Dada Nexus Limited (DADA) Q3 2021 Earnings Call Transcript

Dada Nexus Limited (DADA 0.75%)
Q3 2021 Earnings Call
Nov 23, 2021, 8:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Thank you for standing by for Dada third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the managements' prepared remarks, there will be a question-and-answer session.

As a reminder, today's conference is being recorded. I will now turn the meeting over to your host for today's call, Ms. Caroline Dong, head of investor relations, Dada. Please proceed, Caroline.

Caroline Dong -- Head of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2021 earnings release was distributed earlier today and is available on our IR website at ir.dada.cn, as well as GlobeNewswire services. On the call today from Dada, we have Mr.

Philip Kuai, chairman and chief executive officer; Mr. Beck Chen, chief financial officer; and Mr. Jun Yang, co-founder and the chief technology officer. Mr.

Kuai will talk about our operations and the company highlights, followed by Mr. Chen, who will discuss the financials and guidance. We will all be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in the Section 21E of the Securities Exchange Act of 1934 and the U.S.

Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict in a manner of which are beyond the company's control. These risks may cause the company's actual results or performance to differ materially. Further information regarding these and other risks, uncertainties, or other factors is included in the company's filings with the U.S.

SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under applicable law. And please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our chairman and chief executive officer, Mr.

Kuai -- Philip. Sir, please go ahead.

Philip Kuai -- Chairman and Chief Executive Officer

Thank you, Caroline, and thank you all for joining us today. We're pleased to announce another strong quarter. I would like to highlight recent progresses and then provide updates on our two platforms, and Beck will go through our financial results in greater details. So earlier this year, the CPC Central Committee clarified China's strategic vision and the government's priorities in the 14th five-year plan and long-range objectives through the year 2035.

With this, it set the goal of accelerating digital development and building digital China. So, according to statistics from China Academy of Information and Communication Technologies, China's digital economy accounted for 38.6% of total GDP in 2020. While that number leads among developing countries, there is a notable gap with the 54.3% average in developed countries to the main engine to drive China's digital economy lives in industrial digitization, which contributes 80.9% of the total digital economy. First, industrial digitalization will build up the country's competitive edge of digital economy.

It's a key theme that the Chinese government wants to promote. So, Dada Group is well-positioned in the national trend of digital economic development. As a leading local on-demand delivery and a retail company, we have always been committed to driving digital transformation in the retail industry. Together with JD.com, we are further empowering traditional industry and driving the development of the real economy.

So, this naturally leads to our strengthened strategic cooperation with JD. In October, Dada Group and JD.com jointly launched Shop Now or Xiaoshigou, a unified brand for our on-demand retail services within the JD ecosystem. Through Shop Now, users can access on-demand services via multiple channels on JD, including the Nearby, Fujin, tab, and all the entry points of Wujingtianze program. Shop Now is powered by Dada Group.

Leveraging our years of LBS-oriented operational experience and accumulation of technological capabilities, we will fulfill order needs of local on-demand retail and delivery on JD. We both strongly believe in the huge potential of on-demand retail in China. With Shop Now, Xiaoshigou, we will leverage our respective strengths to lead the development of this quick growing industry and bring win-win results for both groups. For JD, Shop Now will enrich both product supplies and delivery options, providing consumers with a better shopping experience.

For Dada Group, Shop Now will increase our penetration rate among JD's vast user base. This should become a stronger drive -- stronger driver for our long-term development. Before discussing the recent performance of our two platforms, I would like to provide some highlights of our Double 11 shopping festival. It's over 150,000 stores on JDDJ participating in the event this year.

JDDJ achieved record high in the peak-day GMV and grew the total GMV during the 11 days from November 1st and November 11th, the 11-day campaign, by over 100% year over year. Now let's move on to JDDJ, the leading local on-demand retail platform in China. JDDJ continues to drive the digitalization of offline retail in three ways: empowering retailers at broader scale, helping brands improve marketing efficiencies, and innovative technology solutions. First, empowering retailers at broader scale.

