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JD.com (NASDAQ:JD)
Q3 2020 Earnings Call
Nov 16, 2020, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Hello and thank you for standing by for JD.com's third-quarter 2020 earnings conference call. [Operator instructions] I'd now like to turn the meeting over to your host for today's conference, Ruiyu Li. Please go ahead.

Ruiyu Li -- Senior Director of Investor Relations

Thank you, operator, and welcome to our third-quarter 2020 earnings conference call. Joining today on the call are Mr. Xu Lei , CEO of JD Retail; Mr. Wang Zhenhui, CEO of JD Logistics; Sandy Xu, our CFO; and Professor Liao, our CSO.

For today's agenda, Sandy will discuss highlights for the third-quarter '20 and other management will join the Q&A session. Before we continue, I refer you to our safe harbor statement in the earnings press release, which apply to this earnings call as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most direct comparable GAAP measure.

Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. Now I would like to turn the call over to our CFO, Sandy.

Sandy Xu -- Chief Financial Officer

Thanks to you. Hello, everyone. Thank you for joining our earnings call today. We are pleased to report a strong set of financial results for the third quarter of 2020.

We delivered our solid performance in a seasonally light quarter and set new record for any operating, and financial metrics. JD leads by example in contributing to the society and supporting the recovery of real economy. We have opened up our retail ecosystem and self-built supply chain infrastructure and technology capacity to empower our suppliers, our merchants, and our business partners. We've run our business with a long-term philosophy and pursue long-term sustainable growth.

Our mission is to improve operating efficiency for the supply chain through technology innovation, and we share growth opportunities and economic benefit with our staff, business partners, and society. Our unwavering effort in supporting society and our users continue to gain positive recognition and win trust from more and more consumers. This has been reflected in our solid growth of active users and improvement in user engagement across different tiers of cities. Our annual active customers in the past 12 months reached 442 million, adding more than 100 million customers, up 32% from a year ago, the highest growth rate in the past three years.

We obtained more than 24 million net additional customers compared to last quarter, the largest expansion in the seasonally light September quarter in our history. This, once again, validates our long-term operating philosophy to run our business with a customer-centric focus. We continue to generate traction in lower-tier cities, which contributed about 80% of our new users this quarter. We are also inspired by the further enhanced consumer loyalty and engagement of our core users, who appreciate the consistency of products and service quality we deliver every day.

Our core users are buying products for more categories from us and more frequently. We have become a part of many users' daily lives. It's worth highlighting that our JD Plus members exceeded 20 million in October, an important milestone for our paid membership program. JD Plus was the first paid e-commerce membership program in China designed to better serve our core users.

Besides the benefits offered on JD app, such as shopping rebates and free shipping coupons, JD Plus has partnered with over 600 industry-leading brands to provide our members with comprehensive privileges in sectors such as movie tickets, travel, hotel bookings, fitness, education, dining, and entertainment. Our data shows that JD Plus has effectively improved the engagement and retention of our core users. As our Plus members shop more frequently with an ARPU, average revenue per user that is multiple times higher than that of non-Plus members. By integrating with the resources of our brand partners, JD Plus has also created an industry benchmark in the paid e-commerce membership.

Our Q3 financial results largely reflect our quality user growth with enhanced user engagement. We reported net revenue of RMB 124 million for the third quarter, a year-over-year growth of 29.2%, maintaining strong growth momentum even on the back of Q2 peak season and over last year's high rates. General merchandise revenues grew by 35% year over year, led by the supermarket and healthcare categories. Net service revenues grew 43% year over year, led by the accelerated growth of JD Logistics and strong performance of our advertising business.

Our net service revenues contributed to over 13% of total net revenue, making another historical record. As the economy gradually returns to normal from the peak of COVID-19 outbreak, JD Logistics continued to gain trust from its business partners and delivered an accelerated revenue growth. Besides our solid user and top-line growth, there are a few notable operating and financial performances we want to highlight. First, JD Retail's operating margin reached 3.9% in Q3, a record in our history and an improvement of 56 basis points compared to the same quarter last year.

