JD.com, Inc. (NASDAQ: JD) Q3 2020 earnings call dated Nov. 16, 2020
Corporate Participants:
Ruiyu Li — Senior Director of Investor Relations
Sandy Ran Xu — Chief Financial Officer
Lei Xu — Chief Executive Officer, JD Retail
Analysts:
Ronald Keung — Goldman Sachs — Analyst
Thomas Chong — Jefferies Hong Kong — Analyst
Jin K. Yoon — New Street Research — Analyst
Gregory Zhao — Barclays — Analyst
Eddie Leung — Bank of America Merrill Lynch — Analyst
Alicia Yap — Citi Research — Analyst
Jerry Liu — UBS — Analyst
James Lee — Mizuho — Analyst
Jialong Shi — Nomura — Analyst
Eddy Wang — Morgan Stanley — Analyst
Han Joon Kim — Macquarie Group — Analyst
Presentation:
Operator
Hello, and thank you for standing by for JD.com’s Third Quarter 2020 Earnings Conference Call. [Operator Instructions]
And I’d like to turn the meeting over to your host for today’s conference, Ruiyu Li. Please go ahead.
Ruiyu Li — Senior Director of Investor Relations
Thank you, operator, and welcome to our third quarter 2020 earnings conference call. Joining today on the call are Mr. Lei Xu, CEO of JD Retail; Mr. Zhenhui Wang, CEO of JD Logistics; Sandy Xu, our CFO; and Professor Liao, our CSO. For today’s agenda, Sandy will discuss highlights for the third quarter 2020 and other management will join the Q&A session.
Before we continue, I refer you to our Safe Harbor statement in the earnings press release, which apply to this earnings call as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most direct comparable GAAP measures. Finally, please note that unless otherwise stated all figures mentioned during this conference call are in RMB.
Now I would like to turn the call over to our CFO, Sandy.
Sandy Ran Xu — Chief Financial Officer
Hello, everyone. Thank you for joining our earnings call today. We are pleased to report a strong set of financial results for the third quarter of 2020. We delivered a solid performance, yet seasonally light quarter and set new record for any operating and financial metrics. JD leads by example in contributing to the society and supporting the recovery of the real economy.
We have opened up our retail ecosystem. Our self-built supply chain infrastructure and technology capacity will empower our suppliers, our merchants and our business partners. We run our business with a long-term philosophy and pursue long-term sustainable growth. Our mission is to improve operating efficiency for the supply chain through technology innovation, and we share growth opportunities and economic benefit with our staff, business partners and society.
Our unwavering effort in supporting society and our users continue to gain positive recognition and we interact from more and more consumers. This has been reflected in our solid growth of active users and improvement in user engagement across different tier cities. Our annual active customers in the past 12 months reached 442 million, adding think more than 100 million customers, up 32% from a year ago, the highest growth rate in the past three years. We obtained more than 24 million net additional customers compared to last quarter, the largest expansion in the seasonally-light September quarter in our history. This once again validates our long-term operating philosophy to run our business with a customer-centric focus.
We continue to generate traction in the lower-tier cities, which contributed about 80% of our new users this quarter. We are also inspired by the further enhanced consumer loyalty and engagement of our core users, who appreciate the consistency of product and service quality we deliver every day. Our core users are buying products from more categories from us and more frequently.
We have become a part of many users’ daily lives. It’s worth highlighting that our JD PLUS members exceeded 20 million in October, an important milestone for our paid membership program. JD PLUS was the first paid e-commerce membership program in China designed to better serve our core users besides the benefits offered on JD app such as shopping rebates and free shipping coupons. JD PLUS has partnered with over 600 industry-leading brands to provide our members with comprehensive privileges in sectors such as movie tickets, travel, hotel bookings, education, dining and entertainment. Our data shows that JD PLUS has effectively improved the engagement and retention of our core users, as our PLUS members shop more frequently with an ARPU, average revenue per user, that is multiple times higher than that of non-PLUS members.
By integrating with the resources of our brand partners, JD PLUS has also created an industry benchmark in the paid e-commerce membership. Our Q3 financial results actually reflect our quality user growth with enhanced user engagement. We reported net revenue of RMB124 billion for the third quarter, a year-over-year growth of 29.2%, maintaining strong growth momentum even on the back of Q2 peak season and over last year’s high base.