On one hand, partnering with more retailers helps us enrich product offerings and bring better shopping experience to more consumers. The number of active users on JDDJ increased by 53% year over year to 57.1 million. On the other hand, as we expand the merchants and category coverage, we're helping more offline retailers building digitization capabilities. So, let me take you through a few different verticals and talk about some exciting recent developments.

In the supermarket category, we continue to enhance our leading position. We now have established partnerships with 82 out of the top 100 supermarket chains in China. And the Super Merchant Days provides supermarkets with a great opportunity to engage with users on our platform. In the third quarter, in the 8th Super Merchant Days sessions for local winner supermarkets such as Jiajiayue and Bubugao.

The weekend sales or increased by over 200% year over year. In the smartphone category, we continue to expand partnerships with brands. This quarter, we established direct partnerships with Samsung and Honor. And we are -- for Apple, we saw impressive results for new product launch.

On September 24, more than 900 authorized stores on the JDDJ platform started to sell the iPhone 13 series. On launch day, sales on our platform were a remarkable seven times greater than the launch day of iPhone 12. For small home appliance, we deepened collaboration with the leading retailer chains, such as Tombai, Samsung, and Chondeng to strengthen online/offline integration. Our efforts paid off and the GMV in the third quarter increased by about 100% quarter over quarter.

In the pharmacy category. We launched a 24-hour free online medical consultation service to provide users with real-time assistance. Meanwhile, 24-hour retail and delivery services are also available in more than 3,300 pharmacy stores on our platform to meet consumers' needs for medicine at any time. Secondly, we're helping brands to improve marketing efficiency.

In the third quarter, revenue from online marketing service on our JDDJ platform grew by over 140% year over year, a significant acceleration from the 110% growth in the previous quarter. And online marketing monetization rates jumped to 3%, further demonstrating JDDJ as the go-to platform for brands to drive total sales. We now have strategic partnerships with more than 200 brands. We are committed to help brand partners improve marketing efficiency and engage with consumers effectively.

As part of this, we recently introduced a new marketing program called Super New Product Day for product launch promotions. In August, Unilever launched a campaign under this new program. As a result, sales increased by 190% from the previous week. And thirdly, we're innovating technology solutions.

Our Haibo system continues to be popular among retailers. Recently, Haibo now reached the milestone of serving 5,000 retailer stores. Based on the broad cooperation with retailers, we have a great understanding of their pain points in O2O operations and are able to innovate quickly. For example, in the third quarter to better support merchants' holiday bundle promotions, we launched a new module on Haibo to manage on those products.

This module provides a one-stop solution to address the pain points in inventory synchronization and expenses allocation. As a result, it could improve the processing efficiency for bundled products by as high as 20 times. In addition, based on our capability to allocate expenses down to the SKU level, we launched a tool to enhance marketing efficiency. This tool integrates the subsidies from brand partners, merchants, and platforms into one single coupon, a three-in-one coupon to improve the ROI of marketing dollars for brands and help merchants to improve sales by expanding the number of products on promotion.

For example, this tool enables Dada Group to create three-in-one coupons that cover around 2,000 SKUs across over 100 brands. In September, the average daily sales during the weekend that offered three-in-one coupons were more than 10 times than the sales in normal weekends. Our digitized in-store picking service, the Dada Picking, Dada [Inaudible] maintained strong growth momentum. In the third quarter, orders fueled by Dada Picking grew over 70% quarter over quarter.

During the Double 11 shopping festival, order volume more than doubled compared with June 18 promotional period, effectively helping merchants to improve on-time fulfillment rates while saving costs. Now I would like to move on to Dada Now. Our revenue from on-demand delivery services to key accounts or KA, the merchants increased more than 110% year over year. Revenue from supermarkets KA increased by over 90% year over year.

In the third quarter, we added geo-fencing functions to our on-demand delivery service. Fostering this enables merchants to effetely determine the delivery area for each store without additional investments. Revenue from restaurants KA increased by 150% year over year. Orders from fast-food chains and tea beverage chains continue to increase significantly.

