think about the timing for JDDJ return into profitability into the future? And my last question is about the housekeeping questions. May I also ask about the contribution from the lawn supermarket in terms of the oldest and the GMV during the quarter?

[Philip Kuai:]

Okay. Thank you for the question Thomas. Supermarket category is contributing like 25% of the total GMV in Q1. So supermarket accounting for like 75% for the economic. So basically for the monetary side and there is no big difference between dependencies on JDDJs or JD set, generally, it's very similar or very same. And actually, right now, we are also launching some products and offerings to optimize subsidy level of our merchants and also the platform ourselves together, so we expect to see the effect coming out in the second half. And in terms of the total, like this strategy, like the -- on the collaboration of JD right now we prioritize the growth momentum and potential is huge for us. Just imagine 500 million active users on JD. So when the growth is not big enough and we will like further optimize like the subsidy level to help and it is to achieve breakeven or profitable and as soon as possible. So, generally, we think the growth potential is bigger than our pre-previous expectation. And with this particular game, we have more opportunities to optimize our unique -- our direct margin level and even earlier than prior expectation. Thank you.

[Operator:]

Our next question comes from Ashley Xu at Credit Suisse.

[Ashley Xu:]

Just a quick follow up on our second quarter guidance. Just want to check what does the guidance reflect in terms of both geographic and category expansion for the quarter. And also in terms of our cooperation with JD currently are there any more concrete plans for our cooperation, starting second quarter, especially in terms of user traffics?

[Philip Kuai:]

Okay. So, for the first question, yes. So, we are penetrating into the lower tier cities and also like the suburban areas of those cities or direct to operating cities. So, this is all accounted for in the -- into the guidance, we are giving out. And in terms of the detailed cooperation plan, actually, starting from April and May, also the parties including JD and JDDJ are sitting together and we already have worked into -- to partner with each other. And there are some very concrete plan including like some trends are like the traffic or access points. And we actually, I think, you're expecting to see it very soon in Q3 and even like the previous plan, previously we called like -- we didn't tend to plan, maybe we'll have a brand new name and upgraded as well. So, right now is still under the last minute, like the development. So as soon as it's coming out and we think we will have you guys know it as soon as possible.

[Beck Chen:]

Yes. And just to add a little bit. So, as you mentioned, the geographic and the category, we will certainly continue to expand our geographic coverage to more cities and also to expand to more categories. And we're happy to see that we have got some early winning from the consumer electronics. And now, as we are expanding to like a beauty and personal care and other categories, we're seeing a very good momentum as well, we're able to sign up the best offline retailers on board. And we're confident to see more growth from -- like the more categories. And in terms of the partnership with JD, I think first of all, we're happy to see that at the very top level, we're able to arrive at a very concrete agreement with top leadership at JD. So omni-channel strategy is absolutely considered as a very top priority for JD top leadership. And this is like a fully aligned with other the JD executives and all the general managers across JD business units. So I think this is very important. And as a result, so JD app is now being optimized to be more location based to be able to support the on demand retail business. And also, as you may see in the near future and in the foreseeable future -- we'll be able to get more access points from JD as well. So users will have more chances to experience this on demand retail. So that agreement is -- we have already arrived at that agreement with JD leadership. So, I think we're very much confident about outlook.

[Operator:]

Next question comes from Qianlei Fan from Morgan Stanley.

[Qianlei Fan:]

I have two questions. The first is, we see that the guidance for second quarter the JDDJ revenue is quite strong. So the GMV growth should also be very strong. So within that growth, do we have any color on how much of GMV growth will come from the merchants that we developed onto our JDDJ platform by ourselves. And what is the contribution from the Wu Jing Tian Ze platform in GMV? And my second question is that for those others from the Wu Jing Tian Ze system, can we assume that these orders are positive in direct margin? So basically, we charge some commissions from the merchant and probably will pay some projects to JD.com, and then it's just positive direct marketing? Do we need to pay any like subsidy for those orders from Wu Jing Tian Ze system? These are my questions. Thank you.

