Good morning, ladies and gentlemen, and thank you for standing by for Dada's First Quarter 2023 Earnings Conference Call. [Operator Instructions] 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. .

Thank you, operator. Hello, everyone, and thank you for joining our first 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 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'll 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 our conference call are in RMB. .

It is now my pleasure to introduce our President, Mr. He. Jeff, please go ahead. .

Thank you, Caroline, and thank you all for joining us today..

During this, the first quarter of 2023, Dada Group continued to deliver strong revenue growth while significantly improving our operating efficiency. Our total net revenues increased by over 27%, and our adjusted net loss margin narrowed by over 16 percentage points year-over-year..

I will start today's presentation with an update on our deepened cooperation with JD.com, following which I will share the operational highlights from our 2 platforms. Beck will then take you through the detailed financial results..

We continued to deepen our cooperation with JD.com in several areas. During the first quarter, GMV of Shop Now or Xiaoshigou, the unified brand for all on-demand retail services within the JD ecosystem, increased by 60% year-over-year..

In particular, GMV for Nearby or Fujin tab maintained the rapid year-over-year growth. This was driven by the continued increase in Nearby's DAU, as well as a higher conversion rate due to page re-designs that made the shopping experience more efficient..

Regarding search results, we also recently launched the "Price-based Star Ratings", a tool that highlights the most competitively priced products. We believe this feature will boost traffic conversion and enhance Shop Now's appeal among JD users as a shopping channel with competitive price and fast delivery..

Let's move on to the operational highlights from our 2 platforms, starting with JDDJ, the leading on-demand retail platform in China..

In the first quarter, JDDJ maintained rapid GMV growth that significantly outpaced the rest of the industry. Our high-quality growth is backed by our close cooperation with and technology enablement to our retailer and brand partners..

Let's start with JDDJ's expanded and strengthened efforts to empower retailers..

In the supermarket category, in terms of our cooperation with top supermarket chains, we recently signed on new partners such as Zhengzhou Dennis and we now have established partnerships with over 90 of the top 100 supermarket chains in China..

In addition, we continued to expand collaboration with leading convenience store chains. With stores from top brands such as Meiyijia Lawson and Fook recently launched on our platform. We are able to meet consumers' needs across more diversified shopping scenarios..

Leveraging supermarkets' merchandise strength and our consumer insights, we continue to launch various campaigns to drive sales. In March, together with our supermarket partners, we launched the "Weekend One-Cent Shopping" campaign.

The campaign is designed to boost user awareness of JDDJ's attractively priced product offerings through targeted promotion of specific SKUs..

The events have significantly improved merchant sales and user engagement levels..

For example, at the end of March, JDDJ collaborated with 19 supermarket chains to launch the "One-cent Fresh Milk" campaign in Beijing. During the event, GMV of fresh milk products in Beijing increased by more than 60% year-on-year, more than 30 percentage points higher than the overall GMV growth rate in Beijing..

In addition, the 7-day repeat purchase rate of participating consumers was 7 percentage points higher than that of the city-wide user base..

We also made further progress in the consumer electronics and home appliances category. In the computer and accessories sub-category, we recently partnered with smart learning device brands such as Xiaotiancai and Readboy. In the first quarter, GMV from computer and accessories merchants increased by nearly 200% year-on-year..

In the home appliance sub-category, we signed up leading home appliance brands such as Haier and Midea to onboard and promote their offline stores on JDDJ, offering customers differentiated product selection and convenient one-stop delivery and installation services.

In the first quarter, GMV from home appliance merchants grew by nearly 200% year-on-year..

In the apparel category, we have successfully expanded into the infant and children's apparel segment and recently partnered with leading brands such as Yeehoo and Balabala. In the first quarter, GMV of the apparel category increased nearly six-fold year-on-year..

In the home and furniture category, we achieved breakthroughs in segments including lighting, hardware accessories and sofa. For example, we recently established partnerships with OPPLE, Bull and Cheers. In the first quarter, GMV from home and furniture merchants increased nearly four-fold year-on-year..

Let's move on to JDDJ efforts to empower brands. We continued to penetrate various FMCG segments, helping brands increase their sales through O2O channels. To name just few, we recently signed partnerships with confectionery brands such as Chocday, dairy brands such as Adopt a Cow and personal care brands such as Adolph..

