JD.com (JD) Q2 2023 Earnings Call Transcript

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JD.com (JD 6.12%)
Q2 2023 Earnings Call
Aug 16, 2023, 8:00 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 second quarter and interim 2023 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded.

If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, director of investor relations. Please go ahead.

Sean Zhang -- Director, Investor Relations

Thank you, Drew. Good day, everyone. Welcome to JD.com's second quarter and interim 2023 earnings conference call. For today's call, CEO of JD.com, Ms.

Sandy Xu, will kick off with opening remarks. Our CFO, Mr. Ian Shan, will discuss the financial results. After that, we'll open the call to questions from analysts.

Let me quickly cover the safe harbor. Please be reminded that during this call, our comments and responses to your questions reflect management's view as of today only and will include forward-looking statements. And please refer to our latest safe harbor statement in the earnings press release on our IR website, which applies to this call. We will discuss certain non-GAAP financial measures.

Please also refer to the reconciliation of non-GAAP measures to the comparable GAAP measures in the earnings press release. Also, please note, all figures mentioned in this call are in RMB otherwise -- unless otherwise stated. Now, let me turn the call over to our CEO, Ms. Sandy Xu.

Sandy Xu -- Chief Executive Officer

Thanks, Sean. Hello, everyone, and thanks for joining us today to discuss our Q2 results. Q2 was a productive quarter for JD. We delivered a solid performance, with both top-line and bottom-line results exceeding our expectations.

More importantly, during the quarter, we effectively executed our business and organizational development, further improved our supply chain capabilities, and achieved many operational and financial milestones while navigating a challenging industry environment. We are encouraged by the progress we are making on these priorities, and I want to share some of the details with you. Let me start by reiterating JD's operating philosophy since our inception, which is to relentlessly strive for lower costs, higher efficiency, and superior customer experience. This is at the heart of everything we do, and it primarily consists of two critical elements, namely customer experience and supply chain capabilities.

First, on customer experience, we always focus on providing best-in-class customer experience and continue to find ways to improve selection, speed, quality, and value, in Chinese, [Foreign language] Particularly, since the beginning of this year, we have gone extra miles to improve our selection and value, while our quality and speed continue to lead the industry. On selection, we are taking solid steps to improve our platform ecosystem, which, in JD's case, means the prosperous coexistence of both our 1P and third-party marketplace businesses. Our platform ecosystem strategy is guided by our goal to continuously improve customer experience, and both 1P and 3P models are means to this end. It was an exciting quarter for our third-party marketplace business.

We feel that we are only at the early stage of realizing JD's marketplace business potential, but we were encouraged to see the number of 3P merchants more than double year on year and set an all-time record in Q2 as we improve our tools and traffic allocation mechanism to build a fair and effective operating environment. With the improving operating environment, more 3P merchants brought a broad selection of products to our customers, driving 3P marketplace GMV growth to accelerate over the last two consecutive quarters. Moreover, we have seen two consecutive quarters of double-digit 3P revenue growth, mainly driven by robust growth of advertising revenues as more 3P merchants allocate ad budget to JD's platform. On value, since the beginning of the year, we have launched new initiatives to enhance our reputation for providing value to users.

Sometimes, I hear people make the argument that JD's pursuit of low prices will inevitably impact user experience and our profitability. We know this argument is incorrect. Value means providing both low price and extra value of services for the many customers paying. And not surprisingly, JD's supply chain capability is the key to delivering this.

With lower cost and higher efficiency generated through our supply chain, we are able to provide more value and extra service to our customers. Take our 10 billion discount program as an example. As we continue to enrich its value for many selection of 3P merchandises, which is resonating with our customers, 3P GMV contribution with this program has gradually increased to over 50% in July. Also, with this program moving ahead, we were still able to maintain a healthy bottom line in Q2, which Ian will elaborate shortly.

