Earnings Call: Q3 2020

Nov 16, 2020

Hello and thank you for standing by for jd.com's 3rd Quarter 2020 Earnings Conference Call. And at this time, all participants are in listen only mode. After the management's prepared remarks, there will be a question and answer session. And 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, Ruoyu Li. Thank you, operator, and welcome to our Q3 2020 earnings conference call. Joining me today on the call are Mr. Lei Xu, CEO of JD Retail Mr. Zheng Hui Wang, CEO of JD Logistics Sandy Xu, our CFO and Professor Liang, our CSO. For today's agenda, Sandy will discuss highlights for the Q3 of 2020 and other management will join the QA 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. Thanks, Xu Yu. Hello, everyone. Thank you for joining our earnings call today. We are pleased to report a strong set of financial results for the Q3 of 2020. We delivered a solid performance in a seasonally light quarter and set new record for funding, operating and financial metrics. JD leads by example in contributing to the society and supporting the recovery of real economy. We have opened up our retail ecosystem, our self built supply chain infrastructure and technology capacity to 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 innovations, 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 win trust 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 442,000,000, adding more than 100,000,000 customers, up 32% from a year ago, the highest growth rate in the past 3 years. We obtained more than 24,000,000 net additional customers compared to last quarter, the largest expansion in the seasonally light September quarters 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 products 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 20,000,000 in October, an important milestone for our paid membership program. JD Plus was the 1st 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, fitness, 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 class 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 largely reflect our quality user growth with enhanced user engagement. We reported net revenues of RMB174,000,000,000 for the 3rd 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 revenues, making another historical record. As the economy gradually returns to normal from the peak of COVID-nineteen outbreak, JD Logistics continued to gain trust from its business partners and delivered an accelerated revenue growth. Besides our solid user and top line growth, there are few notable operating and financial performances we want to highlight. 1st, 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 continues to improve even as our product mix shifts 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 records 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 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 electronics brands starting q3. As we mentioned before, our 3 seats 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 upstream, bringing more customized products to different consumers and create value for our business partners. Thirdly, JD Logistics is another prominent example of our long term investment in user centric experience and supply chain infrastructure. Since we opened our service to 3rd 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 gains more consumer customer recognition, revenue generated from 3rd 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 0.7% 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 and D and G and A expense ratios in the Q3 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 RMB1.3 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 benefit, 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 mindshare 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 RMB 7,500,000,000 as compared to RMB 63,000,000 in the same quarter last year. Free cash flow for the last 12 months reached over RMB30 1,000,000,000 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 1,000,000,000. 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 un reserve the empowerment of our business partners through our technology and infrastructure. Many users are still shifting from offline 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. Ladies and gentlemen, the question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take the next question at the time of each caller. If you have more than one question, First question comes from the line of Ronald Keung of Goldman Sachs. Please go ahead. Thank you. Thank you, Richard, Xu Lei Dong, Wang Dong, Sandy, Ruiyu and team. And congratulations on the very strong results. My question was around your supermarket strategy. 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 preorder and next day self pickup model where most people talk and mention as the community group purchases? How do we think about these given we do have a lot of strong users and the supply chain capabilities? Thanks, On your question regarding supermarkets 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 book. 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 costs. 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. Thank you. So, just to supplement, for the various new business models we are experimenting, that would include the 7 Fresh store warehouse business model, the community group purchase model, or the distribution warehouse models. Thank you. Next question is from the line of Thomas Chong of Jefferies. Please go ahead. 