What's notable is that our operating efficiency continues to improve even as our product mix shift from the large ticket size but low-frequency categories, such as 3C and home appliance, to the small ticket size but high-frequency consumer staple categories. Order volume for the supermarket categories grew by over 48% year over year in Q3. Another key metric illustrating our operating efficiency improvement is our inventory turnover days, which further reduced to 34.3 days in the last 12 months. This is one of the lowest among the top global retailers and our own historical record despite the total number of SKUs managed by us continue to increase with our category expansion.

Once again, this validates the power of our scale-driven business model and our long-term margin trajectory. Secondly, our 3C and home appliance categories continue to outperform the industry tremendously, and we continue to gain market share. Our unparalleled supply chain capability better position us, in particular, amid the absence of new flagship products from the leading electronic plant starting Q3. As we mentioned before, our 3C and home appliance categories have significant operating and cost structure advantages over our peers, enabling us to provide the best value and service to consumers.

We continue to expand our supply chain capability, further enhancing, bringing in more customized products to different consumers and create value for our business partners. Thirdly, JD Logistics is another complement example of our long-term investment in user-centric experience and supply chain infrastructure. Since we opened our service to third parties in 2017, JD Logistics has made notable progress in providing its customers with integrated logistics services to improve their warehouse management and fulfillment efficiency. As JD Logistics gain more consumer -- customer recognition, revenue generated from third-party customers contributed to nearly half of JD Logistics' total revenues in September.

JD Logistics also supports the growth of our 3C merchants on our e-commerce platform. Products marked as delivered by JD Logistics come with more trustworthy and more reliable services, and therefore, are open the preferred shopping choices of customers and help generate more organic traffic. Moving down the line, our fulfilled gross margin improved to 8.7% this quarter compared to 8.4% in Q3 last year. This was mainly driven by the margin improvement of JD Retail and JD Logistics.

With our continued improvement in operating efficiency, our marketing, R&D, and G&A expense ratios in the third quarter improved across the board by 16 basis points, 30 basis points, and 8 basis points, respectively compared to the same quarter last year. As a result, our non-GAAP operating income grew 77% to RMB 1.3 billion, and non-GAAP operating margin was 3%, up 82 basis points from the same quarter last year, the highest level in our history. Moving to the bottom line, our non-GAAP net income attributable to ordinary shareholders in Q3 grew at 80% year over year to RMB 5.6 billion from RMB 3.1 billion in the same period last year. Non-GAAP net margin was 3.2%, up 90 basis points from a year ago, and again, a historical record.

Excluding the temporary relief of the social security benefits, the margin improvements we recorded in the first three quarters have clearly demonstrated the snowball effect that we continue to generate with our scale-driven business model. With a healthy profitability as a basis, we plan to invest in fast-growing businesses, specifically, the supermarket category is a key growth area that we are very committed to continuing our investment in to further strengthen our consumer mind share and market leadership.As our online B2C supermarket operation continues to generate growth momentum, we have been exploring various new business models in different markets to better capture the growth opportunity in this category. Our aim is always to better serve the diverse needs of our customers with quality products and services. Logistics infrastructure is another strategic area we will continue to invest in to expand our integrated service capacity for the long-term growth.

We will also continue to invest in our users and our people. All of these investments truly reflect our long-term operating philosophy. Free cash flow for the quarter improved to RMB 7.5 billion as compared to RMB 63 million in the same quarter last year. Free cash flow for the last 12 months reached over RMB 30 billion, grew by 93% year over year.

As of September 30, 2020, cash and cash equivalents, restricted cash and short-term investments added up to a total RMB 127 billion. We have a strong liquidity position.In conclusion, JD showed remarkable resilience again in Q3 as China emerges from the pandemic. We delivered both robust top-line growth and year-over-year improvement of profitability. While investing in our capabilities in strategic areas, it's quite clear that these achievements were driven by our unique business model and operating philosophy.

But more importantly, JD's resilience is underpinned by our relentless focus on offering true value for our consumers and unreserved empowerment of our business partners through our technology and infrastructure. Many users are still shifting from offline to online, and the e-commerce penetration is reaccelerating in many categories. JD is well prepared to capture the secular trend, and we will continue to invest for the long term. This concludes my prepared remarks.

Let's open the call for questions. Thank you.

Questions & Answers:


Operator

Thank you. [Operator instructions] First question comes from the line of Ronald Keung of Goldman Sachs. Please go ahead.