So, moving to SMEs. The number of SME merchants that completed others on Dada Now in the third quarter increased over 90% year over year. This was mainly driven by our refined rates-based operational strategy and continued optimization of our fulfillment capabilities. In September, we officially announced the launch of our logistics SaaS, Software-as-a-Service, the Dada [Inaudible], Dada Smart Delivery.

So, this product provides the third-party delivery service providers and merchants who deploy their own delivery fleets with suites of digital tools to manage orders, dispatching, and routing for omnichannel on-demand delivery orders. Our digital logistic platform has helped a lot in improving our operational efficiency in the last seven years. And now by opening up our technology in the form of a centralized SaaS product, we hope to further enhance service capability and efficiency for the whole on-demand delivery industry. And lastly, last-mile delivery.

We saw strong growth in pickup services with the number of pickup orders in the third quarter, doubling from the previous quarter. This growth is built upon our enhanced system integration with JD Logistics and increased penetration in various order types. Expect pickup services to be another driver for our last-mile business. With that, I will now pass the call over back to Beck Chen to go over our financials for the quarter.

Thank you.

Beck Chen -- Chief Financial Officer

Thank you, Philip. 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 numbers are in renminbi unless otherwise noted. Total net revenues increased to 1.7 billion, aligning the revenue recognition method of Dada Now last-mile delivery services to a comparable net basis, pro forma revenue growth would have been 86% year over year, which represents an accelerated growth rate compared with 81% revenue growth in the last quarter.

Net revenues from Dada Now were 614 million. The pro forma revenue growth rate was 90% year over year, mainly driven by the increases in order volume of intercity delivery services to chain merchants. Net revenues from JDDJ increased by 84% to 1.1 billion, mainly due to the increase in GMV, which was driven by increases in the number of active consumers in the average order size. The increase in online marketing services revenues as a result of the increasing promoting activities launched by our brand owners also contributed to the revenue growth of JDDJ.

Moving over to the expense side. The operation and supporting costs were 1.2 billion. The rise was primarily due to an increase in rider cost as a result of increasing order volume for intracity delivery services provided to various chain merchants on the Dada Now platform and the retailers on the JDDJ platform and partially offset by the decrease of rider-related costs incurred by our business upgrade of last-mile delivery services. Selling and marketing expenses were 780 million.

The increase was primarily due to the growing absolute dollar amount of incentives to JDDJ consumers and an increase in personnel cost action with the company's growing businesses. The G&A expenses decreased to 99 million primarily due to decreased share-based compensation expenses. R&D expenses rose to 148 million, mainly attributable to the increase in research and development personnel costs as the company continues to strengthen its technology capabilities. The non-GAAP net loss attributable to ordinary shareholders of Dada was 480 million compared with 324 million in Q3 last year.

Non-GAAP basic and diluted net loss per share was negative 0.48 cents, compared with negative 0.36 cents in Q3 last year. So as of September 30, 2021, the company has 3 billion in cash, cash equivalents, restricted cash, and short-term investments. And under the $150 million share repurchase program announced in June 2021, as of October 31, we have repurchased approximately $131 million of ADSs. For the fourth quarter of 2021, we expect total revenue to be between 2 billion and 2.1 billion, representing a pro forma growth rate of 88% to 97%, adjusting '20 Q4 to 21 Q4 Dada last-mile revenue to a comparable net basis.

In addition to the acceleration in revenue growth, we further expect the pro forma net loss margin based on the comparable net basis, revenue to continue to experience significant year-over-year improvement in the fourth quarter of 2021. This concludes our prepared remarks. And, operator, we are now ready to begin the Q&A session. Thank you.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Ronald Keung of Goldman Sachs. Please ask your question. Hi, Ronald.

You may be on mute.

Ronald Keung -- Goldman Sachs -- Analyst

Hello. Hello. Can you hear me?

Operator

Yes. Go ahead.

Ronald Keung -- Goldman Sachs -- Analyst

OK. Sorry about that. Hello, Philip and Beck. Congratulations on the results.