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. And due to the impact of the coronavirus in 2020, we see the overall growth on online shopping, online consumption has been growing rapidly, and Citi is a beneficiary in this process. Our penetration rate into the Chinese consumption market has been growing 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 new to stay. At the same time, we do 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, etcetera. But in some other categories, due to the impact of the international supply chain, the growth is slower than expected. But overall, for giddy.com, we are a comprehensive platform that offers all kinds of categories. So this ensures we will have a very sustainable and stable growth this year. And at the same time, we'll also leverage our strength in supply chain and our reputations and the life share we have among Chinese customers to keep a leading position on this market. And at the same time, we will also continue to explore new traffic fields, online and offline, and we'll continue to strengthen our mid end capacities in terms of supply chain and our omni channel strategy. And we believe based on these unique strengths of supply chains and our special competitiveness will continue to a better position on this market. As we have seen that over these quarters, we have a very healthy growth in terms of the users. We do see our existing users shopping more frequently on our platforms. And for the new users, because they are already being educated and having a quality basis 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. As you know that JD is a platform with the strength of supply chain and services, We have a better competitiveness to match the shopping experience for more and more customers. So we would rather take a long term perspective to see the sustainable growth of our user space. And either in the past or now in the future, I would like to give 4 keywords for our long term development. The first is focusing on our users' experience. 2nd, we'll keep open and we'll develop our omni channel strategy and strengthen our deep and capacity building, so focusing on supply chain. The four key areas will be in the long run of our strategy emphasize. Thank you for your questions. Maybe let me add a little bit. We have demonstrated that our lower tier city approach was effective. As I mentioned at the These were driven by our improved technology and algorithm behind the front platform. So, so far, we have seen very healthy user trends. So, users are shifting from the high Thank you. Next question is from the line of Jim Yoon of New Street Research. Please go ahead. Hey, good morning, good evening and thanks for taking my question. So I know that last quarter that you guys announced that you're not going to provide guidance going forward. But given the fact that we're seeing a pretty profound seasonality with 2nd and 4th quarter promotions kind of where they are, perhaps you can kind of give us kind of a directional view of how we should look at the Q4, if there'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 1st 9 months of the year. And just is there any reason why we can't see the same kind of step up function in the Q4 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. Sure. This is 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 formed a very good basis for our Q4 promotion season. In the past Double 11 promotion, our performance exceeded our internal expectations and the user numbers and traffic 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 continue to invest and focus on user acquisition and engagement, in particular, is 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 benefits of our retail business and logistics business has been gradually realized. So we now see opportunity for accelerating penetration of e commerce in China. To catch up this opportunity, we are going to reinvest the extra profits that we generated in the first 5 months of 2020. And in user experience, in some of our fast growing categories or new business initiatives, if this can happen, gain market share in the long run. So you will see similar pattern of net margin seasonality in Q4 as in last year. Thank you. Next question is from Gregory Zhao of Barclays. Please go ahead. Hi, management. Thanks for So my question is about the RFP, a group of Asian countries made the trade the free trade agreement over the original, the comprehensive partnership. So a lot of products and services will be covered in equipment and we know some free tax terms will also be introduced. So would you please help us understand the opportunities from RSAP to China e commerce and also the cross border e commerce market and how JD can take the opportunity? Thank you. This is Shulai from JD Retail to respond to your question. Regarding the growth of our cross selling 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 Q4 in these aspects. 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 this new regional cooperation and we believe that this is very positive news for both the production and consumption in ASEAN and Asian region. And of course, we will take full advantage of our strength our cooperation with the international brands and also our supply chain capacity to catch this opportunity. So we will closely on the development and to see the opportunities to further develop our business. And thanks for your question. Thank you. Next question is from the line of Eddie Leung of Bank of America Merrill Lynch. Please go ahead. 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 business. So I'm just wondering what key reasons behind the gross margin improvement? Does it mean our 1P revenue gross margin actually improving? Thank you. This is Sandy. Thanks for your question, Andy. On your question regarding gross margin, I think for JD Retail, the gross margin improvement was mainly contributed by the change of product mix. As we mentioned that the customer's purchase behavior is shifting from low frequency to high frequency. And also the real benefit that we realized from all categories, so the gross margin is gradually improving for all the products. And then talking about fulfilled gross margin, so again, this is contributed by the skill 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 the growth of advertising revenue is kind of offset by the slower growth of the commission revenue because for 3P business, 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. Thank you. Next question is from Alicia Yap of Citigroup. Please go ahead. 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% 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 Q2 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 2018? It seems like it is actually stronger than June 2018. And is that driven by pricing or any reasons for the strong single stage? Thank you. 