JD.com announced before the US stock market on August 13th.Q2 financial report that set a new high and exceeded expectationsIn the evening, JD.com Group Chairman and CEO Liu Qiangdong, CFO Huang Xuande, JD Logistics, Inc. CEO Wang Zhenhui, JD.com Group CMO Xu Lei and other senior executives attended the analyst conference call and answered analysts' questions.

Liu Qiangdong: two factors support profitabilityThe first level entrance on Wechat will be upgraded around National Day holiday.

I believe you are more concerned about our profit situation. First of all, our profit situation is good, there are two major factors:

The first is that the businesses that have been laid out in the past few years have become profitable and balanced or even profitable.For example, JD Logistics, Inc. has been trying to get close to profit balance for many years. There are also a large number of single-quarter categories ushered in profits.

The second is that JD Logistics, Inc. entered the third-to sixth-tier cities on a large scale four years ago, so the logistics cost was relatively high at the beginning, because the competition was relatively small.Now the investment of logistics in first-tier cities has come to an end, and the rate of performance expenses is gradually declining.Profits are not made by cutting lossmaking businesses, but are still investing heavily in order to make profitable growth.

We will continue to increase investment in technology, such asArtificial Intelligence, big data, Cloud ComputingContinue to invest continuously. At the same time, it will alsoExpansion of new categories, such as fresh and Shang Chao。

From the moment we went public, we told our shareholders that we would make a profit by increasing economies of scale, cost and efficiency, and that day had come. In the future, we will continue to enhance the user experience in order to increase the number of users by 30% to 60%. Strengthen the improvement of organizational efficiency, bring about the improvement of operational efficiency, so as to increase cash flow and reduce risk.

JD.com will upgrade the first-level entrance on Wechat around National Day holiday.

Where is JD.com 's competitiveness in low-line cities?

Bank of America Merrill Lynch analyst:My question is about investment and expansion of third-and fourth-tier cities. How do JD.com buy, JD.com Mall's traditional business and main competitors compete? What strategies will be adopted?

CMO Xu Lei:With regard to low-line cities, we have shared with you in previous financial reports that weThe first thing is to find the corresponding goods suitable for low-line cities.Indeed, in the early days, the products of our platform mainly met the needs of consumers in first-and second-tier cities.

With our attention in low-line cities in recent years, we will make some breakthroughs in the corresponding products, such as developing some suitable products with brands. For example, there are many industrial belts in China, and the factories in the industrial belts also very much need JD.com as a platform to sell goods, including that we will also do some "underwriting" and "exclusive" products with brands. These are all through the richness of goods to meet the needs of consumers.

Second, in addition to some of the work we did in the first half of the yearIn the second half of the year, around October 1, we will upgrade the resources of Wechat's primary entrance in cooperation with Tencent and create a new model aimed at Wechat ecology, especially women and low-line markets.This approach will use a "low discount point" to attract the participation of merchants and a richer range of goods to meet the needs of consumers in low-line cities.

Third, what you originally mentionedWe believe that JD.com 's original self-management model is also an important means and ability for low-line cities.We will work with JD Logistics, Inc. to provide comprehensive solutions for our merchants. While we improve the user experience, we get their recognition of JD.com. At the same time, we will also make good use of the open platform model, so that more businesses through this model to contact low-line consumers.

I would like to share with you a few data: first, the user growth rate of our low-line, that is, third-to sixth-tier cities is higher than that of first-and second-tier cities; second, nearly 70% of our new users are from low-line cities; third, according to the shipping address, more than half of the total users are from low-line cities. In the end, our actual low-line users perform better than the outside, and of course we think they will do better in the future.

JD Logistics, Inc. will achieve greater profits and promote the operating leverage of JD.com Retail.

Goldman Sachs Group Investment analyst:Congratulations to JD.com on his good results in the second quarter. Although the revenue base has become larger, JD.com has still achieved an accelerated growth rate. My question is about investment and long-term profit targets, because the guidelines have been improved. The profit for the second quarter is expected to be 0.2%. What are the main areas of investment in the second quarter?

Boss Liu mentioned AI, Yun, big data and so on.I would like to know which areas need a larger proportion of investment, so that management can make such a conservative forecast for the profit outlook for the second quarter.The outlook for the full year is about 1.4% Muay 1.7% net profit, because the performance in the first quarter is very strong.So what is the potential or trend of normalizing profit growth in the future?