Two questions. Firstly is on the Shop Now function. How has that channel grew? how have we seen the traction with that with JD users clicking that nearby button? And is our fourth quarter revenue kind of acceleration that we guided, is that mainly contributed from this new channel? And how do we see that Shop Now function that will progress through, say, the next one year in driving additional growth for the company? And then we've seen the sales and marketing costs come down as a percentage of revenue, which is encouraging. Could you just share how that subsidy rate trend has been going? And is that the -- how newer channel is driving efficiencies that is leading to lower subsidy rates? Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

OK. Hi, Ronald. So, the Shop Now, certainly, it's growing very quickly, and we expect it will become one of the key drivers of our future growth. And we're happy to see the traction has been very good.

And so the Shop Now includes not only the nearby the Fujin channel but also various entry points and collaborations. For example, if you are searching, using the search engine on JD and then you click on the search result and purchase is also considered as a part of the Shop Now. So, the contribution from the Shop Now were absolutely growing up for the foreseeable future. And both JD and us are very confident of the growth potential.

And in October, we launched the unified brand of this Xiaoshigou. So, I think the consumers will be building up the mentality around the on-demand retail on JD. I think over time, we will see the potential going up. And also, we have a joint agreement with JD Retail to grow the user penetration of Shop Now, Xiaoshigou, all the way to 50% of the user penetration.

So, I think that's the future we are looking at. At the same time, we're also very happy to see the subsidy level going down, partially thanks to the Shop Now, the new channel, and the new traffic. And at the same time, we are improving our marketing efficiencies overall that also helps to drive down the subsidy level. So, we are quite confident about both growth and the profitability in the future.

Ronald Keung -- Goldman Sachs -- Analyst

Great. Thank you, Philip.

Operator

Thank you. Your next question comes from Eddie Leung of Bank of America. Please ask your question.

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

Good morning, guys.  I have a follow-up question on Ronald's question about subsidies and sales and marketing. Could you elaborate a bit on the unit economic trend and whether it's still on track with our previous target in terms of the breakeven point? And then related to that, could you also elaborate a bit on the competitive landscape the overall grocery and fresh deals category? Because we have heard some potential reduction of subsidies in some of the other formats in these categories. So, just wondering how that might affect our sales and marketing and subsidy strategy going forward. Thank you.

Beck Chen -- Chief Financial Officer

So, Eddie, let me take the first question. So, just like Philip said, in Q3, just like we have communicated in the earnings call last quarter, so in the second half, we expected the consumer incentives given to JDDJ consumers will decrease significantly compared to first half of this year. And actually, in Q3, the incentive ratios was decreased more than our expectation before. So, in Q3, it was 5% for the consumer incentive versus 6.2% in the first half of this year.

So, this is the main contributor to our greater improvement of our direct margin level. So, in Q3, our direct margin was improved significantly to minus 0.6%, so which is thanks to like the 120% bps improvement for the consumer incentives. So actually, this has improved because of the contribution of Xiaoshigou or Shop Now businesses. The others is like the tours implemented just Philip mentioned in the earlier script that, for example, we have created three-in-one coupon to combine the platform money, merchant money, and also the brand owner's money together to improve the efficiency of the subsidies.

So, this also helped us to improve a lot. And also, in our expectation for the fourth quarter, we believe the subsidy ratio should be no more than 5%, which will help us -- should help us to further improve in the direct margin level in Q4.

Philip Kuai -- Chairman and Chief Executive Officer

Yeah. And in terms of the overall market landscape and the competitive landscape. So, first of all, I think as we see that both retail and the economy are under general pressure, so most of the brands and the retailers are certainly under pressure. But at the same time, people are all looking for growth.

And our looking for channels can provide efficiency improvements. And JDDJ is certainly considered as the fastest-growing channel for most of the brands and also can helping them to improve the efficiencies. That's why while we are seeing this pressure, at the same time, most of the brands we have been working with are now more than willing to allocate more marketing resources through our channel, the JDDJ channel. So, at the same time, we improved the ROI of such marketing dollars by the three-in-one coupons.

