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JD.Com Inc
Earnings Call Analysis
Q3-2023 Analysis
JD.Com Inc
A new chapter begins with recent initiatives aimed at enhancing customer value creation, such as the introduction of live streaming during prominent sales events and a significant enhancement of the third-party (3P) product selection within a major discount program. The contributions from the 3P General Merchandise Volume (GMV) rose above 50% in Q3. Moreover, the focus on offering everyday low prices is bearing fruit, indicated by substantial growth in order volume and Average Revenue Per User (ARPU) from customers in lower-tier markets.
Q3 strikes a note of stability in top-line growth with a 2% year-on-year revenue increase to RMB 248 billion, against the backdrop of macroeconomic recovery, seasonal patterns, and a high comparison base from the prior year. The company’s bottom line experienced robust growth with a record non-GAAP net margin. Despite a slight decline in product revenues, strength in the electronics and home appliance categories demonstrated the company’s market-leading service capabilities and strong user mindshare.
A different pace is observed in the services segment, with revenues marking a 13% year-on-year growth, signifying a rising 21% share of total revenues. Part of this growth is reflected in the double-digit increase in advertising revenues from 3P merchants. While 3P commission revenues have seen a decline, the overall expansion of the 3P merchant base indicates initial success from the company’s strategy to facilitate a healthy platform ecosystem.
JD Retail, the company's core retail unit, preserved its non-GAAP operating margin at 5.2%, reflecting strategic investments in enhancing customer experience. Noteworthy trends such as a significant eight-fold ARPU difference between JD Plus members and non-members spotlight the value of cultivating customer loyalty. JD Logistics continued its upward trajectory with a 16% revenue growth, thanks to an increase in both internal and external revenues.
Dada, a key on-demand retail sector of JD, displayed robust revenue growth of 20% with a substantial reduction in operating loss by 83%, signaling improvements in operating efficiency and scaling benefits. A broadened network of offline partnerships provides comprehensive on-demand retail services. In contrast, new business segments witnessed a 24% revenue drop due to refocusing efforts. Yet, an 85% reduction in operating loss compared to the previous year underscores a trend towards improved performance in this area.
Conclusively, JD's Q3 non-GAAP net income rose by 6% to RMB 10.6 billion, cementing a new peak for net margins at 4.3%. Reflective of prudent financial management and operational efficiency, the company's free cash flow stood at a hefty RMB 39 billion, underscoring a solid financial position for future endeavors.
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Hello, and thank you for standing by for JD.com's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] 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.
Thank you, operator. Good day, everyone. Welcome to JD.com Third Quarter 2023 Earnings Conference Call. For today's call, CEO of JD.com; Ms. Sandy Xu will start with her opening remarks, and our CFO, Ms. 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. Please refer to our latest safe harbor statement in the earnings press release on our IR website, which applies to this call. We'll discuss certain non-GAAP financial measures. Please also refer to the reconciliation of non-GAAP measures to comparable GAAP measures in the earnings press release. Also, please note, all figures mentioned in this call are in RMB, unless otherwise stated. Now let me turn the call over to our CEO, Sandy.
Thanks, Shan. Hello, everyone, and thanks for joining us today to discuss our Q3 results. We continue to see business development across many of our operating and financial metrics, and we saw a robust performance for our Singles' Day Grand Promotion with double-digit order growth and many innovations. The successful promotion further amplified our efforts to bring lower cost, higher efficiency and superior customer experience to our customers and business partners. This is JD's operating philosophy, which we have been committed to since day 1. User experience is at the center of our operating philosophy and we have gone extra mile to further improve our user experience.
Let me share some recent highlights. In Q3, we expanded free shipping coverage for our users by leveraging our improved logistics capabilities. We lowered the minimum order value for free shipping services from RMB 99 to RMB 59 for all users and offered JD Plus numbers unlimited free shipping for 1P products. As always, JD.com customers will continue to enjoy our premium so-called [indiscernible] same and next-day delivery services. JD's live streaming sessions hosted by our own category managers proved very popular with users and brands during our Singles' Day promotion.