Next, I'll touch on our efforts to empower those retailers and the brands through technology innovation and digital transformation..

Firstly, on Haibo, our omni-channel O2O operating system for retailers. Our Haibo system just crossed the 10,000 milestone in number of stores deployed. In the first quarter, we successfully expanded Haibo services to cosmetics retailers with further penetrating categories such as supermarkets, convenience stores and mom-and-baby stores..

We also continued to upgrade Haibo's features to help merchants improve O2O operating efficiency. For example, we introduced the automatic product launch function to Haibo's operations module to help our partners onboard new products more efficiently. Merchants that tested this new module were able to list new products more than 80% faster..

Moving next to Dada Picking, our digitized in-store picking service for retailers. We continued to strengthen our cooperation with leading supermarkets such as Walmart and 7Fresh to meet their labor needs in a flexible and cost-efficient manner..

I will now turn to Dada Now, China's leading local on-demand delivery platform..

For business progress, let's start with our KA, or chain merchants, business. Despite the impact of COVID outbreaks in January, we still managed to optimize our service quality and saw the fulfillment rate increase by 3 percentage points year-on-year in the first quarter..

In the supermarket KA category, we continued to work closely with partners such as Walmart and Sam's Club. We also set up new partnerships with supermarket chains such as Aldi..

In the restaurant and beverage KA category, our revenue increased by more than 40% year-on-year, among which revenues from beverage chains more than doubled year-over-year..

We continued to provide dedicated support to beverage KAs such as Luckin Coffee and Heytea, and signed up other beverage brands such as Mixue Bingcheng and CHAGEE..

In our SME and C2C business, thanks to enriched product offerings for SMEs and expanded C2C order sources, the number of orders fulfilled increased by more than 40% year-on-year in the first quarter. Meanwhile, our unit continued to improve significantly, driven by our refined pricing strategy and improved order dispatching efficiency..

Moving on to our last mile services. We continued to leverage our flexible crowdsourcing network to provide steady support to JD Logistics by supplementing its own delivery fleet. During the Chinese New Year shopping festival, we saw a significant year-on-year increase in our average daily orders fulfilled for JD Logistics..

Lastly, an update on Dada Now's autonomous delivery service. We continue to maintain our leading position in autonomous delivery for supermarkets. As of the end of March 2023, Dada Now's autonomous delivery open platform had fulfilled more than 100,000 on-demand delivery orders for supermarkets..

That covers our operational updates for the 2 platforms. To wrap up, we continued to make steady progress in terms of both top-line revenue growth and bottom-line improvement during the first quarter.

We have built up significant momentum to start the year based on our enriched product offerings, deepened penetration in key categories and improved user experience..

We will leverage our strong partnerships with retailers and brands, our flexible rider network and our deepening alliance with JD.com to capitalize on new opportunities in the quarters to come..

I will now pass the call over to Beck to go through our financial results for this quarter. .

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 ways to judge our performance. Therefore, all percentage changes I'm going to give will be on year-over-year basis, and all figures are in RMB, unless otherwise noted..

Total net revenues in the first quarter increased by 27% to RMB 2.6 billion..

Net revenues from Dada Now increased by 20% to RMB 749 million, mainly driven by the increases in order volume of intra-city delivery service to chain merchants..

Net revenues from JDDJ increased by 30% to RMB 1.8 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 expenses side..

Operations and support costs were RMB 1.4 billion. The increase was primarily due to an increase in rider cost as a result of increasing order volume for intra-city delivery services provided to various chain merchants. .

Selling and marketing expenses were RMB 1.3 billion. The increase was primarily due to the growing absolute dollar amount of incentives to JDDJ consumers; and the amortization of the business corporation agreement arising from share subscription transaction with JD.com in February 2022..

G&A expenses decreased to RMB 79 million, as a result of our expense control measures and decreased share-based compensation expenses..

R&D expenses decreased to RMB 129 million, mainly due to lower R&D personnel cost as we enhanced operating efficiency..

Our non-GAAP net loss attributable to ordinary shareholders of Dada was RMB 182 million..

Our Non-GAAP net loss margin was 7.1%, improving by 17 percentage points year-over-year..