This is a strong proof of how we leveraged our supply chain and managed our business effectively to serve our users better. Another proof is that our core categories, including 3C and home appliances, continued to benefit from our robust supply chain capabilities, which enable us to provide steady supply at low prices and high-quality services at the same time. As a result, we further gained market share in these core categories in the quarter. During the quarter, we observed strong user engagement trends, including higher purchase frequency and ARPU on our app.

In particular, the number of repeat customers continued to grow by double digits, while the average GMV per user increased by high single digits. The number of JD PLUS members continued to grow over 20% year over year and reached 36 million in Q2. All these are strong testaments that, on top of our speed and quality, user recognition of our improved selection and value gets stronger as our supply chain capabilities continue to serve as the bedrock of our resilient business performance. In the last two quarters this year, we have been hands down executing our strategic priorities, including our platform ecosystem and enhancing our customer experience with superior selection, speed, quality, and value.

As we have talked a lot about our business development today, now, I'd like to share some color on the progress of our organizational restructuring. We launched this initiative in Q2, in which we focused to flatten our management structure and delegate greater decision-making power to the operational units that are closer to users. Our goal is to improve organizational efficiency and incentivize entrepreneurship, even at the front-line level. So far, the restructuring is progressing as expected.

We've completed reassigning responsibilities and assigning KPIs for each of the operational units and are now in the process of checking and assessing execution, as well as further streamlining the nodes in operation and iterating our business supporting systems. The restructuring involves a lot of efforts, and it takes time to bring its effectiveness into full play. But we've seen that, under the new structure, our operational units are more incentivized and showcased enhanced professionalism and executive capabilities. It's really encouraging to see our decisions and efforts start to pay off and yield early positive results.

As JD continues to execute these strategies, from a long-term perspective, we are more confident that -- than ever in our ability to deliver healthy and sustainable growth and continue to seize new opportunities to innovate and drive our business growth going forward. At our 20th anniversary this June 18th, we introduced our ambitious 35711 Vision. The vision includes our goals in the next 20 years of establishing three enterprises with over 1 trillion RMB in revenues and 70 billion RMB in net profit, having five JD subsidiaries rank on the Fortune Global 500 list, and seven publicly listed companies with over 100 billion RMB market cap. We are contributing 100 billion RMB in taxes and creating over 1 million jobs as a group.

This is a vision that outlines both a path for sustained growth for the next 20 years and our commitment to positive social impact. It also highlights our unshakable confidence in and commitment to China's long-term economic development. As we look ahead to the second half of the year and the future, we are focused on the healthy growth of our business and investing in exciting new opportunities, driven by our unchanged long-term strategies that centered around cost efficiency and customer experience, and a deeper sense of mission. We believe we are well-positioned to create long-term value for our users, business partners, shareholders, and the society at large.

With that, I'll turn it over to Ian for our financial highlights. Thank you.

Ian Shan -- Chief Financial Officer

Thank you, Sandy. Hello, everyone. We are happy to report that JD delivered both revenues and profitability ahead of our expectations. We continue to execute our proactive business development and made solid progress across several of our priorities, including building a robust marketplace ecosystem; enhancing user mindshare of our value propositions of selection, speed, quality, and value; and delivering healthy profitability.

Such results validates our strategic focus, and we're confident in the underlying strength of our business momentum. With that, let's turn to our financial results in Q2. Our net revenues grew by 8% year on year to RMB 288 billion in Q2. Breaking down the revenue mix.

Product revenues were up 3% year on year in Q2. By category. Electronics and home appliances revenues grew by a remarkable 11% year on year in Q2, mainly driven by the strong growth of home appliance and mobile phones, both of which have outpaced the industry growth during the quarter. Our further reinforced market leadership in these categories showed our strong user mindshare, robust supply chain capabilities, and industry-leading service quality, which are all key differentiators for JD.