General merchandise revenues grew by 35% year-over-year, led by the supermarket and healthcare categories. Net service revenues grew 43% year-over-year led by the accelerated growth of JD Logistics and strong performance of our advertising business. Our net service revenues contributed to over 13% of total net revenue, making another historical record. As the economy gradually returns to normal from the peak of COVID-19 outbreak, JD Logistics continued to gain tract from its business partners and delivered an accelerated revenue growth.
Besides our solid user and top-line growth, there are a few notable operating and financial performances we want to highlight. First, JD Retail’s operating margin reached 3.9% in Q3, a record in our history and an improvement of 56 basis points compared to the same quarter last year. What’s notable is that our operating efficiency continued to improve even as our product mix shift from the large ticket size, but low frequency categories such as 3C and home appliance to the small ticket size, but high frequency consumer staple categories. Order volume for the supermarket categories grew by over 48% year-over-year in Q3.
Another key metric illustrating our operating efficiency improvement is our inventory turnover days, which further reduced to 34.3 days in the last 12 months. This is one of the lowest among the top global retailers and our own historical record despite the total number of SKUs managed by us continue to increase with our category expansion. Once again, this validates the power of our scale-driven business model and our long-term margin trajectory.
Secondly, our 3C and home appliance categories continue to outperform the industry tremendously, and we continue to gain market share. Our unparalleled supply chain capability better position us, in particular, amidst the absence of new flagship products from the leading electronic plant starting Q3. As we mentioned before, our 3C and home appliance categories have significant operating and cost structure advantages over our peers, enabling us to provide the best value and service to consumers. We continue to expand our supply chain capability, further asking, bringing in more customized products to different consumers and create value for our business partners.
Thirdly, JD Logistics is another complement example of our long-term investment in user-centric experience and supply chain infrastructure. Since we opened our service to third parties in 2017, JD Logistics has made notable progress in providing its customers with integrated logistics services to improve their warehouse management and fulfillment efficiency. As JD Logistics gained more consumer — customer recognition, revenue generated from third-party customers contributed nearly half of JD Logistics’ total revenues in September. JD Logistics also supports the growth of our 3P merchants on our e-commerce platform. Products marked as delivered by JD Logistics come with more trustworthy and more reliable services, and therefore, are often the preferred shopping choices of customers and help generate more organic traffic.
Moving down the line, our fulfilled gross margin improved to 8.7% this quarter compared to 8.4% in Q3 last year. This was mainly driven by the margin improvement of JD Retail and JD Logistics. With our continuous improvement in operating efficiency, our marketing, R&D and G&A expense ratios in the third quarter improved across the board by 16 basis points, 30 basis points and 8 basis points, respectively compared to the same quarter last year. As a result, our non-GAAP operating income grew 77% to RMB5.3 billion, and non-GAAP operating margin was 3%, up 82 basis points from the same quarter last year, the highest level in our history.
Moving to the bottom line. Our non-GAAP net income attributable to ordinary shareholders in Q3 grew at 80% year-over-year to RMB5.6 billion from RMB3.1 billion in the same period last year. Non-GAAP net margin was 3.2%, up 90 basis points from a year ago, and again, a historical record. Excluding the temporary relief of the social security benefits, the margin improvements we recorded in the first three quarters have clearly demonstrated the snowball effect that we continue to generate with our scale-driven business model.
With our healthy profitability as a basis, we plan to invest in fast-growing businesses. Specifically, the supermarket category is a key growth area that we are very committed to continuing our investment in to further strengthen our consumer mind share and market leadership. As our online B2C supermarket operation continues to generate growth momentum, we have been exploring various new business models in different markets to better capture the growth opportunity in this category. Our aim is always to better serve the diverse needs of our customers with quality products and services.
Logistics infrastructure is another strategic area we will continue to invest in to expand our integrated service capacity for the long-term growth. We will also continue to invest in our users and our people. All of these investments truly reflect our long-term operating philosophy.
Free cash flow for the quarter improved to RMB7.5 billion as compared to RMB63 million in the same quarter last year. Free cash flow for the last 12 months reached over RMB30 billion, grew by 93% year-over-year. As of September 30, 2020, cash and cash equivalents, restricted cash and short-term investments added up to a total of RMB127 billion. We have a strong liquidity position.