What's unique about JD's live streaming is that not only are the category managers, the experts for the products they bring to the show. They are also empowered by JD's supply chain capabilities, and they don't charge any additional commission fees. This means that we can bring a great selection of products to our users at excellent prices.
Customers and brands have embraced this new live streaming format as they benefit from the streamlined cost structure and superior value. As a result, our live streaming sessions hosted by category managers attracted over 380 million viewers in total during the promotion period. We also stepped up our after sale customer service by increasing the coverage of our industry-leading instant refund and one click for best price guaranteed services. [Foreign Language] both of which are increasingly resonating with our users. All these efforts to improve our customer service quality and user experience have been reflected in higher user engagement as we saw an accelerated growth of user order frequency in Q3 compared to the past 6 quarters.
Beyond the recent efforts to improve user experience, we are very focused this year on investing in long-term key capabilities to drive sustainable growth, namely our strategy is to build a differentiated platform ecosystem and improve everyday low price or EDLP mindshare. I would like to spend some time to share with you our thinking on why this is the right direction for JD and on the progress we have made.
Let me start with our platform ecosystem strategy. Providing the best-in-class user experience is at the heart of everything we do. Our platform ecosystem allows us -- allows us 1P and third-party business to grow in a complementary and sustainable manner and together serve our customers better by ensuring both 1P and 3P sellers, follow the same operating philosophy and can compete and thrive in a comprehensive platform ecosystem. JD is best able to provide consumers with a superior user experience. As such, we never drive one business model at the cost of the other.
On the 1P side, JD's leading supply chain capabilities and scale advantages provide users high-quality products at competitive prices and greater customer experience. This will always be a key offering and differentiator for JD and our 3P marketplace gives us the flexibility to expand into new product categories where it is difficult to achieve the same level of efficiency we have under our 1P model.
So in the face of consumers' rapidly evolving demand and increased price sensitivity, our 3P marketplace allows us to efficiently serve customers with a diverse selection. What is our approach? The essence of what we are doing to build our platform ecosystem can be summarized in the following key steps. In addition to our 1P suppliers, it's equally important to encourage our 3P merchants to embrace and adhere to the same operating philosophy that we have been committed to over the last 20 years.
To do this, we are investing tremendous efforts to improve our platform ecosystem, including traffic allocation, algorithm, operating tools and infrastructure to encourage and empower the 3P merchants. We're setting clear rules and stepping up our platform governance efforts to enhance risk management. On top of this, we are working to ensure that positive behaviors of 3P merchants are rewarded.
The main goal is to incentivize 3P merchants to follow our operating philosophy and align their performance with our commitment to improving user experience. For example, we have established a scoring system based on the key elements underpinning our operating philosophy, including price competitiveness, product and service quality as well as store rating.
The score system applies to both our 1P and 3P merchants in a fair and transparent way, and merchants are able to review and track their scores across different aspects. We then embed these scores in our traffic distribution algorithm to create a virtuous cycle. We continue to strengthen our 1P business model in the areas where it generates higher efficiency and deliver better user experience.
At the end of the day, it is the choice of our users to pick either 1P or 3P. I want to reiterate that we will not drive 3P development at the cost of our 1P business. What we do is to create a platform ecosystem that enables both 1P and 3P to compete on [indiscernible] ground and better serve our customers.
Looking to how we track and measure our progress. To evaluate the long-term success of our platform ecosystem, we look at a set of key operating metrics. We were encouraged by the continued rapid growth of active 3P merchants and growth of 3P orders and active users who purchased from our 3P merchants in Q3, even though 3P monetization is not our priority in the near-term, we have been delighted to see continued double-digit growth in 3P advertising revenue, especially driven by the improving engagement of new merchants on JD's platform.
