Dada Nexus Limited (NASDAQ:DADA) Q4 2022 Earnings Call Transcript

Dada Nexus Limited (NASDAQ:DADA) Q4 2022 Earnings Call Transcript March 9, 2023

Operator: Good morning, ladies and gentlemen, and thank you for standing by for Dada’s Fourth Quarter 2022 Earnings Conference Call. . 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 fourth quarter 2022 earnings conference call. On the call today from Dada, we have Mr. Jeff Huijian He, President and Mr. Beck Chen, CFO; and Mr. Jun Yang, Co-Founder and CTO. Mr. He will talk about our operations and company highlights. Then Mr. Chen will discuss the financials and guidance. Please carefully note that during the Q&A session, Jeff will answer questions in Chinese and the 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 consolidation of our 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, please go ahead.

Jeff Huijian He: Okay. Thank you, Caroline, and thank you all for joining us. During the first quarter of 2022, Dada Group once again achieved a strong growth with significantly improving our operational efficiency. Our total net revenues increased by 32 and adjusted net margin improved by 17 percentage points year-over-year. In addition, we achieved a positive free cash flow in the second half of 2022. I will first provide an update on our depend on cooperation with JD.com, after which I will take you through the operational highlights from our 2 platforms. Beck then discuss the financial results in detail. We continue to work closely with JD.com on multiple fronts. During the first quarter, GME of Shop Now or shelf the unified brand for all on demanded a detailed services within JD ecosystem, increased by more than 80% year-over-year.

In particular, GM increased by more than 300 year-over-year. Thanks to the significantly increased exposure of its entry point the improved driven by the upgrade of display and the free tab function that keeps the tab with when users go down the home page. On top of the 30 exposure and the nearby tab, we continue to roll out our features in more than more touch points within the JD APP. During this quarter, we newly implemented the RBS feature among the commendation fees on JD homepage which has led to incremental traffic for Shop Now. Turning now to the operational highlights for our 2 platforms. Starting with JDDJ, the leading local on-demand retail platform in China. In the fourth quarter, JDDJ maintained robust GM growth and urinate the industry.

Even then committed to leading the development of the on-demand industry, where the retailer and the brand empowerment and the technology innovation in digital transformation. Let’s start with our efforts in empowering retailers. In 2022, there were more than 20,000 active retailer stores on JDDJ, up more than 50% year-over-year. This partners time from the essential part of JDDJ ecosystem. And the in turn JDDJ provides them respect the support to grow online sales. In the first quarter, JDDJ continued to expand the and different cooperation with retailers across multiple taps including supermarkets, consumer electronics and home appliance mom-and-baby and if they supermarket exactly, we listen with more top supermarket trends such as and now have established the partnership with 90 out of the top 100 supermarket chains in China.

We also onboarded a more regional campaigns like to further emit our local offerings. From the end of December to the end of January, JDDJ launched the Chinese New Year shopping festival to boost the sales for supermarket chains. Thanks to our SKU strategy of spot it holiday groups such as and gift box GME of supermarkets increased by more than 50 year-over-year. During the 3-week period leading to Chinese New Year event. In addition to large supermarket trends, we have also continued to engage can relate and increased store density through cooperation with convening the store chains. Recently, we signed up and other leading convenient stores. Moving to the fresh product category. We recently launched dedicated the entry point of to further improve consumers’ share for fresh products on JDDJ.

In the first quarter, that our fresh products in supermarket orders increased remarkably but GME of flash product stores also see significantly closed. For example, CME of online operators for food and vegetable markets, like and increased by several tons year-on-year. We also made further progress in the consumer electronics and home appliance factory. In the first quarter, the smartphone factory maintained the growth driven by double shopping festive. While the home appliances sub also made further As we further depend the cooperation with partners such as Xiaomi Home Appliance, CME or home price in the first quarter increased by more than 400 year-on-year. In the mom and the baby category, we continue to work closely with top 10 retailers and engage with stores to jointly assess their private domain users.

GME of mom and baby stores saw growth of more than 300 year-on-year in the fourth quarter. In the category. We depend our partnerships with leading distributors such as and new corporation with region distributors such as with the chance to further optimize the supply of key SKUs such as multi products. As a result, GMV in the first quarter more than tripled year-on-year. Turning to JDDJ’s efforts to empower brands. In 2022, more than 280 brands partnered with JDDJ in online marketing and an increase of more than 30 year-over-year. Our leading position in — on demand and in ability in auto digital market make us the most trusted platform for brands. In the first quarter, the year-on-year growth of our online marketing services exceeded 70, driven by further broaden and dependent brand partnerships.