In conclusion, JD showed remarkable resilience again in Q3 as China emerges from the pandemic. We delivered both robust top-line growth and year-over-year improvement of profitability, while investing in our capabilities in strategic areas. It’s quite clear that these achievements were driven by our unique business model and operating philosophy. But more importantly, JD’s resilience is underpinned by our relentless focus on offering true value for our consumers and unreserved empowerment of our business partners through our technology and infrastructure. Many users are still shifting from off-line to online, and the e-commerce penetration is reaccelerating in many categories. JD is well prepared to capture the secular trend, and we will continue to invest for the long-term.
This concludes my prepared remarks. Let’s open the call for questions. Thank you.
Questions and Answers:
Operator
[Operator Instructions]. First question comes from the line of Ronald Keung of Goldman Sachs. Please go ahead.
Ronald Keung — Goldman Sachs — Analyst
Thank you. Thank you, Richard, Xu Lei, Wang Zhenhui, Sandy, Ruiyu and team, and congratulations on the very strong results. My question was around your supermarket strategies. Sandy, you just mentioned about further investments into supermarkets. Could you just share how are we sort of thinking about the strategy of your mega warehouse, your stores at home? Where are we in the progress of natural selection initiatives? And would you be able to share some — any thoughts on emerging models like the pre-order and next-day self-pickup model where most people will talk and mention as the community group purchase? How do we think about these given we do have a lot of strong users and the supply chain capabilities? Thank you.
Sandy Ran Xu — Chief Financial Officer
Thanks, Ronald. On your question regarding supermarket and fresh, I think first of all, this is a huge market and we have seen a structural opportunity for this category. So this will definitely be a strategic priority for our group. And we have — as I mentioned just now, we have demonstrated or proved the business model for our traditional B2C operations. And now we have experimenting and we are also exploring different business models or initiatives in this area, covering top-tier cities and lower-tier market.
So because this is a huge market, we understand that there are many companies entering into the market. But we believe by end of the day, there will be quite a few players, and we don’t have to compete head-to-head at this stage. So the fact is fresh produce is even more tough category for e-commerce or retail due to the low ticket size and high loss ratios during the production and fulfillment process. So we don’t believe subsidy is a competitive advantage.
The key to find a way or solution to improve the operating efficiency of the existing business processes and reduce operating cost, so this is exactly our mission or our operating philosophy. So we will continue to invest in infrastructure and our supply chain capability to build our core advantages in this category or this area.
Operator
Thank you.
Sandy Ran Xu — Chief Financial Officer
So just to supplement, for the various new business models we are experimenting, that would include the 7Fresh store warehouse business model, the community group purchase model or the distribution warehouse model.
Operator
Thank you. Next question is from the line of Thomas Chong of Jefferies. Please go ahead.
Thomas Chong — Jefferies Hong Kong — Analyst
Hi. Good evening. Thanks management for taking my questions, and congratulations on a strong set of results. Given our strong user growth trend, can you comment about how we should think about the user outlook in 2021, and in particular, our strategies in lower-tier cities penetration? And on that front, can you comment about the competitive landscape in the online shopping space next year? Thank you.
Lei Xu — Chief Executive Officer, JD Retail
[Foreign Speech]
This is Xu Lei of JD Retail.
[Foreign Speech]
Due to the impact of the coronavirus in 2020, we see the overall growth on online shopping, online consumption has been growing rapidly, and JD is a beneficiary in this process. And our penetration rate into the Chinese consumption market has been going up, especially in the lower-tier cities and among the users about 45 years old. So we believe people’s shopping behaviors online has been formed and is here to stay.
[Foreign Speech]
And at the same time, we viewed some different performance on the different categories. For example, there’s a very strong demand in the categories of healthcare products, household products and fresh food, etc. Also, some other categories due to the impact of the international supply chains, the growth is slower than expected. But overall, for JD.com, we are a comprehensive platform that offer all kinds of categories. So this ensure we will have a very sustainable and stable growth this year. And at the same time, we will also leverage our strength in supply chain and our reputations and the mind share we have among Chinese customers to keep a leading position in this market.
[Foreign Speech]
And at the same time, we’ll also continue to explore a new traffic field both online and offline and we’ll continue to strengthen our new end capacities in terms of supply chain and our omnichannel strategies. And we think that with this unique strength of supply chains and our special competitiveness, we’ll continue to be in a better position on this market.
