Earnings Call Transcript - JD Q1 2025

Operator, Operator

Hello and thank you for standing by for JD.com’s first quarter 2025 earnings conference call. At this time, all participants are in 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 of Investor Relations

Thank you. Good day everyone. Welcome to JD.com’s Q1 2025 earnings conference call. With us today is CEO of JD.com, Ms. Sandy Xu. She will kick off the call with her opening remarks and our CFO, Mr. Ian Shan will discuss the financial results, then we will open the call to questions from analysts. Before turning the call over to Sandy, let me quickly cover the Safe Harbor. Please be reminded that during this call, our comments and responses to questions reflect management’s view as of today only and will include forward-looking statements, so please refer to our latest Safe Harbor statement in the earnings press on our website, which applies to this call. For a discussion of certain non-GAAP measures, please refer to the reconciliation of non-GAAP measures to the comparable GAAP measure in the earnings press release. Please also note all figures mentioned in this call are in RMB unless otherwise stated. Now let me turn the call over to our CEO, Sandy. Sandy, please.

Sandy Xu, CEO

Thank you, Sean. Hello everyone. Thank you for joining our earnings conference call today. Our business maintained robust momentum in the last quarter of 2024 and kicked off 2025 with an even stronger set of results in Q1. Our total revenues were up 16% year-on-year, a further acceleration from the prior quarter with healthy growth across the board. We meaningfully outpaced total retail sales and online retail sales of physical goods in the same quarter. We continued to enhance our supply chain capabilities and solidified market leadership in our electronics and home appliance categories, while further tapping into the large market potential in the general merchandise category and building up our user mind share. Our business also continued to see healthy profit growth during the quarter. Our non-GAAP net profit was up 43% year-on-year to RMB 12.8 billion, with net margin expanding by 82 BPs to 4.2%. This was primarily driven by year-over-year improvement in our gross margin, a trend that we’ve sustained for 12 quarters in a row as our team continues to focus on driving best-in-class user experience, lower costs and higher efficiencies. Let’s first look at our category performance. We saw continued healthy demand for electronics and home appliances on our platform in Q1, leading to further acceleration in revenue growth to 17% year-over-year. The healthy demand in this category demonstrates the underlying strength and vast potential of domestic consumption as well as JD’s unparalleled strength in supply chain and user mind share. JD’s business model enables us to seize structural opportunities in the industry driven by the government’s consumption stimulus policies, the innovation of technologies, and continuous rollout of new product models. We are confident we will generate more vitality and resilience in our long-term growth in electronics and home appliances. Moving onto general merchandise, in Q1, revenue growth here also accelerated sequentially to 15% year-on-year. To break this down, supermarket category revenue growth hit double digits for the fifth consecutive quarter. In particular, it had a robust promotion season during the Chinese Lunar New Year with revenues and users both on a solid growth trajectory. The momentum of the supermarket category is expected to carry on throughout 2025. This performance is the result of continued refinement across every stage of our retail supply chain, from enhanced procurement capabilities and improved fulfillment efficiency to a stronger user experience and increased user mind share. Supermarkets offer massive market scale with fragmented players and a relatively low online penetration, so we see a lot of headroom to step up our growth and profit improvement in this key category. Our fashion category further accelerated revenue growth in Q1, driven by our continually enhanced assortment of brands and merchants along with growing user recognition. Supported by our differentiated roadmap to scale our fashion business and strengthen user mind share, we anticipate strong operational tailwinds throughout the year. We expect supermarkets, fashion and other high potential growth categories within general merchandise, which we are only beginning to unlock, to further propel our long term growth trajectory. Moving onto user growth and engagement, another bright spot in Q1, during the quarter our quarterly active customer number was up double digits year-on-year with increased average user shopping frequency and notable acceleration. JD has recorded double-digit