JD.com, Inc. (NASDAQ:JD) Q2 2019 Earnings Conference Call - Final Transcript
Aug 13, 2019 • 07:30 am ET
[Operator Instructions] Your first question comes from the line of Ronald Keung from Goldman Sachs. Please ask your question.
Thank you. Thank you Richard, Xu Lei, Wang Zhenhui, Sidney, Jianwen Liao. Congratulations on the strong beat and growth acceleration, even in this rising bigger revenue base. So my question will be more on the investments and also your long-term margin commitments.
Given that, Sidney, you've said the full year guidance has been lifted, and the implied second half margin will be roughly between, calculated and implied will be 0.3% to 0.9%. So what do we see as the major investments in the second half? And particular, you mentioned about -- Richard, you mentioned about fresh, AI, cloud, big data. I just wanted to see what are the key moving parts that we expect would be spending higher in the second half, leading to this more conservative sequential margin outlook into the second half.
And given the full-year commitment around 1.4% to 1.7% net margin, how are we seeing the longer term, normalized margin potential of the business, particularly given the very strong first half, if we see the net margins of Walmart of between 3% to 4%. Do we see this moving up to these sort of trends in the next two, three years or normalized margin potential of the business? Thank you.
Sidney Xuande Huang
Sure, Ronald, let me try to answer this. Well, first, I mentioned earlier that the first half, we had a couple of one-off items that we intend to reinvest roughly RMB 1.8 billion. So that would have an impact, which will be invested mostly in the lower-tier city initiatives, not only on the new WeChat platform but also on logistics that we actually intend to further penetrate down into those lower-tier cities areas, to enhance customer experience.
And this is also -- the intention is to position ourselves for stronger growth or sustained growth into next year and the years beyond. Our margin commitment has been quite clear that we want to improve our margins consecutively on a year-over-year basis.
And as Richard also mentioned earlier, we now are -- we are in a much better position to generate these steadily improving profit, because some of our major investment areas have now bearing fruit and are turning profitable. And the logistics and fulfillment expense ratio example that I highlighted was just one of them, where we actually went through a series of investment phases.
Some of them are really overlapping on top of each other. So for quite a few years, we couldn't tell whether we are ever going to have operating leverage or we just simply continue to increase the expense ratio. So by this quarter, it's a good illustration that the fulfillment expense ratio actually went back to a historical low level since our IPO.
And clearly, we still have room to further improve because JD Logistics is still in investment phase. That's why it just broke even with a slight profit. Obviously, it will --