As of March 31, 2023, the Company had RMB 3.7 billion in cash, cash equivalents, restricted cash and short-term investments..

In terms of the outlook, for the second quarter of 2023, we expect total revenue to be between RMB 2.8 billion and RMB 3.0 billion, representing a year-over-year growth rate of 23% to 32%. In addition, we expect non-GAAP net margin in the second quarter of 2023 to continue to significantly improve and reach break-even..

This concludes our prepared remarks..

Operator, we are now ready to begin the Q&A session. Thank you. .

[Operator Instructions] Your first question comes from Ronald Keung from Goldman Sachs. .

Thank you, Jeff, Beck and Caroline. So mainly 2 questions. One is on our JDDJ GMV growth. How do we think about that into the next few quarters? We are broadly in last year's kind of COVID situation reopening a weaker macro, but we also have a kind of slightly lower base versus the initial very hyper growth pace until the first quarter 2022.

So how should we think about the GMV growth rate in the next few quarters?.

And then the second is Beck, you just talked about reaching component -- reaching breakeven.

So how was the -- what was the direct margin in the first quarter? And longer term, how should we think about either direct margin or the GMV profit potential -- GMV profit margin potential? Should I translate or is this English is right?.

I think it's fine, Ronald. So thank you for the question. Let me just take that -- Yes. Let me just answer the 2 questions..

So first, in regards to the GMV growth, you're right. So basically, everything right now in China is back to normal. So basically, everything is in order right now. But still, we are witnessing that macro consumption demand is still taking time to recover. So we still keep the same expectation for the whole year.

The GMV growth is like -- the second half of this year, growth rate could be faster than the first half of this year because it still needs to take time to grow for the consumers' demand..

And also for the second quarter -- for the second question, so our direct margin of JDDJ businesses is like in Q1, it's growing by 140 bps on a year-over-year basis..

And for this year, we think we can grow the direct margin level for the whole year base, like 180 bps on a year-over-year basis. So which makes us like to make it like 2.5% to 2.6% on an annual basis. .

Your next question comes from Thomas Chong from Jefferies. .

[Foreign Language].

[Interpreted] My first question is about the cooperation with [ Douyin ].

Can management share the latest updates as well as our expectation for this year?.

And my second question is also relating to the JDDJ side. Can management comment about the GMV mix by product categories and the AOV outlook? And how should we think about the GMV growth for the full year, if any comes. .

[Foreign Language]. Thomas, so let me -- well, -- [Foreign Language]. Okay. So, Thomas, I will answer the second question, and I will leave the first question to Jeff. So regarding the numbers. So basically, for our GMV mix because of the seasonality, so our like supermarket category is growing on a Q-on-Q level compared to Q4..

And also, our 3C category is decreasing on a Q-on-Q level. And we believe for the whole year base and also for the next few quarters, our 3C appliance and like all those 3C -- ex 3C categories, well, the category growth will be -- still will be growing faster and the mix will be more contributed by 3C categories on a year-over-year basis.

Q1 is just a seasonality effect..

And also for our overall AOV, the marketplace average order value for Q1 is going to -- further growing to RMB 240 per order and our supermarket categories AOV is also growing on a year-over-year basis..

And for the whole year base, we still maintain the same expectation as our last earnings call. So we expect the AOV is to continue to grow during this year.

So Jeff?.

[Foreign Language]. .

[Interpreted] Regarding our cooperation with Douyin as of the end of Q1, food delivery business was still under trial in nearly 3 cities, and the Dada Now market share has steadily increased..

With regard to Douyin strategy and the expansion plan for the food delivery business, we are not in the right position to unilaterally communicate with the market due to confidentiality.

However, we are confident to say that Dada Now will be able to obtain a considerable market share among Douyin food delivery orders, given our strength in network coverage, separate quality and cost-effectiveness. .

Your next question comes from Alicia Yap from Citigroup. .

[Foreign Language] I have 2 questions. The first question is related to the second quarter revenue guidance. The low end of the guidance at 23% actually suggest 2Q top line growth will be decelerating from the first quarter level. Because I remember management comment earlier that U.S.

revenue growth to be accelerating each quarter from the first quarter onwards.