year-on-year growth in both shopping frequency and ARPU in Q1. Overall, we are pleased with the robust user traction we have attained. It reflects the strong momentum of our core retail business and our ever-enhancing user experience. We constantly review and always strive to improve our user experience. Particularly in Q1, our team tackled a number of sticking points to further streamline our after-sales services and continued to increase AI adoption to improve efficiency and the personalization of certain recommendations, AI shopping guide consultations, as well as delivery and after-sales services, among others. We believe our user momentum will get stronger as we continue to optimize user experience and work on user synergies across our businesses. We have also made steady progress in executing our low-price strategy and building out our 3P ecosystem. In Q1, our net promoter score, the NPS on price competitiveness improved both year-on-year and sequentially, demonstrating that our low-price efforts are resonating better with our users. Growth of order volume and user base in lower tier markets also continued to outpace that of higher tier markets on our platform. On the 3P ecosystem side, as we further expand the merchant base and product offerings, our 3P order volume and 3P buyers increased strongly year-on-year. This momentum also contributed to the robust growth of our marketplace and marketing revenues, which were up 16% year-on-year in Q1, a meaningful pickup compared to preceding quarters. Over the years, we’ve built a very robust and scaled retail business with strong supply chain capabilities and best-in-class user experience. Retail remains the cornerstone of JD and serves as the foundation from which we will continue to pursue more exciting growth opportunities. One recent notable opportunity is our rapidly growing food delivery business. Starting from core retail, JD is expanding into on-demand retail, meeting users’ diverse needs in different shopping scenarios. Food delivery has the highest shopping frequency and contributes the majority of orders within on-demand retail. Moreover, food delivery is a vast market with abundant and packed demand and opportunities, and JD has the right culture and strength, including the established systems, fulfillment network, talent, as well as business model to effectively address this demand. It’s important to note that at JD, we do not see food delivery as a standalone business. It’s deeply rooted and well integrated into JD’s robust retail infrastructure and ecosystem, a pivotal differentiator. In a very brief time, JD’s food delivery has made remarkable headway in aspects of order volume, onboarding merchants, and customer satisfaction. In particular as we speak, JD’s food delivery order volume today is reaching close to 20 million orders, another important milestone that we expect to surpass very soon. This demonstrates our incentive strategies and strong execution at the right time. On-demand retail, with food delivery included, will generate powerful synergies with our core retail and other businesses, such as JD Health, and drive overall growth and efficiency gains across the entire JD ecosystem in the years to come. In addition to food delivery, we are excited to work on a number of other initiatives. For example, in April we launched a RMB 200 billion export to domestic sales program to work with export manufacturers to expand domestic market presence. It will also enrich product supply on our platform, particularly those featuring great quality and low price. In addition, we’ve also been driving the application of AI and automation technologies across the demand, supply and fulfillment aspects of our entire ecosystem, such as better connecting user demand with our product offerings and delivery options, improving efficiency of our warehousing and fulfillment operations, and developing AI-enabled tools to create better cost-effective solutions for our 3P merchants. We are excited as AI is transforming the retail industry. As the largest retailer in China, we see abundant adoption scenarios. In summary, Q1 was very productive and exciting. Our core retail business progressed favorably with robust growth on both top line and profits, and we are more excited as we tap into a set of great growth opportunities to expand our future TAM. Beyond a solid core business, we believe it is important for companies to hold a long-term perspective, remain steadfastly focused on their strategic priorities while maintaining the flexibility to adapt to industry dynamics. We believe JD today is on a more solid footing and we are making the necessary investments to support our sustainable long-term growth and bring value to society at large. This concludes my remarks. Now let me pass it over to Ian.

