Dada Nexus Limited (NASDAQ:DADA) Q3 2023 Earnings Call Transcript

Dada Nexus Limited (NASDAQ:DADA) Q3 2023 Earnings Call Transcript November 15, 2023

Operator: Good morning, ladies and gentlemen, and thank you for standing by for Dada’s Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded. I will now turn the meeting over to your 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 our third quarter 2023 earnings conference call. On the call today from Dada, we have Mr. Jeff Huijian He, President, and Mr. Beck Chen, CFO. Mr. He will talk about our operations and company highlights, then Mr. Chen will discuss the financials and guidance. Please kindly note that, during the Q&A session, Jeff will answer questions in Chinese, and consecutive translation will be provided. In case of any discrepancy between the original remarks and the translated version, statements in the original remarks should prevail. Before we begin, I’d like to remind you that this conference call contains forward-looking statements. Please refer to our latest Safe Harbor statement in the earnings press release on our IR website, which applies to this call.

Also, during this call, we will discuss certain non-GAAP financial measures. Please also refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our President, Mr. He. Jeff, please go ahead.

Jeff He : Thank you, Caroline, and thank you all for joining us today. During the third quarter of 2023, Dada Group sustained its impressive top-line growth and made further gains in operating efficiency. Our total net revenues increased by 20% and adjusted net margin improved by 11 percentage points year-over-year. I will begin today’s presentation with some updates on our cooperation with JD.com and our performance during the Double 11 shopping festival, followed by operating highlights from our two platforms. I will then hand over to Beck, who will take you through our detailed financial results. First, let’s discuss our cooperation with JD.com. In October, Dada Group and JD.com held an on-demand retail industry conference themed, Happiness within Reach or 2% only, and unveiled a five-year action plan in boosting consumption, enabling retailers, and creating jobs.

Specifically, in the next five years, JDDJ and Dada Now aim to facilitate on-demand retail consumption of over RMB1 trillion along with our ecosystem partners, drive the digital transformation of more than 2 million brick-and-mortar stores, and cumulatively create over 10 million flexible employment opportunities. This not only demonstrates our strong confidence in the potential of on-demand retail industry, but also our commitment in shouldering social responsibility. JD.com and us will strengthen cooperation to achieve these goals. Next, I would like to provide some highlights from the recent Double 11 shopping festival. For JDDJ, peak-day GMV reached an all-time-high, and GMV throughout the promotion grew robustly, with multiple categories registering triple-digit growth, including liquor, mom-and-baby products, home furnishings and convenience stores.

For Dada Now, orders are fulfilled on the peak day hit another record high of 15 million, and total orders fulfilled reached 200 million during the promotion period. Let’s move on to the operational highlights for our two platforms. Starting with JDDJ, the leading on-demand retail platform in China. In the third quarter, we continued to strengthen and expand our partnerships with retailers and brands, and further enhanced our capability in technology innovation. Starting with retailer cooperation. During the quarter, we continued to broaden and deepen our cooperation with retailers to enrich our product offerings. As of the end of September, JDDJ had onboarded more than 400,000 retail stores. In the supermarket category, we added more top supermarket chains to our platform and have now established partnerships with 93 out of the top 100 supermarket chains in China.

After we rolled out our delivery fee waiver campaign to the majority of supermarkets across the country at the end of July, we saw notable increases in user engagement, as evidenced by improvement in both retention rate and repurchase frequency among our users in supermarket category. We also made progress in our collaboration with major convenience store chains, leading to GMV generated by convenience stores on our platform growing more than 8 times year-on-year. Moving on to the consumer electronics category, in the smartphone sub-category, JDDJ participated in the launch of new Apple products for the fourth consecutive year. After the iPhone 15 series was officially launched for sale in September, sales in the first two hours increased by 250% compared to the sales during iPhone 14 debut.