Ronald Keung -- Goldman Sachs -- Analyst

Thank you. Thank you. Congratulations Wang, Xu, Sandy, Ruiyu and team, and on the very strong results. My question was around your supermarket strategies.

Sandy, you just mentioned about further investments into supermarkets. Could you just share how are we sort of thinking about the strategy of your mega warehouse, your stores at home? Where are we in the progress of natural selection initiatives? And would you be able to share some -- any thoughts on emerging models like the preorder and next-day self-pickup model where most people talk and mention as the community group purchases? How do we think about these, given we do have a lot of strong users and the supply chain capabilities?Thank you.

Sandy Xu -- Chief Financial Officer

Thanks, Ronald. On your question regarding supermarket and fresh, I think first of all, this is a huge market, and we have seen a structural opportunity for this category. So this will definitely be a strategic priority for our group and we have -- as I mentioned just now, we have demonstrated or proved the business model for our traditional B2C operations. And now we have -- we have been experimenting, and we are also exploring different business models or initiatives in this area, covering top-tier cities and lower-tier market.

So because this is a huge market, we understand that there are many companies entering into the market but we believe, by end of the day, there will be quite a few players and we don't have to compete head to head at this stage. So the fact is fresh produce is even a more tough category for e-commerce or retail due to the low ticket size and high loss ratios during the production and fulfillment process. So we don't believe subsidy is a competitive advantage. The key to [Inaudible] find a way or solution to improve the operating efficiency of the existing business processes and reduce operating cost.

So this is exactly our mission or our operating philosophy, so we will continue to invest in infrastructure and our supply chain capability to build our core advantages in this category or this area. So just to supplement, for the various new business models we are experimenting, that would include the 7Fresh store warehouse business model, the community group purchase model or the distribution warehouse models.

Operator

Thank you. Next question is from the line of Thomas Chong of Jefferies. Please go ahead.

Thomas Chong -- Jefferies -- Analyst

Hi. Good evening. Thanks management for taking my questions and congratulations on a strong set of results. Given our strong user growth trend, can you comment about how we should think about the user outlook in 2021 and in particular, our strategies in lower-tier cities penetration? And on that front, can you comment about the competitive landscape in the online shopping space next year? Thank you.

Xu Lei -- Chief Executive Officer of JD Retail

[Foreign language] This is Xu Lei of JD Retail. [Foreign language] Due to the impact of the corona virus in 2020, we see the overall growth on online shopping and online consumption has been growing rapidly, and JD is a beneficiary in this process. And our penetration rate into the Chinese consumption market has been going up, especially in the lower-tier cities and among the users about 45 years old. So we believe people need -- shopping behaviors online has improved and is here to stay.

[Foreign language] At the same time, we see some different performance on the different categories. For example, there's a very strong demand in the categories of healthcare products, household products, and the fresh food, etc., but for some other categories due to the impact of the international supply chains, the growth is slower than expected. But overall, for JD.com, we are a comprehensive platform that offer all kinds of categories, so this ensure we will have a very sustainable and stable growth this year. At the same time, we will also leverage our strength in supply chain and our reputations and the mind share we have among Chinese customers to keep a leading position on this market.

[Foreign language] At the same time, we will also continue to explore a new traffic field both online and off-line, and we'll continue to strengthen our new end capacities in terms of supply chain and our omnichannel strategies. And we will [Inaudible] with this unique strength of supply chains and our special competitiveness will continue to -- better position on this market. [Foreign language] And we have seen that over these quarters, we have a very healthy growth in terms of the users. We do see our existing users are shopping more frequently on our platforms.

And for the new users, because they've already been educated and have been calibrated through other platforms, when they become more mature and more customized online shoppers, they will shift to a better platform that can provide better services for them. As you know that JD is a platform with the strength of supply chain and services, we have a better -- a competitive need to match the shopping behavior for more and more customers. So we would rather stick with the long-term perspective to see the sustainable growth of our user base. [Foreign language] And either in the past or now in the future, I would like to give four keywords for our long-term development.

The first is focusing our user's experience; second, we'll keep open and we'll develop our omnichannel strategy; and strengthen our team and capacity building; third, focusing on supply chain. The four key areas will be, in the long run, our strategy emphasize. [Foreign language] Thank you for your question.