General merchandise revenues were down 9% year on year in Q2, primarily due to the soft performance of our supermarket category, which was partially impacted by the relatively high base in the same period last year due to COVID. That said, I would like to reiterate our confidence in the supermarket's future performance as its operating efficiency has improved significantly with a healthier product mix. Service revenues grew by 30% year on year in Q2, of which marketplace and marketing revenues were up 9% year on year. I would like to highlight that revenues generated by third-party merchants grew faster than 1P in the quarter, driven by 3P advertising revenues.

As we roll out more supportive measures for merchants, we saw a notable acceleration in merchant base expansion in the quarter. It's also encouraging to see that our traffic conversion rate had a meaningful improvement that indicates our traffic allocation algorithm is driving co-development of our 1P and 3P business effectively. Turning back to our service revenues. Logistics and other service revenues grew by 52% year on year in Q2.

Excluding impact from Deppon consolidation, organic growth of logistics and other service revenues was 12% year on year. Now, let's turn to our segment performance. JD Retail revenues grew 5% year on year in the quarter as we continue to fine-tune our operations that focus on improving efficiency and building core capabilities since Q4 last year. Regarding JD Retail's profitability, gross margin continue to expand year on year in Q2.

Our proactive efforts have clearly driven higher operating efficiency of our supply chain, even as we took firm steps to address value on our platform. JD Retail's non-GAAP operating margin came in at 3.2%, slightly declined compared to Q2 last year as we made proactive efforts to invest in user experience, which has already started to show in the improvement of our user engagement. The slight year-on-year operating margin decline was also partially due to an abnormally higher margin in Q2 last year under COVID impact. While we aggressively cut back operating expenses, including marketing spending, we maintained our goal to drive sustainable growth and improve profitability of our core retail business in the long term.

In terms of users, as we continue to expand supplies and address value on our platform, JD Retail saw a year-on-year increase in user shopping frequency and retention in Q2, which led to a higher average GMV per user in the quarter. This was also partially contributed by the expansion of our core user base. Overall, we're happy with strong user quality metrics, which is a result of our focus on user quality and user experience. JD Logistics saw a 31% revenue growth year on year in Q2.

Excluding the impact of consolidation of Deppon, the growth rate was 5%. Thanks to the resilient growth from external customers, in Q2, revenues from external customers reached 69% of JD Logistics revenue. In terms of profitability, JDL's non-GAAP operating margin was 1.2% in the quarter, a jump of 113 bps from a year ago, primarily driven by its optimized business structure and customer mix and better economies of scale and business expansion. Dada reported revenue of RMB 2.8 billion and non-GAAP operating loss of RMB 29 million for the quarter, a substantial improvement compared to a year ago, primarily driven by better operating efficiency and economies of scale.

Intracity, on-demand retail business remains an important pillar in our strategic positioning, and we're encouraged to see that Daojia and Shop Now have expanded to cooperate with 300,000 offline stores and are providing on-demand retail services in more than 2,000 counties, districts, and cities. Revenues from new business come down to RMB 4.3 billion in Q2 as we further scale back Jingxi and international business on a year-on-year basis, while JD Property maintained its robust growth momentum. New business saw a turnaround of profitability and recorded an operating profit of RMB 1.1 billion, primarily due to the gain from the third core fund closing of JDP in Q2, as well as the narrowing losses from Jingxi and international business, both of which were minimal for the quarter. Moving to the consolidated bottom line.

We recorded RMB 8.6 billion non-GAAP net income attributable to ordinary shareholders in Q2, up 32% year over year. Non-GAAP net margin reached 3%, up 55 bps from a year ago, which set a new record for our June promotion quarter. Finally, our last 12 months' free cash flow as of June 30th was RMB 33 billion, increased by 21% on a year-on-year basis. This was mainly driven by our improved profitability, which led to a higher operating cash flow, as well as further optimized cash conversion cycle.

To conclude my remarks, as we continue to improve our operations, we saw multiple encouraging trends in Q2. We are confident that we will emerge stronger with a healthy and sustainable business structure and enhanced core capabilities to unlock our growth potential. With that, I will turn it over to Sean. Thank you.