In addition, Android brands such as Xiaomi, OPPO, and OnePlus also saw rapid growth in the third quarter. For the computer and accessories sub-category, GMV increased by 60% year-on-year. This growth was attributable to our support for new brands, weekend marketing events, and our efforts to explore diverse shopping scenarios. Notably, brands such as Dell, Xiaotiancai, and XGIMI experienced significant growth during the quarter. We also continued to make progress in the home appliance and home furnishing category. In the home appliance sub-category, we aim to serve diversified user needs by offering differentiated SKUs as compared with B2C channels, while offering enhanced experience of one-stop delivery and installation. In this quarter, we established new partnerships with major appliance brands such as Hisense [ph] and [Indiscernible] and newly onboarded 8,000 home appliance stores onto our platform.

As a result, GMV of home appliance merchants grew by 70% year-on-year. The home furnishing sub-category also saw rapid growth, with GMV increasing by nearly three times year-on-year. We established new partnerships with brands such as Nippon Painting Service, achieving a breakthrough in our offering of painting service. In the apparel category, we recently signed new partnerships with a number of outdoor brands including Skechers, PEAK as well as underwear brands such as Cosmo Lady, Aimer, and Hongdou, and luggage brands such as [Indiscernible]. In the third quarter, GMV of the apparel category increased more than five times year-on-year. For the liquor category, GMV more than tripled year-on-year in the third quarter, driven by our continuous efforts in improving the supplies of core SKUs. Next, let’s talk about JDDJ’s progress on deepening cooperation with brands.

As a pioneer and leader in O2O marketing for brands, in September, we officially launched the Double 10 Billion Brand Plan, which aims to help more than 10 brands achieve sales of more than RMB1 billion and establish a benchmark brand with sales of more than RMB10 billion on our platform in 2024. Our brand partner pool kept expanding. Recently, we formed partnerships with leading baijiu brands including Moutai and Yanghe, being the first on-demand retail platform they cooperate with. We also established new partnerships with snack food brands such as Yanjin Shop Food and dairy brands such as [Indiscernible]. We also continued to enhance our omni-channel O2O marketing collaborations with brands, helping them reach users through multiple channels both on and off JDDJ.

Starting in September, we collaborated with brands such as Quaker, OMO, and [Indiscernible] to help them enhance exposure via innovative offline campaigns such as dance competitions. On the final day of the event in Shanghai, Quaker saw a remarkable 220% year-on-year increase in sales and a 58% increase in order volume. Next, I’d like to talk about our technology innovation efforts. For retailers, our omni-channel O2O operating system Haibo continued to play an important role in improving efficiency. As of the end of September, Haibo had been deployed in nearly 12,000 stores. We recently upgraded the Haibo system’s visualized stocktaking function to support additional business scenarios and make inventory counting more efficient through iterated algorithm logic.

Pilot merchants who used this upgraded function saw a 99% drop in stocktaking abnormalities. For brands, we further upgraded our marketing technology. In September, we released Hongtu, the first grid-level marketing tool for brands in the on-demand retail industry, to improve their marketing efficiency. Through B2C plus O2O omni-channel data analysis, Hongtu helps brands identify marketing opportunities grid by grid in terms of both consumer demand and their supply status, so as to make marketing campaigns more effective. At present, the Hongtu system has been adopted by 10 brands in categories such as FMCG, consumer electronics, and health and wellness. Pilot brands that used the Hongtu solution to manage marketing activities saw their conversion rate increase by 12% and average new customer acquisition cost decreased by 37%.

I will now turn to Dada Now, China’s leading local on-demand delivery platform. In the third quarter, we continued to expand our delivery capacity, with quarterly active riders on the Dada Now platform increasing more than 20% year-on-year. I will first discuss our KA, or chain merchants, business. In the third quarter, the growth rate of our revenue from on-demand delivery services to KA merchants accelerated to 25% year-on-year. In particular, revenue from beverage KAs continued to grow rapidly by high double digit rate. In addition, in the restaurant KA category, we recently formed new partnerships with restaurant chains such as [Indiscernible] while strengthening cooperation with leading brands among our existing partners. Moving on to our SME and C2C business, thanks to a wider variety of service selections, the number of SME and C2C orders fulfilled in the third quarter increased by 40 year-on-year.