Sandy Xu -- Chief Financial Officer

Maybe if I may add a little bit. We have penetrated that our lower tier city approach was expected. As I mentioned at the opening remarks, around 18% of our new users were coming from lower-tier cities in Q3. And I also want to highlight that our marketing spend ratio is also decreasing.

That means we can now acquire users and retain these users more efficiently. This were driven by our improved technology and algorithm behind the front platform. So, so far, we have a very healthy user trend. So users are shifting from the high-ticket size, low-frequency ARPU to the low-ticket size but high-frequency purchases.

Operator

Thank you. Next question is from the line of Jin Yoon of New Street Research. Please go ahead.

Jin Yoon -- New Street Research -- Analyst

Hey. Good morning, good evening, and thanks for taking my questions. So I know that last quarter that you guys announced like you're not going to provide guidance going forward. But given the fact that we're seeing a pretty profound seasonality with second and fourth quarter promotions kind of where they are, perhaps could you kind of give us kind of a directional view of how we should look at the fourth quarter, if it's kind of the similar trajectory that we should look on a year-over-year basis compared to the other second quarter? So any kind of color there would be pretty helpful.And then even on the margin side, we've seen this pretty significant operating margin leverage in the first nine months of the year and just -- is there any reason why we can't see the same kind of step-up function in the fourth quarter as well? So any kind of directional view on the margin as well as kind of on the revenue side color would be great.

Thanks.

Sandy Xu -- Chief Financial Officer

Sure, this is Sandy. Let me answer your question. So for future trend, in Q3 we continued the great momentum from the first half year on user engagement and new user acquisition, particularly in the lower-tier markets. So this form a very good basis for our Q4 promotion business.

In the past several -- 11 promotions, our performance exceeded our internal expectation. And the user numbers and churn rate were very healthy so far as I just mentioned. So I think the trend of users shifting from offline to online continues. And we will definitely impact and focus on user acquisition and engagement, in particular, for our front growth categories.

But we also want to emphasize that we see stronger seasonality this year as the users are now better educated by the e-commerce platform. So this is a generic trend for our top line. And then for top -- bottom line, you can now see that the scale benefit of our retail business and logistics business have been gradually realized. So we now see opportunity for accelerating penetration of e-commerce in China.

To catch up this opportunity, we are going to really reinvest the extra profit that we generated in the first 9 months of 2020 in users' period in some of our fast growing categories or new business initiative. And so this can have that gained market share in the long run. So you may see a similar pattern of the mark-to-market seasonality in Q4 as in last year.

Operator

Thank you. Next question is from Gregory Zhao of Barclays. Please go ahead.

Gregory Zhao -- Barclays -- Analyst

Hi. Thank you for taking my questions and congratulations on a strong quarter. So my question is about RSAP. When a group of the Asian countries made the free trade agreement over the regional, the comprehensive partnership.

So I know a lot of products and services will be covered in the agreement and we know some free tax terms will also be introduced. So would you please help us understand the opportunities from RSAP to China e-commerce and also the cross-border e-commerce market and how JD can take the opportunity? Thank you.

Xu Lei -- Chief Executive Officer of JD Retail

[Foreign language] This is Xu Lei from JD Retail to respond to your question. Regarding the growth of our core product business, it has been growing steadily this year and we also see that our NPS score, which is our Net Promoter Scores to show the user experience is also growing rapidly. We pay high attention to the field of duty-free products and the cooperation on the cross border in this FX. [Foreign language] Since this is newly announced news recently, just a year -- one day ago, we're still following the news and trying to understand the implications of this new regional cooperation, and we will reflect this is a very positive news for both the production and consumption in the ASEAN and the Asian region.

[Foreign language] And of course, we will take full advantage of our strength in our corporation with international brands and also our supply chain capacity to catch this opportunity. So we will watch closely on the development and to see the opportunity to further develop our business. And thanks for your question.

Operator

Thank you. Next question is from the line of Eddie Leung of Bank of America Merrill Lynch. Please go ahead.