So, that's why we are not only getting more marketing resources from the brands but also improving ROI. And in terms of the competitive landscape, I think one of the key player in the market, or at least it used to be the key player in the market is the community group buying. But as you probably have seen that the regulations have recently tightened up on community group buying, and they certainly are now seeing some slowdown. And subsidies from the community group buying has certainly been reduced as well.

And for us, for all of the provinces that group buying are most active, we are seeing the GMV of 100% year-over-year growth in Q3. So, again, we are able to grow despite the competition from the community group buying. I think looking forward, with the regulations, as well as the economic pressure, we would envision that each player in the market will be more reasonable and rational instead of like burning too much of subsidies. So, we're certainly happy to see that as we are getting to a more healthy competition environment.

I think that's good for everybody. And at the same time, we are certainly strengthening our collaboration with JD to achieve a win-win situation. So, to both increase the scale and improve efficiencies for both JD Retail and JDDJ. So, we are very confident about our competitive edge going forward.

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

That's very helpful. Thanks again.

Operator

The question comes from Thomas Chong of Jefferies. Please ask your question.

Thomas Chong -- Jefferies -- Analyst

Hi. Good morning. Thanks, management, for taking my questions. I have two questions.

My first question is about our KA business under Dada Now. The business momentum is very strong. I just want to get a sense about how we should ambition the growth momentum as we enter into 2022. And also, how we should think about the competition in this segment, as well as the investment that we are going to be made in this KA segment? And my second question is on JDDJ.

Can management comment about the category mix in Q3 and also the average order value? On the other hand, with regard to the -- our strong online marketing revenue growth, given that it is about 3% right now, how we should think about the takeaway for online marketing in future? Thank you.

Beck Chen -- Chief Financial Officer

Thank you, Thomas. So, let me firstly elaborate on the questions, and I will leave the competition question to Philip. So, a number of things. So, first for JDDJ, our average order value in Q3 was 194 for the platform.

And so going forward, we expect that this will be -- further increase the cost. We further diversify our platform category mix and also even for the supermarket category still, it's very high. It's like 146 in Q3. So, we think that LB will further go up in the following quarters.

And in terms of the category mix in Q3, two-thirds was coming from supermarket category and 25% was coming from the 3C category, including smartphones, home and appliances, and PC and iPad. So, we also expect that nonsupermarket categories will contribute more and more gradually in the following quarters. And in terms of the online marketing services. So, 3% of the GMV in Q3, and we expect that this monetization rate should be at least maintained in the following quarters if we will, we will be prudently further monetized for the online marketing and revenues.

But I believe that for the following quarters, it should be less than 3% for the next few quarters. And also, for the key account, chain merchants delivery services or the Dada Now business is growing by more than 110% in Q3. And we think in Q4, it will be further, like, grow by triple digits on a year-over-year basis. And yes, I will leave the competition question to Philip.

Philip Kuai -- Chairman and Chief Executive Officer

Yeah. So, regarding the KA, the Dada Now KA business, I would like to give more color and background. So, first of all, one of the reasons why we can grow, continue to grow very fast is we are building up a solid reputation among the key account players. First, in order to serve the KOL, you need to win the trust and we need to get people's confidence in you.

So, as we are serving like all the big names, well, for quarters after quarters. So, that's how we are now able to win the trust and build a good reputation in the market. And in addition to reputation, we are also building up a very solid capabilities and know-hows. There are a few key tenets of KA we are now serving, including supermarkets, restaurants, and pharmaceutical chains.

Each segment require very different know-how and capabilities. For example, like the supermarkets, as you can imagine, it requires like to handle very heavy and bulky packages and also from packaging to delivery, so the process has been -- it's quite complex. That's why leveraging our service of data picking integrated with our Dada Now delivery. So, we are providing a lot of value adds for the supermarkets.

That's why most of the leading supermarket chains in China, most of them are using our service. And for restaurants, it's very different from supermarkets, as you may imagine. So, restaurant, the number of stores can be much more than the supermarkets, but at the per-store level, the orders are fewer, much fewer than supermarkets. So, it requires very different order bundling and routing operations.