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 Q2, you see that the growth rate 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 disinfectant, liquid soap, etcetera. So the sales volume dropped for these products in Q3 as the users already have sufficient inventory stored at their home. And also in Q3, the fresh if you look at fresh produce category, its largest sub seafood. So it was a drag of our overall growth due to a few COVID cases reported during the quarter in relation to the imported seafood. So the other sub category and the fresh produce were continued to grow very strong during the quarter, but they were with relatively lower ticket size and revenue contribution. So overall, we see the order number, the user growth and the traffic as a general merchandise continue to be very strong during the Q3. As we have stressed that we will not only looking at the performance on the 11th single day, if we look at the brand promotion period from November 1 to 11, we're very pleased with the growth results. And for this year, because of the epidemic impact and so on, we would like to drag the time spent even longer because these time of our brand partners also pay high attention on these activities. So if we drag the time October 1 to 2011, for 1.5 months' time, we are achieving a much better result than expected. For the reasons why February 11's performance is even better than the 618 shopping festival, I think there are two reasons. And one reason is on the consumer side. As we can understand that by the end of the year, a lot of consumers, they have a bigger shopping plan to purchase more stuff. 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 comfortable and more ready position to prepare their products and to do their operations. This also contributes to a better performance of the sales growth. Thank you for your questions. Thank you. Next question is from Jerry Liu of UBS. Please go ahead. Hi. Thank you, management. Yes, my question is on the logistics business. We saw in the Q3 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 3rd party merchants where we saw the revenue mix come up. And secondarily, we've also heard that from our checks that some of the brands were 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. Thanks for your question. And as you mentioned, indeed, we have seen 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 users' experience. Logistics, our value propositioning is to provide the best user experience driven by technology and win from our efficiency improvements. So, we have always increased our investment in our capacity building to provide more services and infrastructure to cater to the needs of our customers. And no matter if during the COVID period or even normal time, we will 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. Thank you. Next question is from James Lee of Mizuho. Please go ahead. Thanks for taking my questions. Two questions here. First on online pharmacy, can you talk about some of the key frictions you're 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 2x 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. Yes. This is John. I will take the second question with regard to the antitrust. Totally different from typical C2C platform, JD is mainly a B2C retailer with its own merchandising, inventory, marketing, sales and logistics. That's the first point I want to make. And the second, as the JD continues to expand into other categories beyond 3C like action, actually JD has been minimized by anti competitive behaviors where merchants are being asked to do or pick 1 out of 2. So the 3rd point I want to make is JD fully support the antitrust regulation, which we believe is very important for healthy growth and innovation of the business ecosystem, in particular, and the country economy in general. And lastly, which is most importantly, since day 1, our founder, Richard Lu, has subscribed to a business principle called $0.35 on which if we make $1 profit, dollars 0.30 goes to the partners and $0.35 for our employees and the remaining $0.35 for JD continuing growth. As such, JD is fully committed to a healthy ecosystem that is relying on cooperation, coexistence and co evolution. Thank you. Next question is from Jiayong Shi of Nomura. Please go ahead. Thanks. Good evening, management. Thanks for taking my I have two questions. The first question is about the grocery e commerce business. Management mentioned earlier JD is piloting some of the fresh grocery models, including 7 Fresh and the community group buy model, etcetera. Could management provide some colors on the strengths and the weakness of each of the models? And which model in the management's current view has the potential to become the dominant model in 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 1st 9 months into improving user experience in Q4. So could management give us some colors what is the size of the extra profits you guys are aiming to invest in Q4? Thank you. Market is indeed a very huge segment. And you have seen that there are many participants, it's like fighting and exploring in these areas, including those traditional regulars and Internet players and also some emerging companies. And I want to address that for the Chinese fresh food market is very different. The landscape is very different from European and U. S. Market. It's more complicated. Well, in China, the traditional retailers and fresh food categories, the top 10 players, top 10 supermarket brands only take about 5% of the overall Chinese market. It's a much smaller amount compared with the Western market. In general, we can categorize the fresh food market into 5 segments where we call it the racing tracks. Our first is the B2C, second is the warehouse stores and the third is the community group buying and 4th is the B2B and 6th is the As Shue and for JD, we have started our exploration and investment in these categories in these racing tracks, including the B2C models and the warehouse and store models, and we'll keep our eye open and explore the new territories. Actually, for each different categories, the business models and the profitability methods are very different. And we also noticed that so many companies in this competition, they are using these channels as a traffic road field. However, for JD, we would rather to use our services to maintain and our partner services to create a more sustainable sustainable ecosystem for growth of the fresh foods areas. So we rather not use this as a short term opportunity and using subsidies to boost the development of the fresh fruit market rather than to develop in a