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

[Inaudible] Just a bit curious on your gross margin. So we see your gross margin and fulfilled gross margin both improved in the quarter. However, we also noticed that your marketplace and advertising revenue actually grew slower than your direct sales business. So I'm just wondering what was the big news behind the gross margin improvement.

Does it mean our 1P revenue gross margin actually improving? Thank you.

Sandy Xu -- Chief Financial Officer

This is Sandy. Thanks for the question, Eddie. On your question regarding gross margin, I think for JD Retail, the gross margin improvement was mainly contributed by the change of product mix. And as we mentioned that the customers purchase behavior is shifting from high frequency to -- sorry, low frequency to high frequency.

And also the tail benefits that we realized from all tax grades. So the gross margin is gradually improving for all other products.And then talking about for fulfilled gross margin. So again, this is contributed by the scale benefit and partially contributed by the relief of the social security benefit by the government. But the majority of the benefit was realized in the first half year with a small amount left in Q3.So advertising revenue actually grew faster than the top-line product sales.

But this is -- the growth of the advertising revenue is kind of offset by the slower growth of the commission revenue because the 3P business, the -- although the GMV actually grew very healthy, but the GMV or the product categories with the lower commission ratio grew faster than the categories with higher commission ratio.

Operator

Thank you. Next question is from Alicia Yap of Citigroup. Please go ahead.

Alicia Yap -- Citi -- Analyst

Hi. Good evening, management. Thanks for taking my questions and also congrats on the solid results. My question is related to the growth trend for the general merchandise.

I think this quarter, the growth rate, 35% is still very solid but just a little bit more interested to get management view on any elaboration you could provide in terms of a slight decelerated growth from the second quarter achieved for these general merchandise. I think you mentioned the supermarket actually grew about 48%. So just wonder which category actually experienced a bit more seasonal slower growth than before. And then just very quickly on the single-stage GMV performance, how do you rate and compare that with your expectation versus June '18? Seems that is actually stronger than June '18.

And is that driven by pricing or any reasons for the strong single sales? Thank you.

Sandy Xu -- Chief Financial Officer

That's a very good question. For general merchandise, I mentioned earlier that we saw a robust order volume growth in Q3. The order growth grew by 48% in the quarter. So what happened is -- so if you compare with the second quarter, you'll see that the growth rates slowed down a little bit.

I mentioned last quarter if you remember, there were some COVID-related sales in the first half including the cleansing products, the disinfectants, liquid soap, etc. So the sales volume dropped for this product in Q3 as the users, they already have sufficient inventory stored at their home. And also in Q3, the fresh -- if you look at fresh produce category, its largest stock category is seafood. So it was a jack of our overall growth due to a few COVID cases reported during the quarter were in relation to the imported seafood.

So the other subcategories are the fresh produce were -- continued to grow very strong during the quarter, but they were with a relatively lower ticket size and revenue contribution. So overall, we see that older members, the user growth and the traffic, other general merchandise continue to be very strong during the third quarter. Sorry, what was your second question?

Xu Lei -- Chief Executive Officer of JD Retail

[Foreign language] This is Xu Lei. On your question related to the single-segment promotion, [Foreign language] as we have stressed that we were not only looking at the single system that you leverage for single day, if we look at the brand promotion period from November 1st to the 11th, we're very pleased with our growth results. [Foreign language] And for this year, because of the epidemic impact and so on, we would like to drag the time spent even longer because the time our brand partners often pay high attention to these activities. So if we drag the time line of October 1, 2011, for one and a half months' time, we are achieving a much better result than expected.

[Foreign language] For the reasons why the 11.11 performance is even better than the 618 Shopping Festival, I think there are two reasons. And one reason is on the consumer side, as we can understand that by the end of the year, a lot of consumers, they have a bigger shopping plan to purchase more stuff. [Foreign language] And on the supply side, in addition to the brand partners, we also see that for the small- and medium-sized businesses, they are better recovered than in June from these epidemic so they are in a more comfortable and more were positioned to prepare their products and to do their operations. This also contributes to a better performance of the sales growth.

[Foreign language] Thank you for your questions.

Operator

Thank you. Next question is from Jerry Liu of UBS. Please go ahead.

Jerry Liu -- UBS -- Analyst

Hi. Thank you, management. My question is on the logistics business. We saw in the third quarter revenue growth year over year accelerated versus the last couple of quarters.