We continue to work closely with FMCG brands. And we have listened, we signed our new partners with — such as brand — brand and brand Together with our brand partners, we keep innovating new market campaigns to attract and convert consumers. During the Double 11 shopping festival in 2022 JDDJ and JD.com, we colaunched the first intercity marketing team on JD’s dropdown page, them, who’s our intercity and retail, we intend to boost 10 plants, including and participated in the event. And the total GME of participating brands on the campaign day increased by 170 over-year. Next, I will touch on our technology innovation in driving the digital transformation for both the retailers and the brands. Firstly, on Haibo our omnichannel outdoor operating system for retailers.

At the end of December, our Haibo system has been deployed in more than 8,200 retailer chain stores. While we continue to penetrate the supermarkets and the stores, we also have recently successfully spending the Haibo services to in mom and the baby and the pet driven by continuous expansion in GME set by Haibo system more than doubled on a year-on-year in 2022. In the first quarter, we continued to upgrade Haibo’s features to have the chance improve outdoor operating efficiency. For example, we newly introduced an intelligent order dispatching function in model. This new function enable the to engage the multiple delivery services provides to reduce their delivery cost and enhance the of order pickup by to have tested this upgraded saw a 75% improvement in operating efficiency, 6% enhancement in order taking time and a 3% savings in deal costs.

Moving on to our digitized use store picking services for the Dada Picking. We continue to provide a steady support to leading supermarkets, including Walmart, and Sam Flash and the total number of orders fulfilled by Dada Picking more than doubled year-on-year in the fourth quarter. Meanwhile, we have been further improving our digital capabilities. We aim to provide a chance with a comprehensive set of digital picking management tools, spending functions, which include the picking staff recruitment, onboarding and management. Picking pros management, data aggregation and analysis and the sales quality monitoring. We also made progress in providing digital insights and solutions to brand. our grid system enables brand to digitize channel inventories management.

While cloud store project helps brands optimize customer value. Based on great level sales data and processing management tool, JDDJ launched a perfect store solution to help brands amplify online presence and optimize O2O supply, rolling a pilot program in the third quarter. We partnered with several leading food brands in December to roll out the perfect store solution Our partner brands adopting the solutions for a more than 5 percentage point increase in the online ability later of the key SKUs which translated into incremental sales of more than 10 percentage points. In addition, JDDJ launched the cloud store project to adjust brands pain point of brand user operations. Longing WeChat and our on-demand platform the project enables brands to improve the conversion efficiency of off-line promoters and maximize customer value.

Pilot branded in the cloud store projects. So the average number of orders was fecilitated by each promoter increased by 213 and 7-day customer retention rate increased by 150. Moving on to Dada Now. The leading local on-demand delivery platform in China. In 2022, the new active riders on Dada Now platform reached 1 million, up more than 40 year-over-year, thanks to increasing order and our flexible cloud sourcing network. We have provided a meaningful flexible employment opportunities for a wide range of workers. In the first quarter, Dada loss order volume and revenue both maintained the rapid growth while taking efficiency continued to improve intends our business in the first quarter. The revenue or on demand to do our services to increased by more than 40 year-over-year.

Meanwhile, we continue to improve delivery efficiency and customer experience through measures such as optimizing, dispatching In the supermarket capital, we continue to consolidate our leading position with revenue increasing by more than 40% year-over-year. During the quarter, while we worked closely with partners such as Walmart, Sam’s Club, and San Flash. We also continued to cooperation with other supermarkets such as CR and In the last 1 and the beverage capital, our revenue increased by more than 50 year-on-year. We set up new partnerships with such as we also strengthened our cooperation with beverage brands such as coffee and With increased by more than 150 year-on-year during the quarter. In addition, in early December, we officially became 1 of the first on-demand delivery partners for the in local life sacs, offering the level of fulfillment services to further deliver means on the lean platform.

Currently, the in food delivery service is being imparted in Beijing, Shanghai and Chengdu. Leverage Dada, now sense and nationwide coverage. dispatching flexibility and high fulfillment efficiency. We believe our care business will serve to in well, when is full deliver services scares up. In our SME and C2C business, we continued to expand our light network to serve more SMAs while our C2C business sale searching and service needs of individual consumers during the pandemic. As a result, orders fulfilled by our SME and the C2C business increased by more than 40 year-on-year in the first quarter. Meanwhile, driven by optimization of pricing and incentive Magnetism. We saw an accelerated improvement in U. For services, we continue to knowledge our flexible outsourcing network to provide a steady quarter to JD Logistics by complementing this enhanced liver fleet, especially during the shopping festival and the period when COVID case spike.