Ian Shan, CFO

Thank you, Sandy, and hello everyone. We had a robust start to the year amid the steady rebound in China’s macro economy and consumption. In Q1, our total revenues growth accelerated to 16% year-on-year. We recorded double-digit growth and acceleration across our major revenue streams, including electronics and home appliances, general merchandise, and service revenues, particularly marketplace and marketing. This performance stands as strong proof of our ever-enhancing supply chain capabilities and user experience. In terms of profitability, our gross margin expanded by 60 BPs year-over-year to 15.9% in Q1, sustaining a 12-quarter streak of year-on-year improvement. Non-GAAP net income attributable to ordinary shareholders was up 43% to RMB 13 billion, with non-GAAP net margin expanding by 82 BPs to 4.2%. Alongside our strong financial results, we remain dedicated to delivering shareholder returns. In April, we completed a new cash dividend payout of US $1.44 billion or $1.00 per ADS. In terms of share buybacks year-to-date in 2025, we repurchased a total of 80.7 million Class A ordinary shares, equivalent to 40.4 million ADS, which accounted for 2.8% of our ordinary shares outstanding as of December 31, 2024. The progress demonstrates our dedication to creating value for our shareholders and our strong conviction in JD’s long-term growth and financial performance. Now let’s turn to our Q1 financial performance. Our net revenues grew by 16% year-on-year to RMB 301 billion in Q1. In terms of the mix, product revenues grew by 16% year-on-year, of which electronics and home appliances revenues were up 17% and general merchandise revenues were up 15%, both at a faster pace compared to the prior quarter. For electronics and home appliances, we saw sustained strong consumption momentum in China as the government continued to implement stimulus policies. JD is well positioned with our supply chain advantages to fulfill consumer demand, provide a best-in-class trading experience, and further enhance our market position and user mind share. Within general merchandise, both our supermarket and fashion categories recorded double-digit revenue growth in Q1 with further acceleration from a quarter ago. General merchandise remains an important engine for our long-term sustainable growth as it represents huge market potential, and we will persistently strive to improve our operations and user experience in this category. Service revenue growth also accelerated to 14% year-on-year in Q1. Within services, marketplace and marketing revenues were up 16% and logistics and other services revenues were up 13%. For marketplace and marketing, its growth pace continued to accelerate sequentially in Q1, and both commissions and advertising revenues maintained double-digit growth momentum. This was a result collectively driven by many improving trends on our platform, including increasing user traffic and engagement, our improving traffic allocation efficiency, as well as our expanding 3P merchant base and product offerings. Now let’s turn to our segment performance. JD Retail achieved robust growth in both top line and profitability. Its revenues were up 16% year-on-year in Q1 driven by a solid performance across all major categories. In addition, in Q1 JD Retail’s growth margin continued to improve for the 12th consecutive quarter as we continued to boost our procurement capabilities and accelerate growth of our high margin revenue streams. In terms of operating income in Q1, JD Retail non-GAAP operating income was up 38% year-on-year to RMB 13 billion, and operating margin demonstrated strong resilience. We are well on track to continue to drive a healthy top line and profit trajectory for JD Retail as we move forward. Next, JD Logistics - JD Logistics revenue grew by 11% year-on-year in Q1, with both internal and external revenues sustaining double-digit growth momentum. A soft performance in terms of non-GAAP operating income in the quarter was in line with our expectations as we proactively invested to upgrade fulfillment capacity and user experience. In addition, JD Logistics has been working on increasing automation levels across its work streams, such as warehousing, sorting, transportation, and last-mile delivery. This enables JD Logistics to improve its frontline employee productivity and operational efficiency. Moving to new business, in Q1 revenues of the new business turned around to positive growth of 18% year-on-year. At the same time, its non-GAAP operating loss widened to RMB 1.3 billion. Both were mainly driven by the fast growth of our supply chain business in Q1, a key pillar for us to penetrate into low-tier markets with a broad assortment of value-for-money products to better serve user demand and expand our user base there. JD food delivery by segment is also recorded under new business. As it just started to scale at the end of Q1, the financial impact was not meaningful in the quarter. We are making very fast progress and gaining traction with consumers, merchants, and riders with our differentiated business philosophy and model. In particular, we have good returns on investment with user acquisition. Quarter-to-date in Q2, we have seen more tangible results from JD food delivery user traffic, retention, as well as great potential to synergize with our retail business and the entire ecosystem. Next, let’s turn to our consolidated profit performance in Q1. At the group level, our gross profit was up 20% year-on-year to RMB 48 billion. Gross margin was up 60 BPs to 15.9%, primarily driven by JD Retail gross margin improvement, highlighting the high quality development of our retail business. Non-GAAP net income attributable to ordinary shareholders at the group level increased by 43% year-on-year to RMB 13 billion in Q1, with non-GAAP net margin up 82 BPs to 4.2%. Our last 12-month free cash flow as of the end of Q1 was RMB 38 billion compared to RMB 61 billion in the same period last year. This was primarily due to cash outflows associated with the trading program and our efforts to secure product supply to meet robust consumer demand. This was partially offset by our profit expansion. By the end of Q1, our cash and cash equivalents, restricted cash, and short-term investments totaled RMB 203 billion. In summary, the strong performance in Q1 once again validates the effectiveness of our long-term strategic roadmap and our strong execution. Particularly, we’re confident for JD Retail to steadily unleash its potential in both scale and operational efficiency improvements. At the same time, we are proactively making exciting headway into new business to build powerful synergies across the JD ecosystem and explore long-term opportunities. It takes tremendous effort, but eventually we will generate greater value for our customers, shareholders, and society at large. With that, I will turn it back to Sean. Thank you.