Lastly, an update on Dada Now’s autonomous delivery service. We continue to consolidate our positioning as the largest autonomous delivery platform for supermarkets in China. To date, Dada Now’s autonomous delivery open platform has fulfilled more than 200,000 on-demand delivery orders for supermarkets. That concludes our operational updates for the two platforms. To wrap up, we delivered another strong quarter of financial results, with solid growth in revenue and significant year-on-year improvement in our bottom-line. Along with the continuous improvement in business performance, we believe our model also creates unique social value. Therefore, we set forth the five-year plan surrounding consumption, digitalization and employment, which is in line with our strategy to realize healthy growth in a vibrant community consisting of consumers, retailers, brand owners, and riders.

We will continue to execute this strategy to drive sustained returns for shareholders. I will now pass the call over to Beck to go through our financials. Thank you.

Beck Chen : Thanks, Jeff. Before we go over the numbers, just a few housekeeping items in advance. We believe year-over-year comparisons are the most useful way to judge our performance. Therefore, our 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 revenue in the third quarter increased by 20% to RMB2.9 billion. Net revenues from Dada Now increased by 29% to RMB1.1 billion, mainly driven by the increases in order volume of intracity delivery services to chain merchants. Net revenues from JDDJ increased by 16% to RMB1.8 billion, mainly due to the increase in GMV. The increase in online marketing services revenue as a result of the increasing promotional activities also contributed to the revenue growth of JDDJ.

Moving over to the expense side. Operations and support costs were RMB2 billion. The increase was primarily due to an increase in rider cost as a result of increasing order volume for intracity delivery services provided to various chain merchants. Selling and marketing expenses decreased to RMB1 billion, primarily due to a decrease in advertising and marketing expenses and a decrease in incentives given to the JDDJ consumers. G&A expenses decreased to RMB29 million as a result of decreased amortization of corporation agreement and non-compete commitment related with the acquisition of JDDJ in 2016, which was substantially amortized as of June 30, 2023, and reduced the share-based compensation expenses as well as efficient expense control measures.

R&D expenses decreased to RMB94 million, mainly due to lower R&D professional costs as we enhance our operational efficiencies. Non-GAAP net loss attributable to ordinary shareholders of Dada was RMB9 million, a significant improvement compared with the loss of RMB270 million in the third quarter of 2022. Non-GAAP net loss margin was 0.3%, improving by 11 percentage points year-over-year. As of September 30, 2023, we had RMB4.4 billion in cash, cash equivalents, restricted cash and short-term investments, achieving an increase as compared with the balance as of the end of 2022. In terms of the outlook for the fourth quarter of 2023, we expect total revenue to be between RMB3 billion and RMB3.3 billion, representing a year-over-year growth rate of 12% to 23%.

So this concludes our prepared remarks. And operator, we are now ready to begin the Q&A session. Thank you.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs. Please go ahead.

Ronald Keung : Hey, thank you for taking my question and thank you, Jeff, Beck and Caroline. So my first question is on how we’ve seen the recent trends of growth in Singles Day and based on your 4Q guidance, the sequential slightly slower year-on-year growth we see, what are the drivers of our growth? And how should we think about next year along the consumption trends on discretionary or for on-demand products? And my second question is on our cooperation with JD, with the JD rebalancing kind of traffic, the 10 billion subsidy program and 3B, how has the corporation been? And do we see any change in the JD traffic allocation to ourselves and any updates on the cooperation? Let me translate myself.