Lastly, an update on Dada autonomous deliver services. At the end of January, our autonomous delivery open platform had fulfilled more than 80,000 on-demand orders for supermarkets through cooperation with autonomous vehicle manufacturers. This has made Dada the largest autonomous deliver platform for supermarkets in China. Moving on to ESG. With continuously improving ESG practice and disclosures, our rating by leading third-party agencies have been notably improved. In November, MSCI upgraded our ESG rating from B to BBB. On the strength of higher scores across all 3 dimensions, our environment, social and governance. Also in November, we improved our ESG score in corporate assessment CSA to 32 placing us among the top 11% in the global retailing sector.

This is still a significant room for improvement, and we will further integrate ESG late into our daily operations to enhance our ESG practice. That covers our operating updates for the 2 platforms. To wrap up, we continue to excel the rare demand macro challenges in the past year. Looking ahead, as on demand petition strategy program progress products in every single local retail We believe our that record of enabling retailers and brands as well as synergies on list from our dependent cooperation with JD.com. We are positioning us where to capture opportunities in the coming years. I will now pass the call back to go our financials. Thank you.

Photo by Campaign Creators on Unsplash

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, 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. I will start with Q4 numbers first. Total net revenues in the fourth quarter increased by 32% to CNY 2.7 billion. Net revenues from increased by 23% to CNY 883 million, mainly driven by the increases in order volume of intercity delivery service to chain merchants. Net revenues from JDDJ increased by 7% to CNY 1.8 billion, mainly due to the increase in GME, which was driven by increases in the number of active consumers and average order value.

Increase in online marketing services revenue also contributed to the revenue growth of JDDJ. Next, moving over to the expense side. The operations and supporting costs were $1.6 billion, increase was primarily due to an increase in rider cost as a result of increasing order volume for intercity delivery services provided to various chain merchants on the Dada Now platform and the retailers on the JDDJ platform. Selling and marketing expenses were CNY 1.3 billion, increase was primarily due to the growing absolute dollar amount of incentives to JDDJ consumers an increase in advertising and marketing expenses to attract new consumers to JDDJ platform and the amortization of the unit corporation agreement arising from share subscription transaction with JD.com back in February 2022.

G&A expenses remained flat at CNY 101 million mainly attributable to our expense control measures. R&D expenses decreased to $126 million, mainly due to lower R&D personnel costs as we enhance the operating efficiencies. Non-GAAP net loss attributable to ordinary shareholders of data was and $79 million non-GAAP net loss margin was 6.7%, improving by more than 17 percentage points year-over-year and percentage points quarter-over-quarter. In addition, as Jeff mentioned in the beginning, driven by the significantly narrowed loss and efficient working capital management we are pleased to report a positive free cash flow in the second half of 2022. As of December 31, 2022, the company had $4.4 billion in cash, cash equivalents, restricted cash and short-term investments pursuant to our USD 70 million share repurchase program announced in March 2022.

As of December 31, 2022, we had repurchased approximately USD 60 million of ADS under this repurchase program. I will now quickly run through a few full year 2022 financial results — further details can be found in our earnings release. The total net revenues was $9.4 billion, lining the revenue recognition method of last-mile delivery services to a comparable net basis, but pro forma revenue growth rate was 49%. Operations and supporting costs were CNY 5.7 billion compared with CNY 5.1 billion in 2021. Selling and marketing expenses were CNY 4.7 billion compared with CNY 3.4 billion in 2021. G&A expenses were CNY 409 million compared with $400 million in 2021. R&D expenses were $631 million compared with $574 million in 2021. Non-GAAP net loss attributable to ordinary shareholders of data was $1.3 billion compared with at $2.1 billion in 2021.

In terms of outlook for the first quarter of 2023, we expect total net revenues to be between $2.57 billion to $2.77 billion, representing a year-over-year growth rate of 27% to 37%. Heading into 2023, we are confident in further improving profitability while sustaining revenue growth momentum. So this concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

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Q&A Session

Operator: . Your first question comes from Ronald Keung with Goldman Sachs.

Ronald Keung: Can you hear me?

Jeff Huijian He: Yes, Ronald.

Ronald Keung: I have two questions. First, just want to hear about the outlook for JDDJ some of the strategies for this year given pretty healthy growth that you’ve guided. How should we think about the profit side on the unit economic side? And are we on track to — for profit turnaround for the business this year? And my second question would be on the food delivery and announcements on your cooperation with Don just if this business grows, do we have sufficient rider capacity? How are we thinking about the core operation there and the opportunities.