[Foreign Speech]
And we have seen that over these quarters, we have a very healthy growth in terms of the users. We do see our existing users are shopping more frequently on our platforms. And for the new users, because they’ve already been educated and have been calibrated through other platforms, when they become more mature and more customized online shoppers, they will shift to a better platform that can provide better services for them, assuming that JD is a platform with the strength of supply chain and services. We have a better competitiveness to match the shopping behavior for more and more customers. So we would rather stick with the long-term perspective to see the sustainable growth of our user space.
[Foreign Speech]
And either in the past or now in the future, I would like to give four keywords for our long-term development. The first is focusing our user’s experience; second, we’ll keep open and we’ll develop our omnichannel strategy; and strengthen our team; and capacity building, focusing on supply chain. The four key areas will be in the long run our strategy emphasize.
[Foreign Speech]
Thank you for your question.
Sandy Ran Xu — Chief Financial Officer
Maybe if I may add a little bit. We have penetrated that — our lower-tier city approach was expected. As I mentioned at the opening remarks, around 18% of our new users were coming from lower-tier cities in Q3. And I also want to highlight that our marketing spend ratio is also decreasing. That means we can acquire users and retain these users more efficiently. This were driven by our improved technology and algorithm behind the front platform. So, so far, we have a very healthy user trend. So users are shifting from the high ticket size low frequency ARPU to the low ticket size but high frequency purchases.
Operator
Thank you. Next question is from the line of Jin Yoon of New Street Research. Please go ahead.
Jin K. Yoon — New Street Research — Analyst
Hey, good morning. Good evening, and thanks for taking my question. So I know that last quarter that you guys announced like you’re not going to provide guidance going forward. But given the fact that we’re seeing a pretty profound seasonality with second and fourth quarter promotions kind of where they are, perhaps could you kind of give us kind of a directional view of how we should look at the fourth quarter? If it’s kind of the similar trajectory that we should look on a year-over-year basis compared to the other second quarter? So any kind of color there would be pretty helpful.
And then even on the margin side, we’ve seen this pretty significant operating margin leverage in the first nine months of the year, and just — is there any reason why we can’t see the same kind of step up function in the fourth quarter as well? So any kind of directional view on the margin as well as kind of on the revenue side color would be great. Thanks.
Sandy Ran Xu — Chief Financial Officer
Sure. This is for Sandy. Let me respond to your question. So for future trend, in Q3, we continued the great momentum from the first half year on user engagement and new user acquisition, particularly in the lower-tier market. So this forms a very good basis for our Q4 promotion business. In the past Double 11 promotions, our performance exceeded our internal expectation. And the user numbers and churn rate were very healthy so far, as I just mentioned.
So I think the trend of users shifting from offline to online continues. And we will definitely impact and focus on user acquisition and engagement, in particular, for our fast growing categories. But we also want to emphasize that we see stronger seasonality this year as the users are now better educated by the e-commerce platform. So this is a generic trend for top-line. And then for top — bottom line, you can now see that the scale benefit of our retail business and logistics business have been gradually realized. So we now see opportunity for accelerated penetration of e-commerce in China. To catch up this opportunity, we are going to reinvest the extra profit that we generated in the first nine months of 2020 in users’ period in some of our fast growing categories or new business initiative. This can have that gained market share in the long run. So you may see a similar pattern of the mark-to-market seasonality in Q4 as in last year.
Operator
Thank you. Next question is from Gregory Zhao of Barclays. Please go ahead.
Gregory Zhao — Barclays — Analyst
Hi, management. Thanks for taking my question, and congratulations on a strong quarter. So my question is about RCEP. When a group of the Asian countries made the trade — the free trade agreement over the regional, the comprehensive partnership, so a lot of products and services will be covered in the agreement and we know some free tax terms will also be introduced. So would you please help us understand the opportunities from RCEP to China e-commerce and also a cross-border e-commerce market and how JD can take the opportunity? Thank you.
Lei Xu — Chief Executive Officer, JD Retail
[Foreign Speech]
This is Xu Lei from JD Retail to respond to your question. Regarding the growth of our core product business, it has been growing steadily this year and we also see that our NPS score, which is our net promoter scores to show the user experience is also growing rapidly. We pay higher attention to the field of duty-free products and the cooperation on the cross-border in this FX.