And for pharmaceutical, you need to be able to deliver around the clock, 24 hours. It also require very different capabilities. So, all of this, we have been building such capabilities and know-how, and efficiencies over the years. That's how we can win the customers.

And last but not least, Dada Now is a third-party delivery platform considered by all the KAs. So, we are very valuable as an independent player. So, unlike, for example, like Meituan or Anami, which owns the order taking platform, they're considered -- they are not considered as an independent, so most of the KA wants to use independent delivery services because they don't want to be too much tightened to the order taking platforms. So, all this, as I mentioned, explains why we are able to continue to grow fast on Dada Now and at the same time, improving the profitability.

And we're very confident to carry on for the next year or so. Thank you.

Thomas Chong -- Jefferies -- Analyst

Got it. Thank you.

Operator

Your next question comes from Alicia Yap of Citigroup. Please ask your question.

Alicia Yap -- Citigroup -- Analyst

Hi. Good morning, management. Thanks for taking my questions. I have two questions.

First is I think our management mentions about you just launched this digital logistics car services open to other players. So, wondering if there's any revenue opportunity down the road from this service that you're licensing out. And then second is on the single sales performance. I think management mentioned JDDJ achieved over 100% growth.

Just if management could elaborate a little bit, the category performance during the Singles Day on the supermarket versus the nonsupermarket, I would assume the 3C category probably contributed a much higher percentage during the Singles Day. So, any color on the category mix during the Singles Day would be helpful. And then just related to that is the consumer behavior. I guess given the macro slowdown, just not sure if you have experienced or have seen any change of the consumer behavior during this Singles Day in terms of the demand and the category preference.

Thank you.

Beck Chen -- Chief Financial Officer

OK. So, actually, three questions. So, Alicia, let me take the first two questions and leave the macro question to Philip. So, about the Dada -- to pay the Dada as a logistics SaaS product, it's a pure SaaS platform, which can be provided to all those third-party delivery service merchants or those providers -- service providers.

So, up to now, it was implemented or used by like 5,000, 5,000 stores. So, right now, I think the revenue contributing to our like 6 billion revenue per year is still very minimum, but it will further expand our service scope to be like for fueled by Dada. So, we don't need to physically fill the orders by our Dada riders. We can even provide a software stack product to those merchants.

So, we are, right now, in close like review about the development of the logistic SaaS product. So, I think maybe it will be better to further talk about the revenue contribution and like those expectations in the next few earnings calls. And also, for the Singles Day mix -- Singles Day growth for the category mix, you're right. So, 3C product is growing faster than like the supermarket categories.

But generally, right now, we think the supermarket categories for the Double 11 campaign period is still growing very promising, and that's why our -- like the revenue guidance for Q4 is ever -- And also, we believe that the JDDJ growth rate will be still very fast, which is mainly contributed by revenues of supermarket category caused supermarket categories monetization, including the online marketing services, is more -- much more than the 3C categories. So, I don't actually -- I don't look at the detail like the mix growth rate for the Double 11 campaign period. But I believe the overall Double 11 campaign period promotion results should be very satisfied to all those merchants. For example, like even for like Walmart.

So, Walmart, the annual campaign, usually annual campaign peak is their August 8 promotion day. But for the Singles Day like the November 11 is like still growing by 25% compared to their August 8. And they're selling all supermarket category products.

Philip Kuai -- Chairman and Chief Executive Officer

Right. And in terms of the consumer behavior and the market situations, there's an interesting small accelerator, I would say, for the Singles Day is that, right before Singles Day, the governments encourage consumers to stock up a little bit at home. You might have seen in the news. So, I think this also helps to boost the sales a little bit.

But overall, I think if you look at the big picture, we're seeing two things happening. One thing is the consumers are now more and more used to on-demand retail. So, historically, they may buy restaurant food and get deliveries on demand. Now a large number of consumers are now used to buy like everything on demand.

