Producer: Sina Finance Listed Company Research Institute
Author: Yi She
Thunder thundered on the ground. On January 8, Dada Group, an instant delivery retail platform, announced that the company found suspicious behaviors such as exaggerating financial data during its regular internal audit, which may have a significant impact on some revenues and costs in the first three quarters of 2023. The Audit Committee of the Board of Directors has decided to conduct an independent review and will engage independent third-party professional advisers to assist it. A relevant person from Dada Group said that it had reported the case to the public security organs.
Despite repeatedly emphasizing that this incident was "caused by a few people suspected of fraud and crimes, it does not involve the company's core business, and the scope of impact is very limited", Dada Group's stock price still suffered a heavy fall. At the close of trading on the day of the announcement, the company's stock price fell by more than 45% in a single day, and continued to decline for the next two trading days. As of press time, Dada Group's share was only $1.51, and its market value evaporated by about $12.6 billion from its peak in 2020. Parent company JD.com was also implicated, and U.S. stocks closed down 2.7%, 2.5%, and 0.16% from January 8 to 10.
(Source: Wind)
Earnings in the second quarter were suddenly variable, with a cumulative loss of more than 13.2 billion yuan in six years
Combined with the analysis of announcements and financial report data, Dada Group is suspected of falsely reporting about 500 million yuan of online advertising and marketing service revenue in the first three quarters of 2023, accounting for 6.06% of the total operating income of the current period. In the first three quarters, the total revenue of commission, online advertising and marketing services was 3.447 billion yuan, accounting for about 14.51% of the inflated amount, and about 500 million yuan of operating and support costs were falsely reported, accounting for 5.50% of the total operating cost of the current period. In the first three quarters, the total cost of this segment was 5.11 billion yuan, accounting for about 9.78%.
The proportion does not seem to be high, but for Dada Group, which has just announced a turnaround, it may be a fatal blow.
According to the unaudited performance report for the second quarter of 2023, the company achieved total revenue of 2.811 billion yuan during the reporting period, a year-on-year increase of 23.21%. The adjusted net profit was 2.259 million yuan, an increase of 17% over the same period in 2022, reaching overall profitability for the first time. Now that both revenue and costs are exaggerated, the second-quarter earnings are obviously not credible, and Dada's self-hematopoietic ability has been questioned again. Citibank directly lowered its price target from $6 to $1.8 and downgraded its rating from "buy" to "sell".
In fact, as the "first instant retail stock" established nearly 10 years ago, listed for more than 3 years, and backed by the two retail giants JD.com and Wal-Mart, Dada Group has never been able to completely get rid of the curse of loss. From 2017 to 2022, the company's net loss attributable to ordinary shareholders was 1.823 billion yuan, 2.390 billion yuan, 2.465 billion yuan, 2.081 billion yuan, 2.471 billion yuan and 2.008 billion yuan respectively, with a cumulative loss of 13.238 billion yuan in six years. Before the financial fraud data scandal was exposed, Dada Group's net loss in the first three quarters of 2023 was about 675 million yuan, although it was significantly narrower than the first three quarters of 2022, but it was still profitable.
Behind the huge losses is the high cost of manpower operation and user promotion in instant retail.
According to the financial report data, from 2017 to 2022, the proportion of Dada Group's operating and support costs in total operating expenses is between 50% and 60%, accounting for more than 60% of total revenue, although the proportion of sales and marketing costs in total operating expenses has increased year by year, from 25.77% to 40.90%, accounting for 50% of total revenue in the past two years.
In the first three quarters of 2023, these two costs have not been effectively controlled, with a total of 8.582 billion yuan in the reporting period, a year-on-year increase of nearly 13 percentage points. Even after deducting the inflated expenditure of 500 million yuan, the operating and support costs and sales and marketing costs reached a staggering 8.082 billion yuan, which is about 1.04 times the revised total revenue for the current period.
According to the express logistics research report released by Southwest Securities, compared with the network and warehousing and distribution integration mode, the new retail format based on instant distribution is usually used to meet the point-to-point transportation requirements within five kilometers, and has higher requirements for timeliness. The characteristics of relatively scattered demand, diversified service scenarios, and high dependence on delivery personnel make it difficult for enterprises to form scale effects to a certain extent, which is the crux of the profitability problem of the instant retail industry.