[Foreign Speech]
Since this is newly announced news recently, just a year — one day ago, we’re still following the news and trying to understand the implications of the new regional cooperation and we will reflect — this is a very positive news for both the production and consumption in the ASEAN and the Asian region.
[Foreign Speech]
And of course, we will take full advantage of our strength in our corporation with international brands and also our supply chain capacity to catch this opportunity. So we will watch closely on the development and to see the opportunity to further develop our business. Thanks for the question.
Operator
Thank you. Next question is from the line of Eddie Leung of Bank of America Merrill Lynch. Please go ahead.
Eddie Leung — Bank of America Merrill Lynch — Analyst
Good evening. I’m just a bit curious on your gross margin. So we see your gross margin and fulfilled gross margin both improved in the quarter. However, we also noticed that your marketplace and advertising revenue actually grew slower than your direct sales pieces. So I’m just wondering what is behind the gross margin improvement? Does it mean our 1P revenue gross margin actually improving? Thank you.
Sandy Ran Xu — Chief Financial Officer
This is Sandy. Thanks for the question, Eddie. On your question regarding gross margin, I think for JD Retail, the gross margin improvement was mainly contributed by the change of product mix. And as we mentioned that the customers purchase behavior is shifting from high frequency to — sorry, low frequency to high frequency and also the benefits that we realized from all tax grades. So the gross margin is gradually improving for all the products.
And then talking about for fulfilled gross margin, so again, this is contributed by the scale benefit and partially contributed by the relief of the social security benefit by the government, but the majority of the benefit was realized in the first half year with a small amount left in Q3. So advertising revenue actually grew faster than the top-line product sales. But this is — the growth of advertising revenue is kind of offset by the slower growth of the commission revenue because for 3P business, the — although the GMV actually grew very healthy, but the GMV or the product categories with lower commission ratio grew faster than the categories with higher commission ratio.
Operator
Thank you. Next question is from Alicia Yap of Citigroup. Please go ahead.
Alicia Yap — Citi Research — Analyst
Hi. Good evening, management. Thanks for taking my questions, and also congrats on the solid results. My question is related to the growth trend for the general merchandise. I think this quarter, the growth rate, 35% is still very solid, but just a little bit more interested to get management view on any elaboration you could provide in terms of a slight decelerated growth from the second quarter achieved for these general merchandise? I think you mentioned the supermarket actually grew about 48%, so just wonder which category actually experienced a bit more seasonal slower growth than before? And then just very quickly on the single stage GMV performance. How do you rate and compare that with your expectation versus June ’18? Seems that is actually stronger than June ’18. And is that driven by pricing or any reasons for the strong single sales? Thank you.
Sandy Ran Xu — Chief Financial Officer
That’s a very good question. So for general merchandise, I mentioned earlier that we saw robust order volume growth. In Q3, the order volume grew by 48% in the quarter. So what happened is — so if you compare with the second quarter, you’ll see that the growth rates slowed down a little bit. I mentioned last quarter if you remember, there were some COVID-related sales in the first half, including the cleansing products, the disinfectants, liquid soap, etc. So the sales volume dropped for this product in Q3 as the users, they already had sufficient inventory stored at their home.
And also in Q3, the fresh — if you look at fresh produce category, its largest stock category is seafood. So it was a jack of our overall growth due to a few COVID cases reported during the quarter were in relation to the imported seafood. So the other sub-categories and the fresh produce were — continues to grow very strong during the quarter, but they were with a relatively lower ticket size and revenue contribution. So overall, we see the older members, the user growth and the traffic, other general merchandise continue to be very strong during the third quarter.
Sorry, what was your second question?
Alicia Yap — Citi Research — Analyst
[Foreign Speech]
Lei Xu — Chief Executive Officer, JD Retail
[Foreign Speech]
This is also partly related to the single-segment promotion.
[Foreign Speech]
As we have stressed that, we will not only be looking at the single system that you leverage for the 11th Singles Day. If we look at the brand promotion period from November 1st to the 11th, we are very pleased with our growth results.