[Philip Kuai:]

Okay. Thank you for the question. First of all, for all the merchants, right now actually. operating guides or sales guides of JDDJ is developing those new merchants and invest them onto the platform and on to jd.com through the natural selection systems simultaneously. So JDDJ guides us -- like the guys to operate or to invest those store machines. And also in terms of the contribution of the JD Wu Jing Tian Ze right now, in Q1 -- in Q2, the JD Wu Jing Tian Ze is still contributing a lower percentage of our businesses, that we expect that in the following quarters, the contribution of JDDJ will be slightly bigger and bigger in the future. And at this moment, and for example, like for the supermarket categories, and products invested on a JD.com through Wu Jing Tian Ze, we still will get like the customer subsidies to attract or to retain the consumers. But just as I said in the previous question, so, as long as we have got some more access points and the benefits of the linear system Wu Jing Tian Ze is growing significantly in the second half of this year, we already have a plan to cut down the subsidies given to the consumers to make it like to improve actually the unique economic -- the direct margin on JD.com. So this is all in our planning.

[Operator:]

Next question comes from Alicia Yap at Citigroup.

[Alicia Yap:]

I have a couple questions. Number one, related to the second quarter guidance, if we take out the JDDJ growth expectation, it seems like the growth rate for that amount actually imply a pretty decent growth at maybe roughly over 60% to 70%. So maybe can you elaborate a little bit on the order demand outlook for these chain merchants versus the orders coming from SME and also overall competitive landscape for the on-demand delivery? And then, second, if you can also elaborate a little bit what is the differentiation or competitive advantage of your Haibo system that makes it very differentiated and also attracted to these retailers that you are serving? Thank you.

[Beck Chen:]

Thank you for the question. I'll address the first question. Okay. So in terms of the Q2 guidance, for the Dada Now side, actually starting from Q2, only the chain merchants businesses, counting wise only the chain merchant businesses will -- like recognize that on a gross basis, the last mile finances and also like the small and medium sized or individual standards businesses will be recognized -- revenues will be recognized on that basis. So which means actually, chain merchants business is growing very fast. So in the first quarter, the chain merchants business is growing by over a 130%. And we still believe that again Q2 this business will maintain like triple digit growth rate. And we are even more confident that even in the second half of this year, the businesses do very strong. And we believe that maybe in the second half of this year, we for the chain merchant business, it's actually we started from Q2 2019. And after two or more than two years, we expect this businesses will grow to be the largest platform in China to provide, to those chain merchants businesses, just in the second half of the -- surpassing every kind of interest at delivery platforms in China.

[Philip Kuai:]

And the regarding the Haibo system, so first of all, we have the best technology and the functionality with the system. Because since 2015, we are the very first platform to work with retailers, especially supermarkets to do their on-demand retail business. And since then, we have been providing like anything from other fulfillment to operation tools to help our retailers. So that's why the Haibo system are able to grow together with JDDJ and the retailer's practice. So that's why Haibo has been getting more and more advanced and sophisticated. And first, we are able to work with almost all of the leading players in the market that's why we're able to see like all the use cases and able to improve the systems. I think this is a very solid and a unique foundation that makes Haibo a very best solution in the market. As you can see, like our adoption is overwhelmingly dominant. So that's why I think that's wisely -- like wisely appreciated by our partners. That's the number one the technology and functionality foundation. And second, because JDDJ, we are a pure neutral platform and we never compete with our retailers. And over the years, we have been establishing very solid trust with the retailers. That's why the Haibo system -- because the Haibo system needs to access a lot of sensitive information. And for some of the partners, even given there like the margin information or, like very sensitive information. And that retailers charters deflate with those information and we're able to work with the retailers to improve their efficiencies and improve their capabilities, leveraging those information. So I think those kind of trust is also very much unique. And we believe that this also helps us to position Haibo as the, the most competitive system in the market.

[Operator:]

Our next question comes from Robin Leung with Daiwa.