So just wanted to get an understanding what are some of the things we did, maybe services or new initiatives, especially for the third-party merchants where we saw the revenue mix come up. And secondarily, we've also heard that from our checks that some of the brands were more willing to work with JD Logistics as some of the traditional logistics infrastructure was not as able to handle the demand post COVID. So just wanted to check with you and see if you have any comments regarding that kind of situation. Thank you.

Wang Zhenhui -- Chief Executive Officer of JD Logistics

[Foreign language] This is Wang Zhenhui from JD Logistics. [Foreign language] Thanks for your question. As you mentioned, indeed, we have an accelerating growth of our business in Q3. There are several reasons.

First, I think it's attributed to our long-term commitment to our improvement of users' experience. [Foreign language] In particular, logistics, our value positioning is to provide the best user experience driven by technology and win from our efficiency improvements. So we have always increased our investment in our capacity building to provide more services and infrastructure to cater to the needs of our customers. And no matter if during the COVID period or in a normal time, we will always ensure we provide the fastest supply chain services to our customers to provide value for them.

I think this is the key reason they choose us for more cooperation. Thank you.

Operator

Thank you. Next question is from James Lee of Mizuho. Please go ahead.

James Lee -- Mizuho Securities -- Analyst

Thanks for taking my questions. Two questions here. First, on online pharmacy, can you talk about some of the key frictions you're trying to resolve to drive higher online adoptions? Should we think about U.S. more supply constrained or demand constrained? And maybe can you update also on the margin profile long term? I think previously you mentioned maybe two times higher than offline pharmacy chains.

And also second, can you talk about implication of the new antitrust regulations? How does that impact e-commerce and JD? Thanks.

Sandy Xu -- Chief Financial Officer

So we apologize that for any question in relation to bidding costs, we cannot respond at -- in-call because they are in the middle of an actual process. But if you have any questions, you may we reach out to the investor relationship team.

Jon Liao

Yes. This is Jon, I will take the second question with regard to the antitrust. Totally different from a typical CPC platform. JD is mainly a B2C retailer with its own merchandising, inventory, marketing, sales, and logistics.

That's the first point I want to make. And the second, as JD continues to expand into all the categories beyond 3C like fashion. Actually, JD has been minimized by anti-combative behaviors, while merchants are being asked to do, Joshua, you will pick one out of two. So the third want to make is JD fully support the antitrust regulation, which we believe is very important for healthy growth and innovation of the business ecosystem, in particular, in the country's economy in general.

And lastly, which is most importantly, since day one, our founder Richard Liu has subscribed to a business principle called $0.35, which if we make $1 profit, $0.30 goes to commerce and $0.35 for our employees, and the remaining $0.35 for JD's continuing growth. As such, JD is fully committed to a healthy ecosystem that is relying on cooperation, coexistence, and co-evolution.

Operator

Thank you Next question is from Jialong Shi of Nomura. Please go ahead.

Jialong Shi -- Nomura Securities -- Analyst

Thanks. Good evening, management. Thanks for taking my questions. [Foreign language] I have two questions.

The first question is about the growth rate, e-commerce business. Management mentioned earlier, JD is piloting some of the fresh grocery models, including 7Fresh and the community group buying model, etc. Could management provide some colors on the strength and weakness of each of the models? And which model in the management's current view has the potential to become the dominant model in the future for the online fresh grocery business? And the second question is about the guidance for Q4. Sandy mentioned JD will reinvest the extra profits earned in the first nine months into improving user experience in Q4.

So could management give some -- us some color what is the size of the extra profits you guys are aiming to invest in Q4? Thank you.

Xu Lei -- Chief Executive Officer of JD Retail

[Foreign language] This is Xu Lei from JD Retail to answer your first question about the fresh food community group buying. [Foreign language] The fast food market is indeed a very huge segment. You have seen that there are many participants, like, fighting and exploring in these areas, including those traditional regulars and Internet players and also some emerging companies. [Foreign language] And I want to address that for the China -- the Chinese fresh food market, it's very different.

The landscape is very different from the European and the U.S. market. It's more complicated. Or in China, the traditional retailers in fresh food categories, the top 10 players, top 10 supermarket brands only take about 5% of the overall Chinese market.