[Foreign Speech]
And for this year, because of the epidemic impact and so on, we are delighted to drag the time spent even longer, because these are times, that your branch partners also hay high attention to these activities. So if we adjust the timeline, October the 1st to November 11th, for 1.5 months time, we are achieving much better result than expected.
[Foreign Speech]
For the reasons [Indecipherable] performance is even better than the 618 Shopping Festival assuming there are two reasons; and one reason is, on the consumer side, we can assess that, by the end of the year, a lot of consumers, they have a bigger shopping cart to purchase more stuff.
[Foreign Speech]
And on the supply side, in addition to the brand partners, we also see that for the small and medium-sized businesses, they are better recovered than in June from this epidemic. So they are in a more profitable and already positioned to prepare their products and to do their operation. This also contributes to a better performance of the sales growth.
Thank you for your questions.
Operator
Thank you. Next question is from Jerry Liu of UBS. Please go ahead.
Jerry Liu — UBS — Analyst
Hi. Thank you, management. Yeah, my question is on the logistics business. We saw in the third quarter, revenue growth year-over-year accelerated versus the last couple of quarters. So just wanted to get an understanding, what are some of the things we did, maybe services or new initiatives, especially for the third party merchants, where we saw the revenue mix come up? And similarly, we’ve also heard that — from our checks that some of the brands are more and more willing to work with JD Logistics, as some of the traditional logistics infrastructure was not as able, to handle the demand, post COVID. So just wanted to check with you, and see if you have any comments, regarding that kind of situation. Thank you.
Lei Xu — Chief Executive Officer, JD Retail
[Foreign Speech]
So for your question, as you mentioned, indeed we have been accelerating growth of our business in Q3. There are several reasons; first, I think it’s attributed to our long-term commitment to our improvement of user experience.
[Foreign Speech]
JD Logistics, our value positioning is to provide the best in user experience, and driven by technology and win from our efficiency improvements. So we have always increased our investments in our capacity building, to provide more services and infrastructure to cater to the need of our customers. And no matter during the COVID period or in a normal time, we’ll always ensure we provide the best supply chain services to our customers, to provide value for them. I think this is the key reason they choose us for more cooperation.
Thank you.
Operator
Thank you. Next question is from James Lee of Mizuho. Please go ahead.
James Lee — Mizuho — Analyst
Thanks for taking my questions. Two questions here. First on online pharmacy, can you talk about some of the key frictions you are trying to resolve to drive higher online adoptions? Should we think about you as more supply constrained or demand constrained, and maybe can you update also on the margin profile long term? I think previously you mentioned maybe two times higher than offline pharmacy chains? And also second, can you talk about the implication of the new antitrust regulations, how does that impact e-commerce and JD? Thanks.
Lei Xu — Chief Executive Officer, JD Retail
So we apologize that for any question in relation to bidding costs, we cannot really respond in the call because they are in the middle of 18%. If you do have any questions, you may reach out to their Investor Relationship team.
Ruiyu Li — Senior Director of Investor Relations
Yes Zhenhui, I would take the second question regards to the antitrust. It’s totally different from typical C2C platform. JD is mainly B2C retailers, where it is all merchandising, inventory markings, sales and logistics, that’s the first point I would make. And the second, JD continues to expand into other categories, beyond 3C like fashion. JD has been minimized by intercompany behaviors, where merchants are being asked to do, Joshua, you will pick one out of two. So the third point I would make is, JD fully supports the antitrust regulation, which we believe is very important for healthy growth and innovation of the business ecosystem, in particular and the country’s economy in general. And lastly, which is most importantly, since day one, our founder Richard Liu reach has subscribed to a business principle called $0.35, on the which if we make $1 profit, $0.30 goes to commerce and $0.35 for our employees and the remaining $0.35 for JD’s continuing growth. As such, JD is fully committed to a healthy ecosystem, that is relying on cooperation, coexistence and coevolution.
Operator
Thank you. Next question is from Jialong Shi of Nomura. Please go ahead.
Jialong Shi — Nomura — Analyst
Thanks. Good evening management. Thanks for taking my questions.
[Foreign Speech].
I have two questions. The first question is about the grocery e-commerce business. Management mentioned earlier, JD is a pilot in some of the fresh grocery models, including 7FRESH, and the community growth by model etc. Could management provide some colors on the strengths and weakness of each of the models, and which model in the management’s current view has a potential to become the dominant model in the future for the online fresh grocery business? And the second question is about the guidance for Q4. Sandy mentioned, JD will reinvest the extra profits earned in the first nine months into improving user experience in Q4. So can management give us some colors, what is the size of the actual profits you guys are aiming to invest in Q4? Thank you.