Sean Zhang, Director of Investor Relations

Thank you, Sandy and Ian. For the Q&A session, you are welcome to ask questions in Chinese or English, and our management will answer the questions in the language you asked. We will provide English translations for convenience purposes only. In case of any discrepancy, please refer to our management statement in our original language. Operator, we can open the call for the Q&A session. Thank you.

Operator, Operator

Thank you. The question and answer session for this conference call will start in a moment. Your first question is from Ronald Keung from Goldman Sachs. Please go ahead.

Ronald Keung, Analyst

Thank you, Sandy, Sean, and Ian. I have two questions. First, regarding our food delivery initiative, what are our expectations for its performance in the medium term, especially after the significant investments made over the last two quarters? How do we view the food delivery industry landscape moving forward? My second question is about JD Retail. Considering the acceleration you've mentioned across various categories and the margin expansion we've observed, what strategies have we implemented to strengthen our apparel and general merchandise offerings? How do we plan to maintain this healthy momentum beyond the training program in the second half of the year? Thank you.

Sandy Xu, CEO

Thank you, Ronald. I'll address the question on on-demand retail and food delivery, as it has drawn significant interest. I mentioned my views on this topic in my opening remarks, and I'll expand on that now. From a strategic standpoint, on-demand retail and food delivery are natural extensions of JD’s core retail business, aiming to offer users a more varied shopping experience and scenarios. Food delivery holds the largest share of order volume and frequency within on-demand retail, making it an integral part of JD's overall business ecosystem rather than an isolated operation. We believe that on-demand retail, which includes food delivery, will create strong synergies with JD’s existing business across users, supply chain, and fulfillment in the future. The food delivery market has considerable unmet demand. In China, this sector continues to expand rapidly, providing ample opportunities for multiple platforms to flourish. There is a clear demand from users, merchants, and riders, particularly for food safety and quality, reasonable commissions, and better protection for riders. JD possesses the strengths, culture, and advantages to meet those demands, including a strong brand image of better and cheaper offerings and a commitment to reasonable profit margins as part of our foundational principle. This approach allows us to support quality merchants by lowering commission rates and providing better traffic, which helps merchants focus on food quality. For instance, those merchants who join the JD food delivery platform until May 2025 will enjoy zero commission for that year. JD's extensive operational and management capabilities in on-demand retail and our rich experience in B2C ecommerce logistics can be effectively applied to food delivery. By offering comprehensive social insurance to full-time delivery riders and accident and health insurance for part-time riders, we aim to enhance rider retention and satisfaction, ultimately leading to improved service for our users. Our current priorities for food delivery are centered on user and merchant experience, business scale, and investment returns. We envision that the food delivery sector will create significant synergies with JD’s existing operations. Our mid to long-term objective is to bolster these synergies and operational capabilities across JD's core systems, ensuring sustainable growth over time. However, we recognize that our systems and operational capabilities have considerable room for improvement, and we are currently focused on enhancing operational efficiency.

Ian Shan, CFO

Ronald, regarding your second question, in the first quarter we experienced widespread growth. The general merchandise category kept its momentum with double-digit revenue growth compared to last year, and both the supermarket and fashion categories also achieved double-digit growth, with further acceleration sequentially. Over the last two years, our team has been consistently improving operational capabilities and user experience, which is yielding results and unlocking growth potential in the general merchandise category. Specifically for the fashion category, including apparel, we have invested significantly in building brand awareness and attracting more users to choose JD for their apparel needs. This year, we will further increase our brand selection and merchant partnerships. We will also utilize our supply chain strengths to enhance our unique value proposition, emphasizing quality and professionalism in core fashion areas. Additionally, we will offer users more new releases and popular products, which will support brands and merchants in achieving superior growth on our platform. The supermarket category team has been persistently improving operational capabilities over the past two years, leading to double-digit revenue growth for five consecutive quarters, with the upward momentum continuing. The total addressable market for the Chinese supermarket sector is enormous. JD can capitalize on its effective one-team business model and supply chain advantages while further optimizing the synergies of food delivery and on-demand retail to cater to diverse user needs across different shopping scenarios. While we observe growth momentum in general merchandise, we will remain focused on user growth, user experience, and ecosystem development to drive sustainable revenue growth both this year and in the future. Concerning user growth and experience, our quarterly active customers have experienced double-digit growth for six straight quarters, with Q1 seeing an acceleration to over 20% year-on-year, which significantly drives our revenue growth. Moving forward, we will enhance our user operation capabilities and deliver a high-quality shopping experience across core retail, on-demand retail, and food delivery segments, maintaining healthy growth in both user numbers and engagement throughout the year. On the platform side, as the experience for third-party users has continuously improved, we have seen revenue growth in our third-party user base and order volume that surpasses the overall growth of JD Retail. With a more established third-party ecosystem and increased brand awareness towards our third-party offerings, we expect third-party services to gradually unlock growth potential in the mid to long term.