On 1P side, we were happy to see improved user experience as evidenced by increased users' NPS. Building this unique platform ecosystem is a long-term commitment and we are still at the early stage of realizing its potential. We believe the set of operating metrics are moving in the right direction. We are determined to continue our efforts to strengthen our capabilities and build our unique platform ecosystem. Now let me continue to elaborate on the thinking behind our efforts this year to improve our EDLP mindshare.
First, what does low price mean in JD's case? At JD, low price means improving our price competitiveness across different product categories particularly the branded product and expanding selection for white label products to cover a wider range -- wider price range in order to show up what we lacked in the past. I want to clarify some of the market misunderstanding here.
JD is not shifting our focus away from our core competency in branded products or serving the top tier market. On the contrary, we are further enhancing this strength by improving our price competitiveness. Also, will never allow any bad quality or counterfeit products on JD's platform while we provide low price. Our low-price commitment does not mean to pursue absolute low prices at the expense of other aspects of user experience, such as product quality and service. While we need to improve our price competitiveness. Price competitiveness is the most important value proposition for retail business and one of the most important pillars of JD's customer-centric philosophy. Our focus on price competitiveness drives us to continually strengthen our 1P supply chain capabilities, improve the efficiency and sharpen our abilities to foster prosperous platform ecosystem, where healthy competition among merchants and suppliers are encouraged.
All these drive better user experience which is key to our long-term success. Both our 1P and 3P marketplace play a critical role in this. In our 1P retail business, we are relentlessly driving down costs improving operating efficiency along our supply chain through technology and scale and passing on the efficiency gains to our customers. This is a sustainable way to ensure price competitiveness and enable us to fulfill our commitment of offering EDLP for our great products and service. A key part of our low price strategy is focused on 1P retail business, especially on branded products. To supplement this, -- on the 3P side, we aim to onboard merchants that offer diverse product selections covering a wider price range. Merchants are rewarded for offering low prices, great selection and good services to our customers based on the positive traffic feedback mechanism that we are building.
Since the beginning of this year, we have launched a series of new initiatives to enhance our value creation for customers. Our category manager like live streaming during the Singles' Day promotion was a good example. Another example is that we continue to enrich the value for many selection of 3P products within our RMB 10 billion discount program, and we saw 3P GMV contribution to the total of this program increased to over 50% in Q3. And lastly, how to track and measure our progress on low price or EDLP mindshare building. We check the trend of key customer metrics, including customer NPS and engagement while the structural change in NPS may take longer time to shape. We are seeing strong early progress in user engagement as evidenced by the double-digit growth of order volume and ARPU of users from lower-tier markets. We also note that growth of low ticket size orders accelerated and outpaced the total order growth in Q3.
All these are strong testaments to our early progress in EDLP mindshare building. We look forward to sharing more with you on the progress of our key initiatives in coming quarters, and we look ahead to the future. We will continue to adhere to our operating philosophy and execute our strategy to provide the best customer experience. We believe it will guide us to achieve a high-quality sustainable growth and win-win value creation for our users, business partners, shareholders and the society at large. With that, I will turn it over to Ian for our financial highlights. Thank you.
Thank you, Sandy, and hello, everyone. In the third quarter, we delivered a stable top line performance, facing a mix of gradual macro recovery, seasonality and a high base while we continued our proactive strategic refocus. Our bottom line maintained healthy momentum with non-GAAP net margin hitting all-time high which enabled us to invest in user experience in a sustainable way.
As Sandy mentioned, we saw improvement across many of our operating metrics, and we are on the right path to strengthen our core capabilities, enhance price competitiveness and build a platform that allows both 1P and 3P to better serve our users even though these efforts may not be fully reflected in the short-term financial results.
With that, let me turn to our Q3 financial performance. Our net revenues grew by 2% year-on-year to RMB 248 billion in Q3. Breaking down the revenue mix, product revenues were down by 0.9% year-on-year. By category, electronics and home appliances revenue was flat year-on-year, primarily due to seasonality and a high base from last year. That said, this category continues to outpace the industry in Q3 and in the first 9 months this year. Once again, it shows our strong user mindshare and robust supply chain with industry-leading service capabilities.