Jeff Huijian He: In terms of business outlook for this year, we are cautiously optimistic borrowing extreme situation. And we expect that the consumer confidence and economic activities to gradually recover in the first half of this year. And in that case, we expect revenue to gradually accelerate quarter-by-quarter and reached about 40% in the second half of this year. So now I’d like to share some color on the impact on JDDJ since the reopening. During the pandemic, due to mobility restrictions and limited choices, consumers preferred on-demand shopping since the reopening with more dropping options available to consumers, offline spending for goods and services have somewhat recovered. . Based on our experience of several rounds of resurgence in the last 3 years, users who have formed shopping habits during the outbreak have maintained a healthy retention rate even as the cave situation abates.

Since the reopening late last year, the retention of our users has not significantly changed. The reason behind that is consumers have become used to shop the convenience of on-demand shopping and are increasingly demanding faster delivery of all product categories. Therefore, they remained on our platform even as other shocking channels now become available. So we feel confident by maintaining a long-term growth rate that significantly outpaces the industry. So to address your second question on our cooperation with in, in early December, we officially became 1 of the first on-demand delivery partners for local life services offering fulfillment services to food delivery merchants on the ins platform. The fact that we were among the first on demand will be partner of the win speaks of its recognition of our brand and service quality.

Specifically, as 1 of Dada’s key accounts, will aggregate all of its food orders on the platform and distribute them to the delivery partners. Once we receive the orders, the dispatch riders to fulfill them delivering a convenient premium on-demand experience for consumers. In terms of contribution, if the food delivery service experience significant growth, there will be meaningful incremental revenue for data now in the coming years. Currently, food delivery service is only being piloted in Beijing, Shanghai and Chengdu with limited order volume. Leveraging back on our strength of nationwide coverage, provide dispatching flexibility and high fulfillment efficiency we believe our KA business will gain significant incremental revenue when full delivery service scales up.

That said, we have not baked in any contribution from our cooperation with in our financial guidance. In terms of unit economics, as other volume growth, we expect orders to be quickly on par with other KA orders. In terms of our market share on the platform, apart from us in food delivery is partnering with intracity and Changsu. We’re confident about our long-term market share on the food delivery platform, given our significant competitive advantages. Compared with intracity, we enjoy more stable, brighter supply and cost advantage. Since we serve a broad range of customers, including supermarkets, restaurants and pharmacies. Our orders are spread more evenly throughout the day, whereas the majority of asset orders are for delivery. And from a cost perspective, we are also more competitive, thanks to our flexible cloud sourcing model and higher fulfillment efficiency as a result of more even order distribution.

And compared with we offer much broader city coverage and lower unit cost. Chanzhong’s presence is mostly in Tier 1 cities, while our service is available in over 2,800 cities and counties across the country. We can fully support the delivery needs as the roads out food delivery services in more regions. In addition, delivery model is point to point delivery. The riders typically pick up and deliver only 1 order at a time due to the high cost, the service does not cater to the needs of most food delivery merchants.

Beck Chen: Yes. So Ron, so about the first question, so let me just share like about the UE and the profit turnaround. So yes, we are still confident to maintain our outlook to break even in middle of the year for the company level and also for the in corporation. So we think the rider supply is sufficient as we can see right now back after like the Chinese New Year in March, going into March, our active daily riders still increased by 40% to 50% on a year-over-year on year-over-year basis. For the intracity delivery businesses. So we don’t think the right supply is packaging for us this year.

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

Thomas Chong: My first question is regarding the cooperation with given the success in 2022, how should we think about the KPI looking with JD for this year? And my second question is on JDDJ. Can you comment about the GMV mix for supermarkets and other categories? And how should we think about the trend for the AOV going forward?

Jeff Huijian He: Thank you for your question. Core KPI for this year remains GMV revenue growth and net income. So our priorities are twofold. The first is helping JD acquire new customers in the off-line channel. And meanwhile, we aim to boost our exposure on JD app to penetrate more users in JD’s ecosystem.

Beck Chen: Okay. So Thomas, for the second question about some numbers. So for the category mix. So in Q4, our market categories account for 53% of the total, while our consumer electronics and appliances account for 43% of the total GMV, while the remaining categories account for like the 6% of the total GMV. So market and consumer electronic appliances will be still be the major categories in our GMV in Q4. And in terms of the average order value. So for the platform wise, the average order value is further increased to RMB 235, while the supermarket, the average order value has also increased to RMB 165. So for the trend in 2023, we’re now forecasting that the AOV of the platform will still go up very robustly, which was driven by like 2 reasons.

When the number 1 is, of course, the mix contribution from those large ticket size products. The second is, of course, the average order value of supermarket categories is also going up on a year-over-year basis. So just let’s — for example, for the Chinese New Year event and the campaign in January and February. So basically, our average order value for supermarket we’re also growing very much compared to the same events last year. So that’s for the second question.

Operator: Your next question comes from Alicia Yap with Citigroup.