I think this is a very important trend we absolutely see. At the same time, we're also seeing mostly from this year that more and more vertical retailers are now willing or more than willing to work with us and get listed. For example, like a smartphone, consumer electronics and also like personal care, cosmetics and like a parenting or like pet supplies or like a liquid and alcohol. So, all those kind of vertical specialty stores, they use -- they didn't work with, like, an online platform before.

But especially this year, we are seeing a strong trend that the vertical retailers are now very much willing to work with us. And I think this creates a very good situation. While consumers are more used to on-demand retail and get delivered instead of going offline to visit stores, at the same time, all the stores, the quality suppliers are now getting online. So, we're happy to see this combination.

Alicia Yap -- Citigroup -- Analyst

Great. Thank you.

Operator

Your next question comes from Ashley Xu of Credit Suisse. Please ask your question.

Ashley Xu -- Credit Suisse -- Analyst

Thanks, management, for taking my question. I actually want to follow up on our Nearby entry point. understand that it has been gradually rolling out and still under test stage. But could management share more color on the recent progress and our plan or target by year-end? At the same time, for those rolled-out regions, what's the effectiveness we have seen in attracting more users? And for our 4Q guidance, does that reflect any contribution on this new entry point? Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

Yeah. So, I'll give you some background and color about this nearby, and perhaps Beck will have anything there. So first of all, the Nearby channel is now available for access. So, in most of the Tier 1 and Tier 2 cities and some of the lower-tier cities.

So, we're happy to see that since June when the Nearby channel launched, we're happy to see the technology and the engineering behind this. And as you can imagine, there are a lot of engineering work behind the scenes because literally, we are transforming the JD app from a B2C app, and now to location-based app. And there are a lot of technology needs to be done, and we are working very closely around the clock with the JD technology team to make that happen. So, with that happening, we're happy to roll out the service to most of the Tier 1, Tier 2 cities.

At the same time, we keep enriching the product supplies and the store supplies to the consumers and expanding our geographic coverage. So, like, every week, we are seeing more retailers sign up and get listed on the Nearby channels. So, I think that's the fundamental because you need to have quality supplies and broad coverage. At the same time, we're also happy to see the operation metrics around nearby channel has continued to improve ever since launch.

So, going forward, we plan to be focusing on the key cities, the top cities to improving the mentality of consumers and to build up the Shop Now brands among consumers and also to improve the penetration into the JD user base at the same time to improve the order conversion rates, conversion levels of this Nearby channel. So, I think this is certainly significant, very significant step. And still, just with like six months so far -- or five months so far, so we are still seeing this channel at a very early stage. And we are very looking forward to grow this and to expand this in the future.

Beck Chen -- Chief Financial Officer

And also, in the 4Q guidance, we are very prudent in calculating the business coming from the Fujin tab, Nearby tab in Q4. So, more businesses of JD ecosystem should be coming from the traditional of Fujin center like the search results in Q4 because it's a more mature product and for Fujin tab still, I think, like I said, it takes a few time to just further improve for the product on listing this all those merchants and build up the consumer mind for the nearby shopping.

Ashley Xu -- Credit Suisse -- Analyst

Thank you.

Operator

Your next question comes from Wei Xiong of UBS. Please ask your question. 

Wei Xiong -- UBS -- Analyst

Hi. Good morning, management. Thank you for taking my questions. First, I want to get an update on the geographical coverage expansion.

Can management share your latest update of JDDJ in terms of further expanding the geographical coverage this quarter? And also, do we have a target for the number of cities and counties we cover next year? If there is a GMV contribution from the lower tier market that you can share, that would be appreciated. And second, I just want to follow up on the point that we mentioned as the nonsupermarket categories continue to grow their GMV contribution. I was wondering could we get an update on the different commission level across different product categories. And how will that mix shift affect the future trends of our commission level? Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

OK. I will give you my view and see if Beck have anything to add. So, first of all, in Q3, the GMV from our lower-tier cities on JDDJ grew by about 100%. And so far, we have covered over 107 -- sorry, 1,700 cities and counties, and we will continue to penetrate into the lower-tier cities.