Jeff He: Thank you for question, Ronald. I’ll first give you a brief update on the overall performance of our Double 11 shopping festival. As we all know, it’s quite a long event starting from mid- to late October and running all the way through mid-November. So during the first three weeks of October, growth of both and the consumer electronics categories were on the softer side due to two factors: a, an increase in outdoor and traveling demand affected purchasing frequency of our supermarket category to some extent; and, b, demand for some smartphone brands was not as strong as we had expected. During the Double 11 shopping festival, however, we’ve seen a decent recovery in growth rate, especially of the supermarket category, primarily thanks to our efforts in prioritizing value and the customer savings on top of the convenience of one-hour delivery that we provide.

On the peak day of November 11, we made a historic breakthroughs, especially we’ve seen decent growth for the supermarket category. Overall, the consumption market is recovering going into different categories. However, spending and services, including dining and accommodation, entertainment and tourism continue to outpace the spending in physical goods. In addition, the need for on-demand retail is less prominent in outdoor scenarios for service consumption. Most of these trends, we will continue to focus on consolidating our strengths on the supply side and optimizing the user experience to position ourselves for the increase in O2O penetration in the long term about which we are highly optimistic. To provide you with an update on our cooperation with JD.com, both JDDJ and Dada Now continued to strengthen our cooperation with JD during the quarter.

Starting with JDDJ. First, we continued to penetrate the JD’s user base with the number of Xiaoshigou users in the third quarter, increasing by close to 40% year-over-year. Our traffic growth on JD has been outpacing our user growth as we gained access to new entry points on the JD app. For example, the LBS feature is now being gradually integrated into the 10 billion subsidy and flash sales channels which enables our merchants to generate incremental exposure. Apart from the incremental touch point interest gains, we are also making progress in the existing user interfaces. In terms of the search results, for example, recently, JD.com has been testing to prioritize audio products and categories, including fresh produce and heavy and bulky items to enhance user experience while improving efficiency.

And in terms of the half, previously known as nearby [Indiscernible], we have refined the page design together with product development team to drive significant BAU growth. At the same time, we are pushing forward the continuous increase in conversion rate and AOV. Now I’d like to share some observations and thoughts on the impact of JD’s changing algorithm on eBay platform. We believe our Shansong services not only provides JD users with high-quality products and faster delivery, also competitive prices that stem from our retail partners’ strength and the supply chain. Therefore, Shansong is able to provide a better user experience in all three dimensions of product, prices and services. As a result, we believe JD’s new traffic allocation mechanism will benefit Shansong growth in the long term.

Shansong advantage in terms of product quality and diversity as well as delivery speediness is self-evident. So I would like to elaborate more on the price competitiveness of our service. With years of experience in off-line retail, retain merchants, we are cooperating with usually have already built strong supply chain capabilities, which enables them to provide consumers with competitive prices, in particular, in product categories such as fresh produce and heavy and bulky items we just mentioned. In addition, conducting O2O business on top of other existing off-line stores require little incremental rental and personnel costs for retailers. Given the lower selling expense ratio, there is a significant room for our retail partners to offer lower prices on the channel and provide our consumers with more value for money items.

Looking at our operational results. Since JD began to emphasize the pricing factor in March, our exposure among JD search results have maintained remarkable growth. For example, in Q3, the daily average search exposure of a supermarkets category increased by 50%. In addition, the percentage of Haibo price competitive products in Shansong stayed at above 30% during the November 11 trucking festival, the testimony of the overall price competitiveness of our Shansong products. Thank you for your question.

Operator: Your next question comes from Thomas Chong with Jefferies. Please go ahead.

Thomas Chong : Hi, good morning. Thanks management for taking my questions. My first question is about JDDJ unit economics in Q3. Can management share about the take rate and expense ratio for different items? And on that front, how should we think about to do the economics as we go into 2024? What are the drivers behind? And my second question is about the O2O opportunities in China? As we mentioned in the prepared remarks, the market size is huge. But on the other hand, we also see the competitive landscape is also quite intense as well. So I just want to get some thoughts from management about how we think about the landscape in 2024? And on that front, what is the long-term direct margin that we are expecting in the coming years?