more sustainable and stable business model in this field. And for some of these business models, it has to be focused on this region and to truly localize the services and to perform in the long run. So, in addition to our D2C and warehousing stores models, we'll continue to be alert and continue to explore and invest in the 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 will disable and provide value for our customers. Thank you. So going to the second question of the reinvestment of our topic for this year is that we are going to we were going to deliver steady growth in that 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 Q4. But because the market situation is rapidly, so we are going to make a balanced adjustment to our investment 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 budgeting process. So we will then share our thoughts on the resource allocation of the topic for next year at our next quarter earnings call. Thank you. Next question is from Eddie Wang of Morgan Stanley. Please go ahead. Hi, management. Thank you for taking my question and congratulations on the good results. So I have a very quick follow-up on the online fresh grocery. So if you look at next year, given that a lot of the players, they actually tend to be very aggressive in penetrating this unlike fresh grocery. So what's your thought 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 these players are just starting to taking market share from each other? Yes, just a very simple follow-up. Thank you. And indeed, in this year 2020, JD Super, our online supermarket platform, has been benefited from the And also, this is a result of our years of investment, our product selections and our cooperation with our brand partners and our superior fulfillment capacities. And all these have contributed to the faster growth of JD Super. And indeed, we do see a strong growth in terms of sales and market shares in our JD Super category. However, because the shopping behaviors for these product categories are very different from products. Actually, for the fresh groceries, their online shopping penetration rate is still relatively low. There's still space to grow. Though you have seen that JD has become the global number 1 or the key account for 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 a space to grow. And we usually actually why there's a lot of brands choose JD to operate. We do have to go through several phases. For Phase 1, other brands see JD as a very effective sales channel to help them to bring down the cost and increase sales opportunity. And for Phase 2, we start to work with our brand partners to do more marketing and to manage their members and the fans to help them to increase their digitalization capacities to engage with their members. And for Phase 3, we are continuing to build more C2S products, namely the consumers to manufacture products to tailor to the needs of different corporate of consumers from the lower tier cities who have special preferences, etcetera. So currently, more than 30% of our sales on J. D. CUPER are coming from the differentiated products we collaborate with our brand partners. And these achievements algorithms. So this is a very close and deepened cooperation with our customer with our brand partners in this space. And for Phase 2, under our omni channel strategies and JD Super is doing a great job and being very welcomed by multiple players with us, JD Super and this omni channel JD Super brand partners, both online and offline, would look at their business performance 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, platforms and also benefit our customers. And I would like to share with you this ambition that I believe JD Super in the future will become the number one category on JD's overall platform. Thank you for questions. Thank you. Our next question comes from the line of Han Joon Ki of Macquarie. Please go ahead. Great. Thank you for your time today. I wanted to follow-up on live streaming and I guess your partnership with Kuaishou and so forth. How you see kind of experimentation going on there and the outlook for next year as well? Thank you. This is Xu Lei. I just want to share you a few points about live stream. First of all, we believe in the long term, live streaming will not only be a sales channel, it will become a standard operating tool for many platforms, not only the video platform, but very standard tools for all the sales and marketing stores. And for now, a lot of people go to live streams 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 will be multiple functions it can explore. And for JD Live, we do see the live stream data is going very well as more and more merchants are engaged on these platforms. The difference between JD Live and other platform is that because of our customers' different structure, customers would 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 introductions JD Live. And also, we are now increasing our cooperation with other MCN channels and artists. And one another thing I want to share with you is that the orders sales orders achieved on the live streams on JD's main site is much higher than our 3rd party live streams. I think this is highly related to the customers' trust and quality and healthy behaviors on digital platform. And just to briefly comment on our cooperation with Kuaishou. Kuaishou look forward to cooperate with JD because of our superior unique platform that provides traffic flow and enjoy a very big amount of consumer cohorts. So this is a very natural supplementary for this corporation. And for this cooperation, it's not simply that JD will post a price on price show for sales, But more, there's lots behind the supply chains and our services to support this cooperation. So there's a few a lot of work we are doing to further connect our system. And at the same time, I believe that we will provide better value for this cooperation in the long run. Thank you. Thank you. We are now approaching the end of the conference call. I will now turn the call over to jg.com for Yoonbi for growth. Thank you, operator. Thank you for joining us today and your continued support. Please feel free to contact us if you have any follow-up questions. We look forward to talking with you in the coming months. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.