General merchandise revenues were down 2% year-on-year in Q3 as the supermarket category is still recovering. The decline continued to narrow compared to the first 2 quarters this year and we started to see positive signs from supermarkets and fashion-related categories, such as increased order volume, higher user shopping frequency and higher product mix.
Service revenue grew by 13% year-on-year in Q3 accounted for 21% of JD's total revenues. Within service revenue, marketplace and marketing revenues were up 3%. In particular, 3P advertising revenues once again recorded double-digit growth for the quarter, which was partially offset by the decline of 3P commission revenues. This is an expected short-term outcome and is in line with our platform strategy, under which we have rolled out a number of cost reduction measures and operating tools to support 3P merchants onboarding and operation.
This strategy has produced early results as we have saw substantial expansion of active 3P merchant base in the quarter. At the same time, we are also deploying a more effective traffic allocation mechanism for both 1P and 3P to ensure better user experience and the healthy development of our platform.
Turning back to our service revenues. Logistics and other service revenues grew by 19% year-on-year in Q3.
Now let me turn to our segment performance. JD Retail revenues increased by 0.1% year-on-year in the quarter as we continue to see headwinds on our short-term financial results from our strategic refocus. We know that our core business group has maintained a healthy momentum as evidenced by the continued expansion of JD Retail's profitability. Both gross margin and fulfilled gross margin increased to record highs in Q3 despite our investment in low prices and user experience, such as expanded free shipping service. This shows that our low price offerings are enabled by our supply chain capabilities and healthy development of our platform instead of only by subsidies.
JD Retail's non-GAAP operating margin came in at 5.2%, largely flat year-on-year as we continue to invest in improving user experience to encourage stronger user engagement, and this will help our long-term sustainable growth. We also saw encouraging trends in user shopping behavior in the quarter.
JD Plus members maintained a double-digit growth, and the group continued to show high loyalty and strong spending power. The annual ARPU was 8x of that of non-Plus members in Q3. JD Logistics saw a 16% revenue growth year-on-year in Q3, driven by the acceleration of both internal and external revenues. External revenues accounted for 72% of revenues in Q3. In terms of profitability, JDL's non-GAAP operating margin was 0.7% in the quarter, same as last year.
Dada reported revenues of RMB 2.9 billion, up 20% year-on-year, and non-GAAP operating loss of RMB 52 million for the quarter, a substantial narrow down of 83% compared to last year. This was driven by better operating efficiency and economies of scale. The on-demand retail is still an important pillar for JD. In the quarter, the number of offline stores that cooperate with Daojia and Shop Now expanded from around 300,000 to over 400,000, providing more than 2,000 cities and countries with on-demand retail services, covering a wide range of categories.
Lastly, revenues from new business were RMB 3.8 billion in Q3, down 24% year-on-year due to the scale back of our international business. New business operating loss was RMB 139 million in the quarter, a notable narrow down of 85% from an operating loss of RMB 953 million a year ago excluding the gain on disposals of JD properties assets in Q3 last year.
Moving to the consolidated bottom line, we recorded RMB 10.6 billion non-GAAP net income attributable to ordinary shareholders in Q3, up 6% even off a high base in the same quarter last year. Non-GAAP net margin increased by 17 bps year-on-year to a new record of 4.3%. Finally, our LTM free cash flow as of end of September was RMB 39 billion, an increase of 18% from RMB 33 billion at the end of June and 52% from RMB 26 billion at the end of September last year.
This was driven by our improved profitability and further optimize cash conversion cycle. By the end of Q3, our total cash balance including cash and cash equivalents, restricted cash and short-term investments added up to a total of RMB 250 billion. Excluding interest-bearing debt and accounts payables, our net cash balance was RMB 50 billion by the quarter end.