Beck Chen : Thank you, Thomas. This is Beck. So I’ll address your first question and Jeff can take the second question. So in terms of the monetization of JDDJ in Q3, the monetization rate was increased to 10% in Q3, which is the first time we passed through like the 10% threshold historically. And in the same time, our consumer incentives was further decreased to 3.3%, which is either like decreasing on a Q-on-Q basis or a year-over-year basis. [Indiscernible] our operation costs including rider cost, packing costs was 4.7%, which has decreased on a year-over-year basis, while increased Q-on-Q basically because the seasonality in summer campaign. And in terms of, for example, like 2024, the major driver still, we will keep to increase the commission online manufacturing rate.

And at the same time, we will further decrease our consumer incentives expenses and also operating cost side to further enhance our direct margin on a year-over-year basis. And also in terms of the last question, your second question in terms of long-term margin, so basically, as we have talked about previously, so JDDJ is — could be manage to like the traditional e-commerce platform, which is just a localized version. So in terms of like the operating — operating profit against GMV generated through the platform. So we are a marketplace more neutral platform model, so it should be targeted as a 3% of GMV as our long-term operating non-GAAP operating profit for JDDJ.

Jeff He: Thank you, Beck. Yeah, I’d like to share some thoughts on your second question about the competitive landscape. The fact that more leading international companies are prioritizing the on-demand retail business speaks of its great potential. And we believe the industry can easily accommodate different players to grow vibrantly in their respective areas of strength. For JDDJ, firstly, our strength and extensive partnership with merchants remains rock solid. This is a result of our positioning as an open and neutral platform as well as our cumulated know-how and expertise and empower retailers various systems and services. Merchant ecosystem with built. It’s hard to replicate in a short time by other platforms. For instance, in the supermarket category, we’ve onboarded 93 out of the top 100 chains in China.

In addition, in categories such as smartphones and mom and baby, we’ve also teamed up with most of the leading chain retailers in China. This abundance of high-quality supplies is the basis for us to continuously attract and retain users. Secondly, we enjoy huge potential in penetrating more of JD’s users. Currently, Internet companies are focusing on cultivating the mindset for on-demand retail among their own user base, which means limited head on competition among one and another. And since JD’s users are inherently purposeful shoppers who demand higher merchandise quality and the delivery speed, we believe it’s more efficient for us to convert them into on-demand to consumers. And we remain confident in penetrating 50% of the JD user base in the long run.

Thirdly, on top of market share gains, we value sustainable growth by balancing growth and profitability through a combination of efforts in optimizing subsidies, improving delivery efficiency and increasing online marketing monetization, the profitability of JDDJ has improved significantly in the past few quarters to near breakeven. In the long run, we also believe that JDDJ has higher profitability potential compared with other players, of our significantly higher AOV and online marketing monetizing rate. Thank you.

Operator: Your next question comes from Alicia Yap with Citi. Please go ahead.

Alicia Yap : Thanks for taking my questions. My first question is follow-up on our management comment regarding the supermarket and the electronics category before the Singles Day– the first three weeks of October and then single stage rebound. And so just wondering what is the demand trend post Singles Day that you’re expecting for supermarket and non-supermarket category. And the second question is on the cost of riders. So can I understand the increase in the cost of riders is related to this intracity delivery? Is there anything related depending on the type of the chain merchants that you are servicing? And which specific order demand during this 3Q that resulted in the higher rider costs? Do we expect a higher rider cost into 4Q given it is a promotional season and potentially colder weather? Thank you.