Is there any reasons that you prompted you to provide the low end of the guidance range?.

And then second question is on the sales and marketing spend. It seems to be slightly higher than what we expected.

Is there any reasons on that? Is it related to consumer -- I mean, the subsidy that you have for JDDJ user or the competition is intensified?.

Okay. So let me answer the question, Alicia. So thank you for the question.

So first, yes, you're right, basically, as we go into March and April, the first reason is because we are monitoring the overall consumption just like I mentioned in the previous question -- so in the previous answer, so basically, we are monitoring the overall market growth, marketplace growth, not only just us, but just the off-line, the omnichannel and also the pure online marketplace and I believe you also got more information from other e-commerce platform is that basically the macro consumer demand is still taking time to be back.

So that's why we could be more -- we just want to be more prudent on that..

And also, compared to other companies, we just released earnings in early May. So basically, you know there is a big midyear promotion event in June. So basically, it still takes time for us. It's still not -- the project is still not ticking off for the June midyear campaign.

So we will watch for the year campaign, whether or not it could be still consistent with our expectations..

So for the second question, so basically, for Q1, we still spend some money. But basically, we have overall target for the -- like the non-GAAP net loss optimization on a year-over-year basis..

So we may spend some money in sales and marketing expenses. During Q1, still, we have well controlled other expenses, including all those accounting expenses. So we reached the target just like we mentioned..

And for the second quarter, this year, we will still give our like reason and continue to decrease our rider cost and subsidies given on the marketplace and to reach our goal, which is breakeven during the second quarter, and we are confident that we can realize the breakeven target for -- during the second quarter. .

Your next question comes from Wei Xiong from UBS. .

[Foreign Language] I have 2 questions.

The first is, given that we've seen good recovery in the off-line traffic, just wondering, would that have any impact on the consumer demand for the O2O retail or to the supermarket category products? Or that wouldn't be a major consideration when we judge the JDDJ growth rates for the next few quarters?.

And second is, when we talk about the improvement in the direct margin, just wondering what will be the contribution from the subsidy ratio as well as the rider cost? And also considering the continued improvement in the subsidy ratio, how should we think about the sales and marketing expense ratio for the next few quarters, especially as we are turning profitable in the near term?.

Okay. So thanks for the question, Wei. So I will answer the second question, and I think Jeff will answer the first question..

So for the second question, so for the direct margin actually for Q1, we have our manufacturing rate growing by 20 bps on a year-over-year basis. And like with -- for the consumer incentives, we save like 80 bps. And for the operation and the rider cost, we save 40 bps on a year-over-year basis..

And for the whole year, we believe, first of all, we are -- we are expecting some growth for the monetary rate on a year-over-year basis. At the same time, we will save -- still we will save like 90 to 100 bps for the consumer incentives on a year-over-year basis..

And also, we may have like 30 -- sorry, 60 bps saving for the operation and the supporting costs, which includes -- mainly includes the rider cost..

And in the same time, for sales and marketing expenses, we expect the sales and the marketing expenses, the dollar amount of this expense could be growing like very single digit on a year-over-year basis on non-GAAP basis..

And so the expenses as percentage of revenues will be decreasing to lower than 40% of revenue as a percentage of revenue. The comparison number for 2022 is 47% as a percentage of revenue. So this is our current expectation for sales and marketing expenses..

We don't think this is a major issue for us to have this expense item to be well controlled. .

[Foreign Language].

[Interpreted] So let me share with you our observations on the macro front. So the macro economy and overall consumption are in the gradual process of recovering.

And according to Dada from the National Bureau of Statistics, growth of total retail sales in March accelerated notably from the first 2 months of the year, among which consumption for services including catering, entertainment and travel grew faster than the consumption for physical merchandise.

This was mainly driven by the release of pent-up during the pandemic. .

[Foreign Language].

[Interpreted] And among the consumption of physical merchandise, there is some imbalance or unevenness in terms of categories with discretionary items, including apparel and cosmetics outpacing nondiscretionary categories such as food and beverage..

The consumption data from the May Day holiday last week also indicated a similar trend. Therefore, it might take some time before we see an all around recovery and the total consumption power. .

[Foreign Language].