To conclude, we have seen a set of encouraging trends during the quarter, and we will continue to firmly execute our strategies on low prices and platform ecosystem to provide better user experience. This will position us for long-term sustainable growth. With that, I will turn it over to Sean. Thank you.
Thank you, Ian. For the Q&A session, you are welcome to ask questions in Chinese or English. And our management will answer your questions in the language you asked. We will provide English translation with necessary for convenient purpose only. In the case of any discrepancy, please refer to our management statement in our original language. Operator, we can open the call for Q&A session.
[Operator Instructions] The first question today comes from Thomas Chong with Jefferies.
[Foreign Language]
[Foreign Language]
[Interpreted]
I will address most of the questions. As I mentioned earlier, the platform ecosystem has always been one of JD's key strategic focus, both from the corporate level and also JD Retail level and we are continuously refining to this distinct platform ecosystem. This aims to realize JD's value proposition and establish a unified business philosophy followed by both our 1P and 3P merchants, and we consistently enhancing platform infrastructure and tools to ensure that both 1P and 3P merchants on JD have ample resources and have better competition in the shared growth opportunity, ultimately delivering an enhanced user experience for all our customers.
[Foreign Language]
[Interpreted] And throughout this year, we have streamlined the merchants onboarding processes, increase the support for our new merchants, especially small and medium-sized sellers and established clear [indiscernible] provided more operational tools and witnessed a historic high in both total [indiscernible]. We are pleased to see that the number of total merchants maintaining a triple-digit growth rate notable [indiscernible] significant in our 3P merchants in the categories of supermarkets, fashion and home goods. Additionally, the number of active merchants is accelerating with an increasing number of new merchants gradually finding effective operating strategies to operate on JD and empower their sales growth.
[Foreign Language]
[Interpreted] As I just mentioned in my script, while our ongoing investment in making support does not prioritize short-term 3P monetization. We have also observed a continued a double-digit growth in our 3P advertising revenues, thanks to our increasing engagement of new merchants.
[Foreign Language]
[Interpreted] And from the user base performance, we've received the positive feedback and the penetration rate of users shopping from 3P merchants continue to increase year-on-year and 3P order volume also achieved healthy year-on-year growth.
[Foreign Language]
[Interpreted] The platform ecosystem has, in the past 2 to 3 years, been our long-term investment direction. And building a unique -- we are aspired to building a unique digital ecosystem. This is an ongoing project. And still, we are in the early stage of this goal, and there's plenty of room for us to continue to improve our governance and the tools, our platform ecosystem. And we are also making our commitment to create a clearer growth path and a fair business environment for merchants promoting the mutual prosperity and the development of both 1P and 3P business.
[Foreign Language]
[Interpreted] And regarding people want to shop for 1P over 3P, this will be a natural outcome of choices from our users. And as we see the gradual mature of our platform ecosystem, I think in the long run, the share of 3P orders and GMV will eventually surpass that of 1P, but of course, this will be an ongoing process.
[Foreign Language]
[Interpreted] So our core objective is to meet the diverse needs of different users through rich product supply, continuously enhancing our user experience. This will be one of our essential drivers for the sustained growth of our long-term revenue and profit.
[Foreign Language]
[Interpreted] Yes. And then to answer the second part of your question, we've announced today that Mr. Lijun Xin will leave the role of CEO of JD Retail for another appointment by the company. Mr. Xin assumed the role of CEO of JD Retail in September 2021, in [indiscernible] involvement of external environment and industry he has led the team to successfully expand collaboration with business partners and strengthen user mindshare, making significant contribution to the business. We truly appreciate Mr. Xin's dedication, and I believe he will continue to play a vital role at other positions at JD.com.
[Foreign Language]
[Interpreted] And JD Retail is obviously, the very core business of JD and contributes to the highest proportion of our total revenue. It is also the cornerstone for us while exploring our diverse businesses. At this role, I will continue to drive the execution of retail strategies and strengthen synergies across business units.