Sean Zhang, Director of Investor Relations

Thank you. Let’s go to the second question, please.

Operator, Operator

Thank you. The next question is from Kenneth Fong from UBS. Please go ahead.

Kenneth Fong, Analyst

JD has achieved impressive results in the food delivery business, with daily volumes nearing 20 million. Can management provide some key metrics, such as user retention, short-term, medium-term, and long-term cross-selling opportunities with the retail business and unit economic targets? Following our investment in the food delivery sector, we have seen significant user growth and engagement levels. How should we assess the financial impact of these new investment strategies? My second question pertains to AI. Various ecommerce platforms have utilized AI to boost advertising ROI. As JD's third-party ecosystem continues to develop, can management explain how AI has improved JD’s advertising system and operations? Additionally, in what other business segments is AI being utilized? Thank you.

Sandy Xu, CEO

Thank you, Kenny, for your question. Our team is currently paying close attention to the data. If we don’t reach 20 million today, we expect to achieve it very soon. This milestone is significant, and we feel encouraged by the progress we’ve made. In just three months since launching JD food delivery, we've experienced remarkable growth and positive outcomes. The daily order volume for food delivery is increasing rapidly, and we’re noticing its beneficial effect on traffic, user acquisition, and overall traffic conversion rates. The repeat rates among food delivery users are strong. Since the food delivery service is integrated into the JD app, we’re beginning to see initial cross-selling trends, particularly in the supermarket and service categories. On the merchant front, we’ve grown to over 1 million onboarding stores quickly, and there's high demand for merchant onboarding, with many stores currently in the connection process. This allows us to expand our location-based product offerings swiftly. We’re seeing similar momentum with our riders; their feedback has been positive, and there’s significant enthusiasm, to the point where we don't have enough uniforms for the new riders signing up. This shows the tremendous potential in the industry. We are experiencing robust demand from all three parties while benefiting from understanding user needs and executing effectively. We acknowledge that we are still in the process of building our core capabilities. JD delivery is at an early development stage, having only been launched a few dozen days ago, so some operational initiatives are still in progress, and system optimization is ongoing. We anticipate sharing more details on user engagement and cross-category synergies in the future. Our current priority is to enhance user experience, improve operational capabilities, build a healthier ecosystem for merchants, and ensure secure employment for riders. Our investments will focus on better meeting the needs of users, merchants, and riders. We strategically aimed to enter the food delivery sector with a long-term sustainable business focus, rather than seeking short-term financial results. We are confident that, as the business scales, it will achieve economies of scale and operational efficiencies. Being integrated within JD’s overall ecosystem, the food delivery business offers significant synergistic potential with our on-demand retail and core retail operations, contributing to growth in user traffic, purchase frequency, cross-selling, and improved efficiency while reducing costs through an optimized delivery network and advanced technology. Let me share my thoughts on your second question regarding AI adoption in advertising. We are actively embracing the significant opportunities that AI and automation present. We strongly believe these technologies will fundamentally transform the retail industry by improving operational efficiency, reducing costs, enhancing user experience, and innovating business models. We are currently testing and implementing AI technologies across various retail scenarios and throughout the supply chain network. On the demand side, we utilize AI to better identify and stimulate user demand, which enhances the precise matching of demand and supply. For instance, we are reforming the search recommendation system with AI. Additionally, we are exploring innovative AI applications, such as more efficient AI-powered shopping assistants. On the supply side, we consistently upgrade a range of AI-powered tools for merchants to cut costs and improve efficiency. At the same time, we are increasing productivity in AI 1P procurement and self-operations, optimizing efficiency in sourcing, product selection, and pricing. Utilizing JD’s unique supply chain advantage and experience, we are developing AI agents to significantly boost productivity for our team as well as procurement personnel. Regarding fulfillment, both AI and automation present considerable potential for efficiency gains. We are implementing robotic automation technology across standardized warehouse processes to enhance operational efficiency at all stages, reducing employee workload, driving productivity, and cutting operational costs in our warehouse operations. In terms of AI applications for our advertising business, our advertising R&D team is using AI and large language models to improve algorithms and recommendation effectiveness, thereby increasing ad conversion rates and accelerating ad revenue growth. We are actively developing AI-powered advertising agents that can manage complex ad campaigns from a simple command by merchants, especially for the over 1 million merchants who have joined JD’s platform in the past two years. We believe AI agents can help merchants improve ad efficiency and campaign effectiveness while significantly lowering operational costs and complexities for businesses. Currently, our advertising revenue continues to show double-digit growth with increasing momentum. We see substantial monetization potential, particularly from efficiency gains driven by AI large language models, which will support sustainable long-term growth. Additionally, there is considerable potential for AI adoption in advertising content generation. In summary, we believe JD’s unique capabilities and extensive scenarios across the entire supply chain provide an ideal environment for widespread AI adoption in retail and supply chain operations, offering us a unique opportunity to integrate AI into every retail scenario, ultimately enhancing operational efficiency, user experience, and unlocking long-term revenue and profit growth potential. Thank you.

