[March 1st, 2021]
Dada Group is a local on-demand delivery and retail platform within JD.com’s ecosystem.
The retail platform, JDDJ, adopts 3P-only marketplace model and focuses on categories (in terms of merchants and SKU) where the value of on-demand sub-vertical of e-commerce is higher than costs for demand side and supply side in steady state (viable without subsidy).
It’s like typical two-sided platform that JDDJ needs to acquire customers and merchants. Since the company is within JD’s ecosystem, its user base can be partially thought of as adoption / penetration on-demand retail in JD user base. I believe the platform expands e-commerce market more than just converting non on-demand e-commerce market. On the supply side, JDDJ focuses more on acquiring large merchants (key account, KA) like chain store at the moment. JDDJ also provides merchants tools to empower them for on-demand retail digitalization. The tool might not be have strong lock-in effect but definitely increase supply-side stickiness.
JDDJ’s metrics as of 3Q20
– TTM 37M active consumers
– TTM 560 RMB ticket size (TTM GMV/TTM active consumers)
– TTM 9% of monetization rate (TTM revenue/TTM GMV)
– 150 RMB quarterly overall AOV (ticket size)
– 77% of existing consumers in 2017 is still purchasing as of 3Q20
– purchasing frequency:
– once a month for new consumers
– once a week for higher frequency consumers
– On-demand retail trend picks up in China
– Adoption / Penetration
– Category expansion
– Geography expansion
– Increasing purchasing frequency driven by behavior change
-> Typical GMV growth model in e-commerce: user, frequency, basket size
-> Expect monetization rate stays stable in the near future
The delivery platform, DaDa Now, adopts an open on-demand delivery model which connects merchants & individual senders and individual riders. The tech and ops parts in this model have been proven in food delivery and ride hailing businesses. The local liquidity is the key for this type of two-sides marketplace. JDDJ is a major order source for the delivery platform. The platform had more than 1B TTM orders delivered as of 3Q20 so I believe local cross-side network effect has been kicking in and most cities have enough order density and rider density. The company mentioned that the platform made profit at each city level so its financial will be relative healthy when further scaling up. The profitability of this business comes from scale and technology investment that improves efficiency. Like other consumer internet technology business, the overall business of DaDa Group is asset light but capital intensive, and once it breaks even it generally enjoys attractive margin.
Group level charts
Proven models where scale is the competitive advantage or moat. Investor return comes from expanding moat. Scale comes from growth. I bet the team can properly manage growth and ride on the on-demand O2O trend.
The company is still loss-making in terms of GAAP earnings, Non-GAAP earnings, and Operating Cash Flow. The company is in high growth stage with improving margin but it might need to raise capital from time to time before its cash flow turns positive.
The stock had headwind after lock-up expired and follow-on public offering in December. I think the top-line guidance is reliable because the company had late earnings release. Thus I will focus on margin improvement and 1Q21 top-line guidance (if it releases earnings in mid March, then the guidance is like performance results…). The stock trading liquidity might be an issue which also creates opportunity.