[Foreign Language]
[Interpreted] JD Retail strategies are set up by our Strategy Execution Committee, the CES -- SEC and are personally involved in the discussions and implementation of these strategies. So there will be no change to the JD Retail strategies.
Operator, can we have the next question?
The next question comes from Ronald Keung with Goldman Sachs.
[Foreign Language]
[Interpreted] Okay. Let me briefly translate the question. Ronald wants to ask in terms of the strategy adjustment, KPI adjustment and team restructuring. After this adjustment, what you have seen in terms of core GMV growth trend? And how is your 3P business been trending? And the second question was, what's your basic assumption for macro and consumption for next year? And based on that, what is your strategy to maintain your core business or categories market share? And how do you balance between growth and profitability?
[Foreign Language]
[Interpreted] Over the past 4 quarters, the growth rate of our core GMV has been significantly higher than the total retail sales of consumer goods. And in this quarter, our core GMV achieved a single-digit -- high single-digit growth, which was higher than total retail sales and the online retail sales of physical goods.
[Foreign Language]
[Interpreted] So in the last quarter, we shared the rapid growth of the onboarded merchants. And we also witnessed accelerated expansion of active merchants in Q2 and Q3. At the same time, user shopping from 3P merchants grew faster than total users in the past 2 quarters.
[Foreign Language]
[Interpreted] We believe the current progress of the platform ecosystem is in line with our expectations. We're seeing more active user -- active merchants and more users. It takes time to convert them to 3P orders and the GMV growth.
[Foreign Language]
[Interpreted] So I still want to stress that we're committed to providing our users with more choices and cheaper prices through 3P. We are pursuing a sustainable and healthy ecosystem, allowing our 1P and 3P together to provide users with a better shopping experience.
[Foreign Language]
[Interpreted] And for the second part of the question, with the recovery of China, it's not the growth, though the speed is slower than we anticipate at the beginning of the year. And also at the same time, driven by those series of effective policies supporting consumption, employment, project enterprises and the property sector. We anticipate that consumer spending will continue to steadily recover next year and consumption will continue to become a major driver of economic growth.
[Foreign Language]
[Interpreted] So from the perspective of categories, for some categories that JD has advantage will have a bigger market share, such as home appliances and electronics categories. Our supply chain strength and enhanced user mindshare have enabled us to maintain growth rates surpassing the inventory level in the first 3 quarters of the year. And we continuously gain -- on these current categories, we continue to gain market share. At the same time, our focused investment in our core capabilities this year give us the confidence in continuing to acquire market share next year.
[Foreign Language]
[Interpreted] In the mobile phone and the 3C and electronics categories, we leveraged our supply chain advantages to continuously optimize cost efficiency and providing users with a diverse range of products and competitive prices and better services. So we also lead the trend of these categories -- industries by strengthening our offerings of new and trendy products.
[Foreign Language]
[Interpreted] And in the home appliances category, which is the category heavily relied on services, so we will further enhance our retail and service capabilities, both online and offline. So while we are promoting higher end and emerging products, we are also enhancing users' mindshare of high cost effectiveness of this category. Additionally, we are also making breakthroughs in our service capabilities in the home appliances category, such as trading in and one-stop assembly, delivery and installation services, all aiming to further elevate the users experience and stimulate consumer demand.
[Foreign Language]
[Interpreted] So for our supermarket category, after our proactive efforts this year and the initiatives -- we have a series of initiatives, including the category of planning, warehouse network transformation and refined operations, et cetera. And all these initiatives has been making steady progress. And this category has -- we have seen a better momentum compared to the first half of the year. And we believe for the supermarket category and will return to a healthier growth trajectory next year. So this will also reaffirm our belief that the supermarket category will remain to be JD's most important growth driver in the long-term. And on this category, I would also want to remind you that it has benefited from last year's pandemic period, which gives it a very high base a year ahead.