Beck Chen : Thank you, Alicia. So Beck. Let me address your two questions. So for the first question, so it’s just like we can. So we finished like the campaign. So still there is — I don’t think there’s enough time for us to evaluate like just three days daily sales to give you some color or comment for the post of 11 campaigns trend. So in terms of the second question, so about the right cost. So in terms of the of absolute dollar amount of the right cost, yes, it has increased either on Q-on-Q level or year-over-year level and overall and is still growing robustly, especially our units is growing by 29%, with which our accounts business is growing by 25% as we have discussed before. So this is just the cost overall and it is growing.

But in terms of like unit cost as per like the order level or per level basically is efficient in the same on a year-over-year basis. And in Q4, basically because usually it’s like the summer season. So — and it takes more to recruit and retain riders compared to spring time or like the autumn season. So in Q44, we believe on a year-over-year basis, our per unit cost for the riders will decrease on a year-over-year basis.

Alicia Yap : Okay. Thank you, Beck.

Operator: Next question comes from Lei Zhang with Bank of America. Please go ahead.

Lei Zhang : Thanks management for taking my questions. My first question is regarding the impact from our progress lower the threat could deliver to RMB59 in Q3? And can you share more color on this? Secondly, I noticed that we have disclosed live streaming the number during Double 11. And can you give us more thoughts on how — on your movement regarding live streaming models? Thank you.

Jeff He: Thank you for your question. Since the end of July, our delivery fee wafer campaign has covered basically all supermarket orders. And after that, we found that both conversion rates and repeat purchase rate increased, while AOV remained largely stable. Specifically, in August compared with July, the overall conversion rate of our supermarkets category improved by over 10%. And the next month, retention rate also increased by over 10% while the AOV was substantially unchanged. Therefore, thanks to the initiative the year-over-year growth of our GMV in the supermarket category accelerated in the third quarter of 2023 compared with the second quarter. And the program will be a long-term initiative to improve user experience.

In terms of the P&L impact, since the cost of the delivery fee waiver is shared by us and our merchant panels, the impact on the direct margin of JDDJ is in dozens of dips and manageable for us. To answer your second question about live streaming. As we’ve taken note of the rising popularity of live streaming during the Singles Day promotion that just ended, JDDJ launched multiple live streaming events together with merchants and brands in categories, including supermarkets, consumer electronics and home appliances. This was the first time that our frontline operational teams engaged with retailers — engaged with consumers to offer them value for money products deliverable within one hour. And we did see initial results with some sections attracting total yields exceeding RMB1 million.

The total GMV transacted via live streaming grew more than tenfold versus the June ’18 promotion. Overall, we are still in the exploration stage for the live streaming business. We plan to further optimize the process and enhance the product capability to better integrate LBS with live streaming. In the future, we are also going to encourage local merchants on our platform to host regular live streaming sessions so as to provide our users with more immersive on-demand shopping experience. Thanks for your question.

Operator: The next question comes from Wei Xiong with UBS. Please go ahead.

Wei Xiong : My first question is that we see Dada Now revenue growth is outgrowing our JDDJ day this quarter. Do we expect that trend to continue in the fourth quarter and next year? And also the revenue mix shift, how would that impact our margin outlook in the fourth quarter next year as well? And secondly, just a housekeeping question. Could management share the GMV mix and AOV trend in this quarter? Thank you.

Beck Chen : Okay. So about the first question, so basically, we expect still the two platforms will grow similar speeds in the following quarters or next year. So for the second question about GMV mix. So the broader supermarket category is still accounting for close to 50% of the GMV amount, while the 3C and electronics account for 40% of the total GMV amount. And in terms of the average order value. So in Q3, the LV is like — sorry, RMB250. This is like update for Q3. Thank you.

Operator: We have come to the end of our Q&A session. I’ll now hand back to Ms. Caroline Dong for closing remarks.

Caroline Dong: Thank you, operator. In closing, on behalf of Dada’s management team, we’d like to thank you for participation in today’s call. If you require any further information, please feel free to reach out for us directly. Thank you for joining us today. This concludes the call.

Operator: It does conclude our conference for today. Thank you for participating. You may now disconnect.