Operator, Operator

Thank you. The next question is from Alicia Yap from Citigroup. Please go ahead.

Alicia Yap, Analyst

Hello, thank you.

Sandy Xu, CEO

Thank you, Alicia. I’ll address your question about 618. This year, JD’s 618 campaign focuses on being better and cheaper, aiming to increase customer awareness by providing a broader selection of products and use cases, along with clear discounts. As per tradition, this year’s JD 618 campaign will kick off at 8:00 pm on May 31. Prior to that, we will introduce the Heartbeat Shopping Festival to cater to customer demands, delivering ongoing shopping surprises for users. The Heartbeat Shopping Festival has begun at 8:00 pm tonight, China time, and we invite all investors and analysts to join in and experience it while supporting consumption in China. In terms of marketing, this year features more shopping scenarios and promotional activities. Additionally, this year marks the introduction of national trading subsidies, and JD food delivery will also launch during the JD 618 campaign, offering users exceptional value with added subsidies. For merchant support, this year’s JD 618 will provide various subsidies and traffic incentives for brands and merchants focusing on content and advertising to help them achieve significant sales and sustainable operations, leading to more predictable growth. Since the start of the year, a series of policies aimed at boosting consumption has contributed to an overall improvement in consumption trends, further supporting economic growth. With a focus on delivering an exceptional user experience, JD has attained healthy growth in both its user base and scale as the consumer market begins to recover, and we are optimistic about user growth and sales during this year’s JD 618 campaign, ultimately providing consumers with better and more affordable shopping experiences.

Ian Shan, CFO

Alicia, regarding your question about JD’s long-term growth and net margin targets, JD’s business model is based on supply chain capabilities and focused on the user experience. Our long-term investments will aim at enhancing user experience, driving user growth, and reinforcing our advantages in the first-party business model and logistics services. Specifically, concerning user experience and user growth, we have been continually improving the supply of quality products on our platform and our capacity to serve users, meeting their diverse needs. For instance, our initiatives in the Jingxi business, on-demand retail, and food delivery have contributed to accelerating user growth. The high frequency and volume of orders have also enriched user data for the entire JD ecosystem, creating cross-selling opportunities and synergies with our core business. Regarding our first-party capabilities, we have been refining our operations in areas such as electronics, home appliances, and general merchandise, including supermarkets and fashion categories. We have strengthened our operational capabilities, including the category planning abilities of our procurement and sales teams, aiming to create a distinct product supply advantage through capabilities like customization and exclusive sales. Simultaneously, we are enhancing our leading supply chain system, utilizing scale benefits to lower procurement costs and boost efficiency. In terms of logistics capabilities, we have focused on upgrading our last-mile fulfillment network and capabilities. Furthermore, we will leverage automation and AI technologies to progressively implement intelligent solutions across all logistics operations, aiming for sustainable long-term cost reductions and efficiency improvements. We are confident that these initiatives will further enhance JD’s supply chain advantages and continue to improve user experience and brand loyalty through our extensive product offerings, competitive pricing, and service quality. This will lead to improved user growth and engagement, positioning us for accelerated growth in the future. Over the long term, our profit margins will continue to rise with the expansion of our business scale and heightened operational efficiency. JD’s long-term objective of achieving a high single-digit net margin remains intact.

Sean Zhang, Director of Investor Relations

Thank you Thomas.

Operator, Operator

Thank you. 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 of Investor Relations

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

Operator, Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.