[Foreign Language]
[Interpreted] So for 2024, we expect the impact of our proactive business optimization and adjustments will become less. So with the gradual recovery of the economy and the consumption and also the release of all these effects of JD's algorithms and all the other measures based on our supply chain, we continue to play out as the low-priced mindshare and also our platform ecosystem strategy will also gradually take root, we anticipate achieving a higher -- high-quality business growth next year.
[Foreign Language]
[Interpreted] Throughout the strategic implementation process, we will strike a balance between growth and profitability. In the long-term, our profit improvement will come from the enhancement of our supply chain efficiency and the gradual improvement of the platform ecosystem. So our long-term goal of steadily increasing profit margins remain unchanged.
We are ready for the next analyst.
The next question comes from Charlene Liu with HSBC.
[Foreign Language] The first question is about competition. So competition intensified in 2023, can you please kindly shed light on how you expect the competitive landscape to change in 2024? And how this would shape JD's strategy going forward? Will GMV and market share be the continued focus over profitability. Second part to my question is, given most structural adjustments are expected to complete by end 2023, on [indiscernible] next year, how much growth can we expect for the overall company, retail and most specifically for FMCG in 2024? And what could drive the results to potentially surprise on the up or down side and why?
[Foreign Language]
[Interpreted]
So thanks to answer your first question. So currently, China's e-commerce market features various platforms and business models and for each platform, it has distinct characteristics.
[Foreign Language]
[Interpreted] Though I might repeat myself many times. So here, I still want to share that for JD.com. We are constantly adhere to be supply chain-based and consumer-centric business model, building core capabilities around supply chain and user experience. We collaborate with our partners to create a to create a supply of high-quality and affordable goods to precisely match suitable users and provide ultimate shopping experience and earn user trust. So this business model has created value and [indiscernible] outcomes for consumers, business partners and the society at large. It is designed to be the most resilient and sustainable business model capable of navigating different economic cycles.
[Foreign Language]
[Interpreted] So in terms of the competition of the retail markets, the competition in this industry has always been here. Actually, there's another saying about it's like, more fear or less fear is always the competition here. So for retailers, we've observed that for this industry, many players this year has been focused on enhancing users experience and also refining operational and sustainable development strategies. So yes, so -- always, there's competition. And this year, you might feel this is intensified.
[Foreign Language]
[Interpreted] So amid these competitions, you can see that these platforms, their profit margins have not been significantly impacted. We believe this is mainly attributed to the way for each platform to implement their business strategy and business models. So for JD.com, we don't stare at others. We continue to believe that our core strategy is to improve our supply chain efficiency through technology and the economy of scale. And we would like to use these capabilities to be able to share the actual profit brought by efficiency improvements to our partners and users, which includes improving user experience. So in another words, the user experience improvement is not built on sacrificing our reasonable profit margins and shareholder interests.
[Foreign Language]
[Interpreted] So we believe this should be a virtuous business cycle with a better user experience and drive more traffic. And with more traffic, there's more sales opportunities and generate more profit margins. And with the margins, we can further reinvest into improve our user experience.
[Foreign Language]
[Interpreted] So we will continue to adhere to our long-term strategy, and we have confidence in our business model to sustainably maintain a virtuous cycle and gain market share.
[Foreign Language]
[Interpreted] So in terms of our KPIs, so we have different business segments, exhibiting distinctive characteristics and being at different stages of development in terms of the GMVs and the profits and the cash flows. So for the weighting of these 3 indicators might vary. In the long-term, we believe in achieving a healthy balance across these indicators.
[Foreign Language]
[Interpreted] For the second part of the question, our major structure adjustments have been made and implemented this year, including the business healthiness adjustments, enhancing user experience low price and platform ecosystem strategies. The key impact of business adjustments will be reflected in this year's numbers.
[Foreign Language]
[Interpreted] So our growth target for next year in the longer-term remain unchanged. We anticipate that JD's overall and retail business in 2024 will return to normal growth rates. We are confident in achieving our growth faster than the national total retail sales of consumer goods. And given JD's substantial scale, our growth is highly correlated with the country's macroeconomic conditions and the retail market. We aspire to outperform industry growth and continue to gain market share.