This is a much smaller amount compared with the Western market. [Foreign language] In general, we can categorize the fresh food market into five segments where we call it converging tracks, namely, our first is the B2C; second is the warehouse stores; and the third is the community group buying; and fourth is the B2B; and fifth is fixed base. [Foreign language] Yes, our fund distribution center, FDC. [Foreign language] Actually for JD, we have started our exploration and investment in these categories, in these rating tracks, including the B2C model and the warehousing store model, and we'll keep our eye open and seek for the new territories.

Actually, for each different categories, the business model and the profitability methods are very different. [Foreign language] We also noticed that the many companies in this competition, they are using these channels as a traffic flow field. However for JD, we would rather to use our strategy to maintain and our premium services to create a more sustainable ecosystem, the growth of the fresh food area. So we rather not use this as short-term opportunities and using subsidies to boost the development of the fresh food market rather than to develop in a more sustainable and stable business model in this field.

[Foreign language] And for some of these business models, it has to be focused on this region and to truly localize the services and continue -- and to perform in the long run. [Foreign language] So in addition to our B2C and warehousing store models, we'll continue to be alert and continue to explore and invest in the new models. So we value the models as sustainable and stable business models. We will continue to focus on our core strength of supply chain to make sure these models will be stable and [Inaudible] and provide the right value for our customers.

[Foreign language] Thank you.

Sandy Xu -- Chief Financial Officer

Regarding your second question on the reinvestment of our net income, so if you remember that at the beginning of the year, we expect the target for this year is that we are going to -- we will go to delivered steady growth in that margin. So at this stage, we can see that we are confident we can deliver that on an annual basis. So that means we have sufficient resources for reinvestment in the fourth quarter. But because the market situation is changing very rapidly, so we are going to make an adjustment to our investments in the various initiatives based on the ROI.

And some of the initiatives that we talked about just now are actually for the long-term projects. So that means the investments may last to next year. So for the next year, we are still in the middle of our marketing project, so we will then share our thoughts on the resource allocation or the topic for next year at our next quarter earnings call.

Operator

Thank you. Next question is from Eddy Wang of Morgan Stanley. Please go ahead.

Eddy Wang -- Morgan Stanley -- Analyst

Hi, management. Thank you for taking my questions and congratulations on the good results. So I have a very quick follow up on the online fresh grocery. So if you look at next year, given that a lot of the players, they actually tend to be very aggressive in penetrating through this [Inaudible] unlike fresh groceries.

So what's your thoughts of the market share? Are we still taking all these players -- still taking the market share from off-line, the web market or supermarket? Or have you seen any signs that the players are just starting to take market share from each other? Just a very simple follow-up. Thank you.

Xu Lei -- Chief Executive Officer of JD Retail

[Foreign language] This is Xu Lei from JD Retail. [Foreign language] And indeed, for this year 2020, JD Super, our online supermarket platform, has been benefited from the -- first of all, the impact of the epidemic. A lot of customers who used to buy things offline have shifted to our online platform and their behaviors stay with us. And also, this is a result of our years of investment of our product selection and our cooperation with our brand partners and our superior fulfillment capacities and all these have contributed to the faster growth of JD Super.

[Foreign language] And indeed, we do see a strong growth in terms of sales and market shares in our JD Super categories. However, because of the shopping behaviors for these product categories are very different from consumer electronics products -- actually, for the fresh groceries, their online shopping penetration rate is still relatively low. There's still space to grow. [Foreign language] Though you have seen that JD has become the global No.

1 or the [Inaudible] for many brands of many products, both international brands or domestic brands, but actually, for these categories, the market is very huge and the penetration rate and is still expected to grow. [Foreign language] And we do see, actually, wider of brands to JD to operate. We do have to go through several phases. For Phase 1, the brands see JD as a very effective sales channel to help them -- to bring them constant increase in sales opportunities.