CFO Huang Xuande:In the first half of this year, we invested 1.8 billion yuan, which will have some impact. This investment will mainly be used for related plans in third-and fourth-tier cities, not only for the new Wechat platform, but also for the logistics business that we hope to further infiltrate into these third-and fourth-tier cities to enhance the user experience. This is to achieve stronger and lasting growth.

Our profit target is very clear, and we want profits to increase compared with the same period last year. Boss Liu also mentioned before that we are now better able to achieve steady growth in profits. Because now some of our investment areas have blossomed and turned a profit.

The logistics completion expenditure ratio I mentioned is just one example. We have made many stages of investment in this area, and some of them even overlap, so for several years we are not sure whether we can have operational leverage. We can only continue to increase the expenditure ratio.

The results of this quarter show that the logistics completion expenditure ratio has dropped to a very low level since JD.com IPO, of course, we still have a lot of room for improvement.Because JD Logistics, Inc. is still in the investment stage and has achieved a balance of payments and a small profit, with the completion of JD Logistics, Inc. 's investment process, this business will achieve greater profits. This will in turn promote the operating leverage of JD.com Retail.

With regard to your long-term profit target, in the long run, the net profit of our retail business will be 1% higher than that of the best-performing offline retailers, and our market business will generate a larger accounting spread. together, these two parts will create higher net profits.Boss Liu has also said before that we have always adhered to the trend of achieving long-term profits, and we will certainly achieve this goal in the future.

Q3 or Q4 has more investment?

Citigroup Inc analyst:My question is about the 1.8 billion profit mentioned by CFO, which will be reinvested in the second half of the year. Would you please talk about which profits come from the first quarter and which from the second quarter? Which of these 1.8 billion profits are "short-lived" gains that will never happen again?

In the second half of this year, JD.com invested 1.8 billion yuan. How will he allocate it to the third and fourth quarters? Which quarter has more investment? JD.com is also insisting on achieving long-term profits. How do you view the profit prospects for the first and second half of 2020?

CFO Huang Xuande:The 1.8 billion can be divided equally between the first quarter and the second quarter, which is about 900 million per quarter.

By the second quarter, we had already started to invest in some plans. In terms of guidelines, we cannot give specific figures, we can only predict changes in the competitive environment and macro environment, and give management some space to seize opportunities in a timely manner so that investment can really play a role. Therefore, we need to give some room for these factors.

If you just want to make a rough estimate, I thinkThe third quarter will be more important than the fourth quarter, because we will launch a new Wechat platform, and JD.com will have a "Singles Day" promotion at the end of the third quarter and the fourth quarter.

This is only a preliminary estimate. I hope to give you more specific information in the fourth quarter.

Can the logistics business break even throughout the year?

Credit Suisse analyst:My question is about logistics. In the division's financial report, the loss of new business revenue in the second quarter was 2 billion. I would like to know what businesses are included in this? Such as logistics, technology or overseas investment.

meanwhile,In terms of logistics, in the second quarter, logistics achieved a balance of income and expenditure. I would like to know whether it will be able to achieve a balance of operating gross profit in 2020? How to achieve this goal?

CFO Huang Xuande:The half-year data are listed in the division's financial report, and the data you see are from the first half of the year. The biggest operating loss for new business came from the technology planning sector, followed by logistics, which also had losses calculated under non-GAAP in the first quarter, but things are getting better. It almost broke even in the second quarter, followed by overseas investment.

But overall, compared with the first half of 2018, the loss ratio decreased significantly, and the revenue of new business increased significantly in the first half of the year. As a result, we are seeing a rapid decline in the loss ratio of these new businesses.

JD Logistics, Inc. CEO Wang Zhenhui:First of all, our logistics business Non-GAAP break even, we will continue to optimize JD Logistics, Inc. this year, continue to go deep into the low-tier city market, and improve the user experience in first-and second-tier cities, soAs a whole, our operating profit margin this year will be better than that of last year and will be close to the break-even point.

How to view the trend of user growth in the future?

Jeffery analyst:My question is about the user growth trend. While JD.com is constantly advancing to the low-line market, how do you view the user growth trend in the next two quarters and even next year? Will the number of users grow faster?

CMO Xu Lei:I remember I made some brief sharing in the last quarter's financial report. The growth of the whole user is divided into two parts, the first part is new users, as I just said, low-line users are our next key breakthrough, but at the same time, continuous repurchase of old users is also very important for us. We can seeIn the first half of this year, while the number of new users continues to grow, the activity of old users is also increasing.