And for now, we will be focusing on the -- especially the category development and expansion in the existing cities that are the cities we have already opened.  And that's about the geographic coverage. And in terms of the commissions, I think different categories have different commission rates, but different categories, we are improving the commissions and improving the monetization from each category. So, with our stronger collaboration with the brands, and also, we are generating more value to the retailers so that's why we can improve the commissions in different categories. That's independent from the mix of segments.

And yeah, I will see if Beck have anything to add.

Beck Chen -- Chief Financial Officer

Yeah. So, for supermarket categories, usually, we have commissioned salary fees, and also, especially for FMCG products, we have marketing dollars from those brand owners. But in the same time, we are also giving a lot of subsidies to consumers because they are -- they should be more frequent to purchase FMCG products instead of other nonsupermarket categories like 3C products, home appliances. So, for all those other newer categories, including smartphones, home appliances, pet products, so their manufacturing rate is lower than the supermarket overall manufacturing rate, but you don't need to give so much incentives to them.

So, this will give us like a positive direct margin for each order generated for those nonsupermarket category products. So, the contribution from those nonsupermarket categories will also contribute to the overall margin improvement of the platform. But we still emphasize that FMCG products is the most important category of the platform. So, we still need to give some incentives to -- and set subsidies to consumers as to retain them.

So, that's why up to this moment, we still have a slightly negative direct margin for the platform-wise or the platform because of our investment in the FMCG and the supermarket categories. So, in the long run, we believe that we can still improve our overall monetizing rate while significantly improving the direct margin level because we continue to improve our incentive ratio by decreasing the incentives given to FMCG and supermarket categories while we don't have so many incentives to other nonsupermarket categories. So, through the mix contribution, we believe that our overall direct margin is on track to break even next year for the whole-year basis.

Operator

Thank you. We've still got time for one last question. And our final question comes from Robin Leung of Daiwa. Please ask your question.

Robin Leung -- Daiwa Capital Markets -- Analyst

Hi, management. Thanks for taking my question. Actually, just a follow-up question. Looking into 2022, on one hand, I understand that we will realize some cost savings from user acquisition in the JD ecosystem.

On the other hand, if user contribution starts to kick in, is it possible that JDDJ will step up its spending again if the ROI is strong, and is that further improving like what you mentioned? Are we going to actually increase the subsidies in those like FMCGs categories? If management could share some of our strategy within the JD ecosystem, that would be great. Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

OK. So, first of all, as you said, we are happy to see we're getting strong support from JD in terms of user acquisition. This can certainly help us to reduce the cost for user acquisition. And still, we are in the early stage of this journal and -- of this journey, and we are, our goal is to reach like the 50% of the penetration.

So, we are now at a single digit. So, there's a long way to go. And in terms of the subsidies, I think overall, the trend and our goal is to improve the efficiencies and not to increase the subsidies, as we explained earlier. So, we are getting more and more marketing from the brands and also the resources from the retailers.

So, we are combining all these and improve the overall efficiencies instead of increasing them. And we're happy to see the ROI of our incentives have continued to grow. I think that's very important for all parties and will continue that way. And also, for the general competitive landscape, as we explained earlier, we're happy to see that most of the players are now more rational and not like burning too much of the subsidies as they used to be.

So, that's why overall, I think we are optimistic about both growth and our profitability going forward.

Robin Leung -- Daiwa Capital Markets -- Analyst

Great. Thanks.

Operator

I would now like to hand the conference back to Caroline. Please continue.

Caroline Dong -- Head of Investor Relations

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

This concludes the call.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Caroline Dong -- Head of Investor Relations

Philip Kuai -- Chairman and Chief Executive Officer

Beck Chen -- Chief Financial Officer

Ronald Keung -- Goldman Sachs -- Analyst

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

Thomas Chong -- Jefferies -- Analyst

Alicia Yap -- Citigroup -- Analyst

Ashley Xu -- Credit Suisse -- Analyst

Wei Xiong -- UBS -- Analyst

Robin Leung -- Daiwa Capital Markets -- Analyst

More DADA analysis

All earnings call transcripts