[Foreign language] And for Phase 2, we start to work with our brand partners to do more marketing and to manage their members and their brands to help them to increase their digitalization capacities to engage with their members. [Foreign language] And for Phase 3, we continue to build more C2M products, namely the consumers-to-manufacturer products to tailor to the needs of different confidence of consumers from the lower tier cities who have special preferences, etc. So currently, more than 30% of our sales on JD Super are coming from differentiated products we collaborate with our branch partners. And these achievements are based on our advanced data and advanced algorithms, so this is a very close and deep cooperation with our customers -- with our brand partners in this space.[Foreign language] And for Phase 2, and in our omnichannel strategy, and JD Super is doing a great job and has been very welcomed by multiple players for that, JD Super -- and these omnichannel, JD Super's brand partners, both online and offline, we look at their business model in both online and offline through our data, through our systems, and tools.

So this format is very well performing and well received by our brand partners' platforms and also benefit our customers. [Foreign language] And I'd also like to share with you this vision that I believe JD Super, in the future, will become the number one category of the overall platform. Thank you for questions.

Operator

Thank you. Our last question comes from the line of Han Joon Kim of Macquarie. Please go ahead.

Han Joon Kim -- Macquarie -- Analyst

Great. Thank you for your time today. I wanted to follow up on live streaming and yes, I guess, your partnership with Kuaishou and so forth. Are there still kind of experimentation going on there? And the outlook for next year as well.

Thank you.

Xu Lei -- Chief Executive Officer of JD Retail

[Foreign language] This is Xu Lei, I just to want to share to you a few points about live stream. [Foreign language] First of all, we believe in the long term, live streaming will not only be a huge channel, it will become a standard operating tool on many platforms, not only the video platform but a very standard tool for all the sales and marketing tools. [Foreign language] And so now, a lot of people go to live stream in pursuit of its price discount. But in the future, we think live stream will be able to do -- provide more functions, like, to give you more detailed introductions of the products or bring the platform for new products released.

So there'll be multiple functions and connect for. [Foreign language] And for JD Live, we do see the live stream data is going very well and more and more merchants are engaged on this platform. The difference between JD Live and other platforms is that because of our customers' different structures, customers would like to see more professional content on our platform. So out of our platform, we always advocate more rational consumption.

So we want to provide more professional information and invite the CEOs of the big companies to introduce their products on our JD Live platforms and also invite those amateur or the specialists of certain products to give more professional introduction on JD Live. [Foreign language] And also, we are now increasing our cooperation with other MCN channels and artists. And one -- another thing I want to share with you is that the orders -- sales orders achieved on the live stream on JD's main site is much higher than our third-party live stream. I think this is highly related to the customers' trust and quality and healthy behaviors on JD platforms.

[Foreign language] And just to briefly comment on our cooperation with Kuaishou. Kuaishou looks forward to cooperate with JD because of our superior supply chain in terms of the products and services. And also, we admire Kuaishou as a very unique platform that provides traffic flow into a very big amount of consumer forward. So this is a very natural supplementary for this cooperation.

[Foreign language] And for this cooperation, it's not simply that JD will post a price on Kuaishou for sales but more. There's a lot behind the supply chains and our services to support this cooperation, so there's still a lot of work we are doing to further connect our system. And at the same time, I believe that we will provide better value for this cooperation, and yes, in the long run. Thank you.

Operator

Thank you. We are now approaching the end of the conference call. I will now turn the call over to JD.com's Ruiyu Li for closing remarks.

Ruiyu Li -- Senior Director of Investor Relations

Thank you, operator, and thank you for joining us today and your continued support. Please feel free to contact us if you have any formal questions. We look forward to talking with you in the coming months.

Operator

[Operator signoff]

Duration: 69 minutes

Call participants:

Ruiyu Li -- Senior Director of Investor Relations

Sandy Xu -- Chief Financial Officer

Ronald Keung -- Goldman Sachs -- Analyst

Thomas Chong -- Jefferies -- Analyst

Xu Lei -- Chief Executive Officer of JD Retail

Jin Yoon -- New Street Research -- Analyst

Gregory Zhao -- Barclays -- Analyst

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Alicia Yap -- Citi -- Analyst

Jerry Liu -- UBS -- Analyst

Wang Zhenhui -- Chief Executive Officer of JD Logistics

James Lee -- Mizuho Securities -- Analyst

Jon Liao

Jialong Shi -- Nomura Securities -- Analyst

Eddy Wang -- Morgan Stanley -- Analyst

Han Joon Kim -- Macquarie -- Analyst

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