Second, since January this year, the entire JD.com Group, including JD.com Retail, has paid great attention to user experience indicators, and various teams have joined the corresponding NPS indicators.Through the efforts in the first half of the year, we can see that the NPS index has been significantly improved.This is also the most important way for us to win the reputation of the industry and users, to maintain our image, and to enhance the shopping experience of users.

Last point,Since the beginning of this year, JD.com Group has proposed "quality growth"We hope that in the development of users, whether new users or old users, we hope to achieve "quality growth", and we do not want to obtain users' shopping through subsidies or short-term ways. this is actually unscientific for our long-term and sustainable investment.

We find that consumers in the low-line market do start shopping from goods with relatively low unit prices to become e-commerce or online shopping users. But with their familiarity and understanding of online shopping, we can clearly see that whether in our platform or industry data, their purchases ultimately tend to high-quality goods. This is the value that our platform insists on.

What is the growth potential of JD.com 's online advertising?

Morgan Stanley analyst:My question is about the growth potential of the online advertising business. This part of the business grew strongly and became a very important profit contributor to JD.com. Can you talk more specifically about online advertising, such as pricing? How to look at the competition between JD.com and other e-commerce companies in terms of online advertising growth potential?

CMO Xu Lei:The first pointThe growth of advertising revenue in the first half of the year is mainly based on our continuous improvement in technologies such as artificial intelligence and big data.

Our focus this year is to continuously optimize our algorithm in combination with the revision of our home page in the second quarter.At the same time, in the first half of the year, we saw a continuous increase in the penetration rate of merchant advertising, as well as the up value of single merchant advertising, andAt present, we will not consider increasing the advertising traffic pool, although the new home page revision gives us the possibility of abundant advertising traffic pool. But now we still think we need technology to balance our advertising and retail business.

Secondly, we can see that the entire advertising market encountered economic-related pressure in the first half of this year. But because we are a retail platform, our advertising serves our suppliers and merchants, and we can directly turn it into sales, so our advertising effect is measurable and optimized. But on the whole, we will be favored by the advertising market. Judging from the quality and quantity of current advertisers, this view has also been verified.

What is the impact of investment on capital expenditure?

JPMorgan Chase & Co analyst:My question is about reinvestment in the second quarter.After the completion of the investment, which part of the business will be under more pressure in the second quarter? Is it retail, logistics or technology? Will this have an impact on capital expenditure in the second quarter?

CFO Huang Xuande:The overall investment is mainly used to improve operating costs or gross profits. for example, we will rebate to consumers through promotions, or launch a new platform, we will not charge high fees for the conversion rate, and it will take time for the advertising business to develop. These are key investment areas.

In terms of logistics, by infiltrating downwards into low-line cities, we can provide better user experience and logistics experience for users in low-line cities. We don't think capital expenditure will increase, but as I said before, capital expenditure can be divided into two aspects.Capital expenditure is still under control.

The profit growth of JD.com retail?

CICC analyst:My question is about the gross profit of JD.com retail. JD.com Retail's gross profit growth was strong in the second quarter. If the contribution of VAT (value added tax) reform is excluded, what is the growth rate? If the source of gross profit is specifically divided, how much does it come from advertising or other business? Which business will be the main contribution to JD.com 's retail profit growth in the future?

CFO Huang Xuande:It is difficult to separate the factors of VAT reform.The VAT reform was announced in early April, which is beneficial to existing inventory, but at the same time, many suppliers have adjusted their pricing strategies, so it is difficult to quantify it. We noticed that this is a very important factor in the second quarter, especially for existing inventory. But these effects are not very clear, because it is actually the result of the joint action of retailers, brands and our promotion strategies.

Even without this effect, we also analyzed the profit increase of 1P business in the second quarter. In the long run, the gross profit of 1P business and advertising business will significantly drive the growth of future gross profit.If you look at our profit analysis, especially if you compare the operating cost ratio and gross margin with the top offline retailers, you will find that our gross margin is relatively very low, about 10% lower than that of offline sellers.

Therefore, as we continue to expand the scale, we still have a lot of room for growth, get a more advantageous purchase price, and provide users with more personalized products. We have seen that major suppliers have provided us with very attractive personalized products. This will help us to offer lower prices to our users, but at the same time increase our gross profit.