Lei Xu — Chief Executive Officer, JD Retail
[Foreign Speech]
This is Xu Lei from JD Retail. To answer your first question about the fresh foods community profile.
[Foreign Speech]
The fresh foods market is indeed a very huge segment, you have seen that there are many participants like are fighting and exploring in these areas, including those traditional retailers and Internet players and also some emerging companies.
[Foreign Speech]
And I want to address that for the Chinese fresh food market, it is very different — the landscape is very different from European and the U.S. market. It’s more complicated. Or in China, the traditional retailers in the fresh food categories, the top 10 players, top 10 supermarket brands, only take about 5% of the overall Chinese market. This is a much smaller amount compared with the Western markets.
[Foreign Speech]
In general, we can categorize the fresh foods market into five segments, where we covered embracing tracks, namely, first is B2C. Second is the warehouse stores, and the third is the community group buying, and the fourth is the B2B and the fifth is — is our sales distribution center, SDC.
[Foreign Speech]
As for JD, we have started our exploration and investment in these categories, in these recent tracks, including B2C model and warehousing store model and we will keep our eye open and look for the new territories, actually for each different categories. The business model and the profitability methods are very different.
[Foreign Speech]
And we also noted that the many companies in this competition, they are using the channel — a traffic flow field. However for JD, we would rather to [Indecipherable] and our training services, to create a more sustainable ecosystem, with the growth of the fresh foods areas. So we’d rather not use this as a short term opportunity, and using subsidies to boost development of the fresh food market, rather than to develop in a more sustainable and stable business model in this field.
[Foreign Speech]
And for some of these business models, it has to be focused on this region and to fully localize the services and to perform in the long run.
[Foreign Speech]
So, in addition to our B2C and warehousing store model, we will continue to be alert, and continue to [Indecipherable] and invest into new models. So we value the most, a sustainable and stable business model. So we’ll continue to focus on our core strength of supply chain, to make sure these models are stable, and provide value for our customers.
Thank you.
Sandy Ran Xu — Chief Financial Officer
So regarding your second question of the reinvestment of our net income, so if you remember that at the beginning of the year, we expect that the target for this year is [Indecipherable] to deliver steady growth in net margin. So at this stage, we can see that we are confident we can deliver that on an annual basis. So that means, we have sufficient resources for reinvestment in the fourth quarter. But because the market situation is changing very rapidly, so we are going to make certain adjustments to our investments in the various initiatives, based on the ROI. And some of the initiatives that we talked about just now are actually for the long-term projects. So that means the investments may last till next year. So for next year, we are still in the middle of our marketing for that. So we will then share our thoughts on the resource allocation over the topic for next year, at our next quarter earnings call.
Operator
Thank you. Next question is from Eddy Wang of Morgan Stanley. Please go ahead.
Eddy Wang — Morgan Stanley — Analyst
Hi management. Thank you for taking my questions, and congratulations on the good results. So I have a very quick follow-up on the online fresh grocery. If you look at next year, given that a lot of the players, they actually tend to be very aggressive in penetrating online fresh groceries. So what’s your thoughts of the market share? Are we still taking all these players — still taking the market share from offline, the web market or supermarket, or have you seen any signs that the players are just starting to taking market share from each other? Just a very simple follow-up. Thank you.
Lei Xu — Chief Executive Officer, JD Retail
[Foreign Speech]
This is Xu Lei from JD Retail. And indeed, in the year 2020, JD Super, our online supermarket platform, has been benefited from the — first of all, the impact of the epidemic. A lot of customers who used to buy things offline have shifted to our online platform and their behavior has stayed with us. And also, this is a result of our years of investment of our product selection and our cooperation with our brand partners and our superior fulfillment capacities and all these have contributed to the faster growth of JD Super.
[Foreign Speech]
And indeed, we do see a strong growth in terms of sales and market shares in our JD Super categories. However, because the shopping behaviors for these product categories are very different from consumer electronics products; actually the — for the fresh groceries, their online shopping penetration rate is still relatively low. There’s still space to grow.