Sean Zhang -- Director, Investor Relations

Thank you, Ian. For the Q&A session, you are welcome to ask questions in English or Chinese, and our management will answer your question in the language you asked. We'll provide English translation, when necessary, for convenience purpose only. In the case of any discrepancy, please refer to our management statements in the original language.

Operator, we can open a call for Q&A. Thank you.

Questions & Answers:

Operator

The question-and-answer session of this conference call will start in a moment. [Operator instructions] The first question comes from Ronald Keung with Goldman Sachs. Please go ahead.

Ronald Keung -- Goldman Sachs -- Analyst

[Foreign language] Congratulations on the second quarter growth performance. It exceeded management's own expectations, with electronics appliance being strong and faster 3P growth versus 1P. I just want to hear management's view on the performance by categories in the second quarter and the outlook for these with your business restructuring and the KPIs that you're tracking and the outlook just for overall growth into the second half, taking into the account the macro and the business restructuring. Thank you.

Sandy Xu -- Chief Executive Officer

[Foreign language] Thank you, Ronald, for your question. Despite challenges in the macroeconomic and consumption landscape during Q2, we have remained dedicated to solidifying user mindshare toward our price competitiveness, fostering an open platform ecosystem, and moving forward with our efforts to further optimize the business structure. The outcomes achieved, thus far, have surpassed our expectations. JD's business model has shown remarkable resilience in the face of the ongoing consumption environment.

By constantly enhancing supply chain capabilities, we have ensured a more reliable product supply at lower cost and high-quality services during the promotional season, resulting in further market share expansion in our core advantages categories. For instance, as the real estate market and demand of durable goods are still recovering, the overall home appliances market has faced pressure. However, JD's home appliances business meaningfully outperformed the industry and continued to gain market share. We attribute this achievement to JD's strong user mindshare and match the shopping experience we provide and the competent supply chain that we have been diligently built over the years.

[Foreign language] And furthermore, our 3C categories showcased the strong performance. This can be attributed to our robust supply chain capabilities, competitive pricing, and a deep user mindshare, exceptional shopping experience, including convenient trade-in services, and our active development in the O2O market. Notably, our sales of mobile phones achieved a double-digit growth rate in Q2, surpassing the industry level. [Foreign language] So, as I just mentioned in my opening remark, it is worth highlighting that we have made significant progress in the development of an open platform ecosystem this year, with both merchant base and product supply expanding at a faster pace.

Growth of 3P GMV has also accelerated over the past two quarters. Moreover, since the start of the year, despite we have introduced a series of supporting policies for our new merchants such as lowering platform service fees and take rates, our 3P revenue growth rate continued to outpace that of 1P in the first two quarters, remaining a double-digit range. [Foreign language] Certainly, there are other categories that require continued efforts and improvement. For example, the supermarket category's growth momentum is impacted by the category mix optimization and also the resurgence of the offline conversion after the COVID, and a high comparison base from the previous year.

However, we have witnessed a significant increase in the number of third-party merchants and product offerings in the general merchandise categories on our platform, including the supermarket category. We're also continuing to strengthen our supply chain capabilities and optimize fulfillment. Our strategic execution and organizational restructuring efforts are gradually yielding results, providing momentum for healthier growth in the supermarket category for the second half of the year. For long-term perspective, we firmly believe that our supermarket category holds immense potential as a key driver for the growth of JD.com.

Ian Shan -- Chief Financial Officer

OK, Ronald. [Foreign language] So, Ronald, to answer your second question, our primary focus is our user performance as we promote the strategy for price competitiveness. In Q2, we saw improving user engagement trends, especially both ARPU and the scale of our core user base continued to grow. These trends indicate that our efforts to enhance user experience have been successful in earning greater recognition among them, as well as their wallet share.