Frequent management changes, sluggish growth, and retreat if you don't advance?
The "water injection" incident of financial data has undoubtedly exposed the internal hidden dangers of Dada Group.
In August 2022, Dada Group announced the retirement of the company's founder, Kuai Jiaqi, and resigned as CEO and chairman of the company's board of directors. He Huijian, the former head of JD Daojia platform operation and vice president of Dada Group, was promoted to president of Dada Group, presiding over the company's daily work, and Xin Lijun, CEO of JD Retail, served as chairman of the board of directors.
A year later, Yang Jun, co-founder and CTO of Dada Group, resigned, and in December, Xin Lijun, chairman of the board of directors, and Chen Zhaoming, CFO, both resigned, and were replaced by Shan Su, CFO of JD Group, and Mao Jun, head of investor relations of JD Logistics, respectively. In just 16 months, the core management has changed twice, and almost all of the founding team of the original Dada Group have been "replaced", and personnel shocks or risk management and control problems have surfaced.
What's more worrying is that the growth rate of the company's main business has been much worse than before.
According to the data of previous quarterly financial reports, Dada Group's two major businesses are instant delivery, Dada Express and instant retail, JD Daojia. Since JD.com officially became the owner in March 2021 and its shareholding ratio rose to more than 51%, the proportion of Dada's express business revenue in total revenue has decreased from 63.28% in the second quarter of 2020 to 37.73% in the third quarter of 2023, while the proportion of JD's Daojia business revenue has climbed from single digits to around 65%.
Also starting from 2021, the company will no longer disclose the operating data of Dada Express, and the GMV and number of active consumers of JD Daojia have become the focus of attention. However, in recent years, JD Daojia's business growth has also slowed down significantly. In the 12 months ending in the third quarter of 2023, the GMV of JD Daojia platform was about 73.1 billion yuan, an increase of 24.11% year-on-year and only 3.25% quarter-on-quarter, which is far from the high growth in 2020.
It is interesting to note that after entering 2023, Dada Group will no longer disclose key indicators of active consumers. However, judging from the performance from the second quarter of 2020 to the fourth quarter of 2022, the year-on-year and quarter-on-quarter growth rate of active consumers on the JD Daojia platform has been declining. In the 12 months ending the fourth quarter of 2022, there were 7,860 active consumers on the platform, an increase of 26.16% year-on-year and 4.24% quarter-on-quarter, respectively, compared with a year-on-year and quarter-on-quarter increase of 71.81% and 17.03% in the second quarter of 2020.
According to the "Instant Retail Industry Development Report (2023)" released by the Ministry of Commerce, the scale of the mainland instant retail market (excluding catering takeaway and instant services) will exceed 2.5 trillion yuan in 2026, with an average growth rate of about 50% in the next three years, and the scale of instant delivery is expected to reach one trillion yuan and the order volume will exceed 100 billion orders. In other words, there is still a lot of room for development in the instant retail market.
According to incomplete statistics from public reports, new and old players in the same track will accelerate their layout in 2023: the "Meituan Grocery Shopping" brand has been upgraded to a self-operated full-category retail platform "Little Elephant Supermarket", becoming another instant retail business after Meituan Takeaway and Meituan Flash Sale; Douyin has added an independent entrance to "Hour Delivery", cooperated with local merchants such as Yonghui Supermarket, Dingdong Grocery Shopping, and Wumart Supermarket, and once reported the news of building its own independent delivery team; Ele.me announced the launch of the "Double Hundred Plan" It has joined hands with 100 retail brands to achieve 100% growth in two years, and Tmall Supermarket has launched the "half-day delivery" service, which has expanded to 20 cities across the country in seven months.
Whether JD.com, which has sluggish growth, is like a boat sailing against the current, whether it can successfully resolve the crisis, restore investors' confidence, and maintain market share under the watchful eye of fierce competitors is an urgent problem to be solved.