[Foreign Speech]
Though you have seen that JD has become the global number one [Indecipherable] with many brands or many products, both international brands or domestic brands. But actually, for these categories, the market is very huge and the penetration rate is still expected to grow.
[Foreign Speech]
And we do see actually wide [Indecipherable] of brands to JD to operate. We do have to go through several phases. For phase one, the brands see JD as a very effective sales channel to help them — to bring them down costs and increase sales opportunities.
[Foreign Speech]
And for phase two, we start to work with our brand partners, to do more marketing and to manage their members and their fans to help them to increase their digitalization capacities to engage with their members.
[Foreign Speech]
And for phase three, we continue to build more C2M products, namely the consumers-to-manufacturer products to tailor to the needs of different cohorts of consumers, from the lower tier cities who have special preferences, etc. So currently, more than 30% of our sales on JD Super are coming from the differentiated products we collaborate with our branch partners, and these achievements are based on our advanced data and advanced algorithm. So this is a very close and deep cooperation with our customers — with our brand partners in this space.
[Foreign Speech]
And for phase two, enter our omnichannel strategy, and JD Super is doing a great job and has been very welcomed by multiple players for that. JD Super entered this omnichannel, JD Super’s brand partners, both online and offline, we look at their business model in both online and offline through our data, through our systems and tools. So this format is very well performing, and well received by our brand partners’ and platforms and also benefit our customers.
[Foreign Speech]
And I’d also like to share with you, the vision that I believe JD Super, in the future, will become the number one category of the overall platform. Thank you for questions.
Operator
Our last question comes from the line of Han Joon Kim of Macquarie. Please go ahead.
Han Joon Kim — Macquarie Group — Analyst
Great. Thank you for your time today. I wanted to follow up on livestreaming and I guess, your partnership with Kuaishou and so forth. Do you see kind of experimentation going on there, and the outlook for next year as well. Thank you.
Lei Xu — Chief Executive Officer, JD Retail
[Foreign Speech]
This is Xu Lei, I just to want to share to you a few points about livestream.
[Foreign Speech]
First of all, we believe in the long term, livestreaming will not only be a huge channel, it will become a standard operating tool on many platforms, not only the video platform, but a very standard tool for all the sales and marketing tools.
[Foreign Speech]
And so now, a lot of people go to livestream in pursuit of its price discount. But in the future, we think livestream will be able to do — provide more functions, like to give you more detailed introductions of the products or being the platform for new products release. So there’ll be multiple functions in [Indecipherable].
[Foreign Speech]
And for JD Live, we do see the livestream data is going very well and more and more merchants are engaged on this platform. The difference between JD Live and other platforms is that, because of our customers’ different structures, customers like to see more professional content on our platform. So also on our platform, we always advocate more rational consumption. So we want to provide more professional information and invite the CEOs of the big companies to introduce their products on our JD Live platform, and also invite those amateur or the specialists of certain products, to give more professional introduction on JD Live.
[Foreign Speech]
And also, we are now increasing our cooperations with other MCN channels and artists. And another thing I want to share with you is that the orders — sales orders achieved on the livestream, on JD’s main site, is much higher than our third-party livestream. I think this is highly related to the customers’ trust and quality and shopping behaviors on JD platforms.
[Foreign Speech]
And just to briefly comment on our cooperation with Kuaishou. Kuaishou looks forward to cooperate with JD because of our superior supply chain, in terms of products and technologies and also, we admire Kuaishou as a very unique platform, that provides traffic flow into a very big amount of consumer footfall. So this is a very natural supplementary for this cooperation.
[Foreign Speech]
And for this cooperation, it’s not simply that JD will post a price on Kuaishou for sales, but more, there’s a lot behind the supply chains and other services to support this cooperation. So there’s still a lot of work we are doing, to further connect our system. And at the same time, I believe that we will provide better values for this cooperation, and yes — in the long run. Thank you.
Operator
Thank you. We are now approaching the end of the conference call. I will now turn the call over to JD.com’s Ruiyu Li for closing remarks.
Ruiyu Li — Senior Director of Investor Relations
Thank you, operator, and thank you for joining us today and your continued support. Please feel free to contact us, if you have any more questions. We look forward to talking with you in the coming months.
Operator
[Operator Closing Remarks]