[Robin Leung:]

I've a follow up questions on the user acquisition in JD. So besides Wu Jing Tian Ze, we noticed that there is also a user traffic acquisition channel . So can management share the differences in the use cases of these channels and the channels fees that JDDJ is paying to JD and for the synergies in the second half? We expect more traffic from JD should we expect the traffic is coming from the existing channels like the JD supermarket? Or is it from the new channels in this? And also my second question is on the Haibo system, any monetization plan in this and as we now starting to do more on the convenience store? How is the difference in the unit economics comparing to our supermarket and if we can know the percentage of supermarket that is already using our Haibo system figured that would be great too. Thank you.

[Philip Kuai:]

Thank you, Robin. I will give you a brief answer and see if Beck have anything to add. First of all, we're getting -- there are many kinds of access points that we can get from JD.com. And thanks for noticing like the and we have access points like that. And we are now going through a like a comprehensive R&D, the research and development process with JD technology team, we are currently reviewing the performance of all the access points and designing the way that the customer has experience on demand retail most effectively and with the best customer experience on JD.com. So all the things you have seen now like the or the Wu Jing Tian Ze from the search result page. So those are the cases before this partnership. And we believe that in the foreseeable future, we will be seeing a more advanced and a more advanced practice with better performance and like conversions and etc. So based on our previous data points already collected from the previous cases. So I think we will be getting more access points as well as better performing practice. And in terms of the -- both monetization, so first of all we continue our monetization for the Haibo system with all kinds of retailers across the board, we continue to collect a commission fee from their GMV handled by Haibo system, I think that's something we have already been doing. And going forward, as we are providing more value added service to retailers end to the brand, I will envision that in the future, we will be able to have more monetization opportunities around Haibo system not necessarily from like licensing model. But as we're providing more value, I think more like the value added services can bring in additional revenue as well.

[Operator:]

Our final question comes from Hans Chung at KeyBanc Capital Market.

[Hans Chung:]

So, couple of questions for me first, can you provide the color about the software label and also the right margin for JDDJ in Q1? And then, how well those evolve in the second quarter and the second half? And then, second question is about the customer behavior and just like -- what's your observation on the consumer behavior thing, the pandemic and then as we started to be recover to the pre-pandemic, the scenario and then how does customer behavior evolved recently and then if possible, can you give us color about the customer like for the past year for those customer requires in 2020? How about a retention and a cohort in terms of shopping frequency and so on. So, that will be helpful. Thank you.

[Philip Kuai:]

Hans, so for the first question, so the second record margin of the benefit in Q1 is minus 2.8%. And which would leave that for the next three quarters during the year it will be declining. So Q1 is the -- in terms of the record margin level, Q1 is the worst. And the subsidy level is also the highest in Q1 and 6.2% for the consumer incentives, and also in the following three quarters we are back to the mid and industry level will go down.

[Beck Chen:]

Yes. And then in terms of the customers behavior, so we're seeing that customers are even in Mainland China, like to recall the post-pandemic era we're seeing customers are more used to buying things online and especially for on-demand. I think we're absolutely seeing this customer behavior shift probably like permanently. And so, I think our business will absolutely benefit from these trends. And at the same time, we are seeing a trend that a customer has been educated from buying like restaurant food delivery and then to grocery delivery and now to more and more categories, the customers are now used to like buy everything on demand. I think this is fully aligned with our vision that everything will become available in one hour. So, we are happy to see the trends.

[Philip Kuai:]

And actually in China the pandemic is already settling down, when you go and now compare that to the 50% growth rate in Q1 for the JDDJ, we are expecting more than 80% in Q2 and also even faster, much faster in the second half. So which also a demonstration for our platforms popularity among consumers.

[Operator:]

Thank you. We have no further questions. I'll hand back to management for any final comments.

[Caroline Dong:]

Thank you, Operator. In closing, behalf of Dada's management team, we'd like to thank you for your participation on today's call. If you require any further information, feel free to reach to us directly. Thank you for joining us today. That concludes the call.

[Philip Kuai:]

Thank you.

[Beck Chen:]

Thank you.

[Operator:]

Thank you all for joining. You may now disconnect.