[Foreign language] Take the 10 billion subsidy program for example. The program has been effective in boosting shopping frequency and across category purchases on the platform. And also, the platform -- sorry, also the program contributed meaningfully to attract new users and activate low shopping frequency users. [Foreign language] Secondly, in terms of our open ecosystem, we placed significant emphasis on the diversity of merchants and products, as well as merchants' operating efficiency on our platform.

Since the start of the year, we have simplified the joining procedures for merchants and increased our supporting measures for them, such as lowering their operating costs, providing more operating tools, and setting up clear guidelines for merchants as an example. As a result, we have witnessed a rapid growth in the number of new merchants joining our platform and recorded a three-digit year-on-year increase in merchant base in Q2. By enriching our pool of merchants and expanding our product offerings, we are better able to meet the diverse shopping demands of our users. This will serve as a key driver for our future revenue and profit growth.

[Foreign language] Certainly, we've been taking efforts to enhance supply chain capabilities. A direct reflection is that we are able to continue to provide high-quality services to our users while promoting the strategy for price competitiveness. This is also demonstrated by our further market share gain in our core categories. At the same time, our supply chain capabilities also helped us to deliver consistent growth in our fulfillment gross margin.

[Foreign language] So, I just want to add that, as we previously shared, so for this year, our focused KPIs will be focused on our GMV, profitability, and cash flow. Thanks. [Foreign language] And to your last question regarding the outlook of the second half of the year, as Sandy shared earlier, despite of uncertainties from the macroeconomic and industrial environment, our business has continued to demonstrate healthy improvement. We will remain committed to our long-term strategies and are confident that our core business growth will maintain robust momentum.

Thank you.

Sean Zhang -- Director, Investor Relations

Thank you, Ronald. Next question, please.

Operator

The next question comes from Thomas Chong with Jefferies. Please go ahead.

Thomas Chong -- Jefferies -- Analyst

[Foreign language] Thanks, management, for taking my questions. My first question is about our 3P strategies, as well as the GMV contribution in future. And my second question is about our category expansion strategies. Can management share the latest updates given we are seeing very fast growth in the number of merchants? Thank you.

Ian Shan -- Chief Financial Officer

OK. [Foreign language] Thank you. First, I will answer your questions on the user's recruitment. So, there are several measures.

So, first of all, we will expand our efforts in attracting merchants and also lower the barriers and making it more streamlined to welcome our platform and streamline the processes and also bring down the fixed costs for the merchants to operate on our platform. [Foreign language] And secondly, on the merchants operating side, we will foster a fair environment for everyone to compete on our platform. This competition is not only between our 1P and our 3P merchants but also among our top merchants. So, we will make a very clear growth path for the merchants to grow their business on our platform, which is in line with our value propositions, and do adequate publicities and the promotions among our merchants.

[Foreign language] And also, we will provide sufficient tools to support our merchants to operate on the platform, including the data support and also the cultivation of our -- their skills to operate on JD's platform to improve their operating efficiency. [Foreign language] Yeah, as to the achievements for this quarter, I just mentioned earlier that the overall number of merchants in Q2 grew by three digits. And especially, we see the increasing number of merchants from the categories of supermarket, fashion, home goods, etc. And their 3P revenues is also growing at double digits rate, which are all higher than the 1P revenue.

[Foreign language] So, for the outlook of our 3P business, so overall, we want -- just want to reiterate that both 1P and the 3P were developing to be aligned with our consumer-centric value proposition, which is superior selection, speed, quality, and value, and with the ultimate goal to increase their wallet share on JD.com. [Foreign language] So, we will do our best to strike a balance between cost efficiency and the consumer experience, so to allow our users to choose between our 1P offering and 3P offerings based on the product, price, services. So, to do our best to cater to the diversified needs of different users. So, our long-term objective for our 3P is to have its proportion of GMV account for about 60% of the overall JD platform.