[Foreign Language]
[Interpreted] So overall, despite for the supermarket categories despite the challenges faced by these categories due to our business adjustments and the post-pandemic recovery in the offline consumption and a high base from the previous year, we believe the effects of our adjustments will gradually materialize and the category is returning to a healthier growth trajectory. And in the long-term, we remain confident that it will continue to be JD's most important growth driver. And starting from next year, we expect the supermarket run rate to gradually recover those rates faster than the overall retail market.
Operator, can we have the last question maybe?
The next question comes from Kenneth Fong with UBS.
[Foreign Language] My first question is about user and strategy. Under the current uncertain macro, can management share with us some of the behavioral change of a user? And how is the performance split among different categories? And any change in the operation strategy in light of the current macro challenges? Second is about how we balance margin and growth. On one hand, we continue to emphasize on the low-price strategy user subsidies our competition is also intensifying. That said, we have been very disciplined able to maintain a stable margin. Can management share with us the investment during Double 11 and beyond? How should we think about the balance between growth and investment? And any thoughts and update on the JD Retail long-term margin target?
[Foreign Language]
[Interpreted] It's a very good question. So for JD platform, we've seen the consumers are making more rational purchasing decisions with rising focus on price and quality. So we continuously enhance our supply chain efficiency to lower procurement and operational costs and enrich the platform ecosystem and the price competitiveness and the diversity of product offerings to meet consumers diversified demand and their shopping experience.
[Foreign Language]
[Interpreted] So as we shared certain statistics, the JD Retail users purchasing frequency continue to grow and with the growth rate surpassing that of ARPU.
[Foreign Language]
[Interpreted] So notably, as we increase product diversity from 3P merchants and lowered the free shipping threshold, we witnessed accelerated growth in a number of orders and with a low average order value. So with the significant -- the orders of low average order value is significantly outpaced the overall order volume growth.
[Foreign Language]
[Interpreted] So the spending part of our users from the first and second Tier cities remain robust and JD Plus continue to experience double-digit growth in the number of users, which has shown a very strong stickiness of these memberships.
[Foreign Language]
[Interpreted] So yes, I also want to share a viewpoint that we observed that users does not really want to compromise all the services while pursuing low prices. They are seeking low price doesn't means that they will sacrifice the qualities of products and services. So for ourselves this year, we have been continuously improving efficiency, optimizing our procurement costs and expanding product choices and do everything we can to better or even making the ultimate efforts to improve our services such as the installation services and after sales services to ensure we still offer our services at no compromise.
[Foreign Language]
[Interpreted] So for long-term, we'll continue to pursue the services as our core competitiveness on this market in the fierce competition.
[Foreign Language]
[Interpreted] And to address your second question on the [indiscernible] the revenues and the margins and profitability. I think in the long run, it shouldn't be a problem or a question. It will eventually form a virtuous cycle with growing revenues, they will be growing profits. Whereas in the short-term, I think it's more a tactical issue that whether we should invest more on marketing on the user's acquisition, et cetera. So overall, in the long-term for JD.com we continue to pursue a steady and sustainable growth and development. So our steady pursuit of profitability increase remain unchanged.
[Foreign Language]
[Interpreted] So finally, I would like to stress that for JD.com, we don't pursue the short-term very high monetization and profitability. As a retailer, we've always pursued a reasonable profit for our industry. So this is [indiscernible] as always. Thank you.
Thank you very much. Thank you, Kenny, for the questions. I think operator, time is running up. I think that's all for today's Q&A session.
I will now turn the call over to JD.com, Sean Zhang for closing remarks.
Yes. Thank you for joining us today on the call and for your questions. If you have further questions, Yes. As always, please contact me and our team. We appreciate your interest in JD.com. We're looking forward to talking to you again next quarter. Thank you.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]