[Interpreted] Looking at O2O demand in specifics. Longer term, we believe the consumption of consumer migration towards trucking channels with faster fulfillment is a secure and certain trend.

Therefore, we firmly believe that O2O penetration among retail sales reached a double-digit percentage in the future, supported by the growing adoption on the consumer side and the further digitalization of local merchants on the supply side. .

[Foreign Language].

[Interpreted] You just mentioned the recovery of off-line food traffic to supermarkets. This inevitably has some impact to the O2O sales of the supermarket category. .

[Foreign Language].

[Interpreted] For us compared with fresh grocery e-commerce marketplaces because we have richer product selection and other merchandise categories. So the impact on us is more muted. .

Yes. And I just want to mention that, Wei. So it's not -- it's a dynamic transition and it's dynamic situation instead of aesthetic or muted situation.

So simultaneously, just like I mentioned before, we are doing some work to continue to decrease the subsidies on a year-over-year basis, which is like we expect to save 90 to 100 bps for consumer incentives on a year-over-year basis, which means that most of those subsidies will be saved through the consumer -- like the supermarket category because we usually just lost money in this category, so -- which means that we are still very proactively to execute on track to reach breakeven for JDDJ and also for the whole company level.

So which is just not a very apple-to-apple basis comparison. .

Your next question comes from Jiulu Li from CICC. .

[Foreign Language] In the first quarter of 2023, we found that the revenue growth of Dada Now has slowed down, excluding K and SME business mentioned before, what is the growth rate of last mile delivery service? And what is the expected growth rate of each business line in the whole year?.

Okay. So for last mile is in Q1, it's still growing very rigorously, so very quick because still we -- for the Chinese New Year campaign and also like during first -- during January and February, the last mile orders is abundant and also we will -- because we mainly provide cross-sourcing resources.

So when especially during January, the riders are usually getting affected by COVID for the JDL riders. So we will get sufficient like orders from the network..

And in Q2 because last year, we had a relatively high base in Q2 last year, a lot of places like Xinjiang, like the Northeast region and also like Eastern China region, especially Shanghai, those 8 regions are in locked down. So usually last year, it's a high base for our last mile benefit.

So for this year, in Q2, we expect like flat growth on-year year-over-year basis..

So for the overall, like the Dada Now business growth, we still expect the growth rate will be higher than last year with not any like large contribution from Douyin. It could be another like potential other results. .

[Foreign Language].

[Interpreted] I'll add some color on the cost and margin front. Since February this year, the overall labor supply and flexible employment segment has been favorable, and our rider supply has been sufficient..

In Q1, the average daily active riders grew by about 40% year-over-year. .

[Foreign Language].

[Interpreted] The fast order volume growth coupled with sufficient rider supply drove our unit delivery cost to decrease on a like-for-like basis. And we expect the delivery cost to continue to go down year-over-year, which will serve as an important contributing factor to margin improvement of the whole group. .

[Operator Instructions] Your next question comes from Wei Fang from Mizuho. .

[Foreign Language] So our recent check shows that in the JD to RMB 10 billion campaign, entry point, we don't see any JDDJ inventory, right? Can management comment on that, right, whether JD traffic allocation to that RMB 10 billion specific campaign is add expenses to JDDJ, right? Or are we working on the back end and to eventually join the program?.

[Foreign Language].

[Interpreted] Thank you for your question. In the recent 2 months, we have been cooperating with JD's R&D and operational teams to upgrade the RMB 10 billion subsidy program, including rolling out location-based price comparisons of Shop Now product.

So we have to pave the way for Shop Now product to launch in the RMB 10 billion R&D subsidy channel in the future. .

[Foreign Language].

[Interpreted] Leveraging our retailer partners' strength in the supply chain, Shop Now is expected to participate in the RMB 10 billion subsidy program soon to gain additional traffic exposure on the JD app..

And in terms of categories, we will focus on the consumer electronics and large ticket size FMCG products. .

[Foreign Language].

[Interpreted] Since the main sources of traffic for the Shop Now is from the search result and the Nearby tab. The impact of the RMB 10 billion subsidy campaign, that is limited. .

Thank you. There are no further questions at this time. I'll now hand back to Ms. Dong for any closing remarks. .

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

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect..

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.].