Sandy Xu -- Chief Executive Officer

[Foreign language] And also, I would like to share more about our -- on the category side, as we see the economy recovering, it's still an ongoing situation and affected on the mismatches of the high temperatures and the different time scheduling of the cellphones, etc. However, it is important to note that the overall performance in Q3 is not only influenced by the macro environment and consumption trends but also these kinds of seasonality. And additionally, there are ongoing efforts from our proactive efforts to further optimize our business structure. Nevertheless, overall, we are confident in the development momentum and improvement of the health of our business.

[Foreign language] And as mentioned earlier, for -- we expect for the supermarket category to show an improving trend, with better growth rate in the second half of the year compared with the first half. With our dedicated focus on enhancing the operational quality of this category such as optimizing product category mix, improving sales channel structures, and enhancing operational capabilities, we are confident to see positive profitability trend of the supermarket category. Long-term speaking, supermarket category remains one of the key drivers of our growth. [Foreign language] In the fashion category, we remain committed to expanding brands and merchants, enriching product offerings, optimizing the category structure, and traffic allocation.

By focusing on these key areas, we aim to maintain an improving growth trajectory of the fashion category.

Sean Zhang -- Director, Investor Relations

Thank you. Let's take the next question, please.

Operator

The next question comes from Alicia Yap with Citigroup. Please go ahead.

Alicia Yap -- Citi -- Analyst

Hello. [Foreign language] With the first half and the 618 promotion event behind us, can management share with us how do you rate your own execution performance so far year to date? Which areas do you believe JD has met your initial expectation and which areas JD still need to improve or need to modify initial strategy to achieve the performance that you want? Thank you.

Sandy Xu -- Chief Executive Officer

[Foreign language] Thanks, Alicia. So, I just mentioned that actually, in this quarter, we have taken measures to promote our everyday low price and to foster our open platform strategies, all have seen some positive progress. So, on the user side, we've steadily implemented a series of actions to further optimize our price strategies and enhance user experience, which has been well received by consumers, exceeding our expectations. Whereas, with the success of the grand promotion, it's also like indirectly proof that users still have a very strong mentality toward promotions, which also means that it takes a relatively long period of time for users to change their mindset.

Therefore, our commitment to promoting the everyday low-priced daily sales model needs time and dedication. [Foreign language] And on the merchants acquisition part, it also takes time for the marketplace ecosystem to flourish. And although we have made good progress in attracting merchants, there's still significant room for improvement in platform operations and traffic allocation mechanism, etc.

Sean Zhang -- Director, Investor Relations

OK. Thank you, Alicia. Let's take the next question, please.

Operator

The next question comes from Eddy Wang with Morgan Stanley. Please go ahead.

Eddy Wang -- Morgan Stanley -- Analyst

[Foreign language] Thank you, management, for taking my question. My question is on the new business. We have heard some news flow talking about we will refocus on Pinpin business. But if you look at the second quarter, the narrow loss of the new business actually has been quite significant.

So, just want to ask what's our focus of the new business in the next 12 to 18 months? Thank you.

Sandy Xu -- Chief Executive Officer

[Foreign language] Thank you, Eddy. Our primary focus remains on enhancing our supply chain capabilities, establishing an open ecosystem, and developing on-demand retail and other long-term capabilities. On-demand retail includes our recently updated Shop Now service, which is a key component of our new retail strategy. Our innovative retail business integrates our Pinpin community group buying business, distributed warehousing, and 7Fresh.

Its main purpose is to create synergies within our supply chain operations. Currently, we are in the experimental phase, testing different models to enhance synergies in supply chain and to generate a higher revenue to meet customers' demands and improve their shopping experience. Even when the business model proves viable in certain markets, we still will take a step-by-step approach and to test it city by city. So, the overall, the investment is manageable.

It won't affect our expectations for the full year profitability. Yeah, I think the English should be to generate higher synergy instead of higher revenue. So, scale is not our top priority for these new businesses at this stage.

Eddy Wang -- Morgan Stanley -- Analyst

[Foreign language] 

Sean Zhang -- Director, Investor Relations

Thank you. Thank you, Andy. OK. Let's take the last question, please.

Operator

And that question comes from Kenneth Fong with Credit Suisse. Please go ahead.

Kenneth Fong -- Credit Suisse -- Analyst

Hi. [Foreign language] Thank you, management, for taking my questions. My first question is that we noticed that the e-commerce platforms are increasingly use low price strategy as a key focus and key initiative. Users are more frequent to compare prices among different platforms, and platforms are also becoming more commoditized and similar.

How would JD differentiate going forward and how should we think about the development for the overall China e-commerce industry going forward? And my second question is that we noticed that we are reentering the community group purchase. Can you share with us your strategy and how it would differ from Jingxi that we invested before? Thank you.

Sandy Xu -- Chief Executive Officer

[Foreign language] So, thank you, Kenneth. At JD.com, we have constantly focused on strengthening our differentiated competitiveness. So, our core advantage lies in our supply chain-based business model. By continuously developing our capabilities on supply chain and user experience, we can guarantee high-quality, low-price, and reliable product supplies.

And also, we can effectively matching products with our users, creating a superior shopping experience and further building users' trust in JD.com. And we also want to reiterate that for not only e-commerce but all the retailers from day one of our existence, our core competitiveness, where the essence of our business, is the low price. So, that's why we have always anchored on our business philosophy: cost efficiency and customer experience. So, in fact, actually, we very welcome and we're looking forward to welcome our users to compare prices across platforms before they make -- place their order decisions as we are very confident in our supply chain capabilities and the low-price and high-quality services we can provide based on our distinct 1P services, which benefit from our scale advantages.

[Foreign language] So, as I introduced earlier that we continue to focus on strengthening users' mindshare toward our superior selection, speed, quality, and value offering. So, now, we want to leverage our established advantages in speed and quality, while at the same time, we're continuously working on expanding our platform ecosystem by attracting more merchants and enhancing its diversity and richness. This will enable us to cater to more verified demands of our users to work more on the selection and value part. [Foreign language] So, at the same time, we have made significant efforts to ensure and improve the user experience, including, first, maintaining efficient management for merchants' entry and product management; and secondly, continuously enhancing the scale effect of our 1P business to drive down procurement costs and pass on the benefits to users, in the meantime, raising the standards of our 1P services to ensure the best user experience; and lastly, emphasizing on the core criteria of product, price, and service in our platform operation.

Yeah. [Foreign language] With regard to Pinpin, we have mentioned previously, our community group buying business and the team have maintained its presence throughout. Following our business optimization last year, Pinpin has shifted its focus to Beijing and the surrounding regions. The team is now exploring the local short-chain supply chain model, especially on fresh products, refining its product offerings, enhancing user experience, optimizing business processes, and improving its [Inaudible] Currently, Pinpin is conducting small-scale pilots to test this model.

The overall investment is manageable.

Kenneth Fong -- Credit Suisse -- Analyst

[Foreign language]

Sean Zhang -- Director, Investor Relations

Thank you, Kenneth.

Operator

We are now approaching the end of the conference call. I will now turn the call over to JD.com's Sean Zhang for closing remarks.

Sean Zhang -- Director, Investor Relations

Thank you for joining us on our call today and for your questions. If you have further questions, please contact me and IR team. We appreciate your interest in JD.com and look forward to talking to you again next quarter. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Sean Zhang -- Director, Investor Relations

Sandy Xu -- Chief Executive Officer

Ian Shan -- Chief Financial Officer

Ronald Keung -- Goldman Sachs -- Analyst

Thomas Chong -- Jefferies -- Analyst

Alicia Yap -- Citi -- Analyst

Eddy Wang -- Morgan Stanley -- Analyst

Kenneth Fong -- Credit Suisse -- Analyst

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