Earnings Call: Q4 2015

Mar 1, 2016

Hello, and thank you for standing by for jt.com's 4th Quarter and Full Year 2015 Earnings Conference Call. At this time, Today's conference is being recorded. And 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, Ryu Li. Please go ahead. Thank you, operator, and welcome to our Q1 2015 earnings call. Joining me today on the call are Richard Liu, CEO of gd.com and Cindy Huang, our CFO. For today's agenda, management will discuss highlights for the Q4 and full year 2015. Following the prepared remarks, Hao Yixin, CEO of GDMO will join Mr. Liu and Mr. Huang for the Q and A portion of the call. Before we continue, I refer you to our Safe Harbor statements in earnings press release, which applies to this 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 directly comparable GAAP measures. Finally, please note that unless otherwise stated, all the figures mentioned during this conference call are in RMB. Now, I'd like to turn the call over to our CEO, Richard Liu. Thank you, Ruiyi, and welcome, everyone. Xunu Xiong's momentum continued throughout 2015, and we made excellent progress on our key strategic goals. During the year, successful sales events like Singles Day and our uninterrupted service during the Chinese New Year holiday helped win new customers and our expanding logistics network allowed us to further improve customer experience throughout China. Today, more and more customers are looking to Jindong as they upgrade the quality of the products they buy and their overall shopping experience. Jinlung's long term focus on quality, authentic products and fast, reliable service has made us China's premium e tailer and international brands now recognize this, which enables us to attract world class products to our site. We expect this momentum to continue in 2016. I will now turn the call over to Sidney. Thank you. Thank you, Richard, and hello, everyone. We are very pleased with another quarter of robust growth, thanks to our highly successful 11 and 12 sales events and the rapid expansion of our customer base. Excluding taipay.com, our year over year core GMV growth was 79% in the 4th quarter, while our net revenue grew 57%, both of which accelerated from Q3 growth levels and are above our internal targets. Meanwhile, China's overall consumption growth also accelerated in the 4th quarter to over 11% despite the slowing macroeconomic condition. We're encouraged by these trends and with our differentiated value proposition and a better customer experience, we remain cautiously optimistic about our 2016 growth outlook. Our core GMV composition remains 92 percent and accounted for 51% of total core GMV during the quarter. Apparel and footwear continue to be the largest general merchandise category followed by food and beverage, baby products and home furnishing categories, all growing with strong momentum. Core GMV from electronics and home appliance products saw an accelerated growth rate of 66% during the quarter, led by mobile devices and home appliance categories. Core GMV from our marketplace business grew 103% in Q4 and accounted for 45% of our core GMV during the period. The triple digit growth illustrates the strong momentum of our platform, which continues to take market share from alternative marketplaces. Our net revenue grew 57% year over year, supported by strong growth in both direct sales and marketplace businesses. Our direct sales revenues grew 50 4% led by food and beverage, cosmetics, mobile and home appliance categories. Services and other revenue grew 101% year over year, mainly contributed by strong growth and healthy monetization of our platform. Our non GAAP gross margin improved to 14%, up from 12.7% a year ago. As a result of higher GMV contribution from the marketplace. Non GAAP gross margin on direct sales revenue declined slightly on a year over year basis due to a major promotional campaign for merchandise products, which was partially offset by the improving gross margin on our electronics and home appliance businesses. Non GAAP fulfillment expense ratio was 8.2% in Q4 compared to 7.3% in the same quarter last year. The higher fulfillment expense ratio was mainly due to our investments in O2O and the rural area penetration. It is also related to the lower average order value as a result of the recent category campaign discussed earlier. We are evaluating ways to improve order economics and expect to implement such measures in the coming months. The non GAAP marketing expense ratio was 4.3% in Q4 compared to 3.3% in the same quarter last year. The year over year increase was mainly driven by discretionary branding activities for the Singles Day events and for the promotion of our new Internet business and Internet Finance Business and auto initiatives. We believe the increased marketing spending was highly effective as demonstrated by the 71% growth in our active customer base over the past 12 months. Our non GAAP R and D and G and A expense ratios increased 9 basis points and 21 basis points respectively compared to Q4 last year. The changes were entirely due to additional spending by our new business We had an impairment charge as part of our year end review, mainly due to the discontinuation of pipelike.com and the write downs of Bitauto and a few smaller investments. For Bitauto, the write downs covered by the non cash portion of the initial investment and reflects the market correction in its stock price over the past 6 months as a result of the macro driven sector downturn and the company's proactive investments in auto e commerce. We believe the auto e commerce business is still in the early stage of its development cycle and we look forward to expanding our partnership in 2016. We remain highly confident in Bitauto Management's ability to execute on its strategy and ultimately emerge out of this cyclical downturn as a strong winner. Altogether, our non GAAP net margin was negative 1.2 percent in the Q4, which was entirely attributable to our new business lines. Excluding Internet Finance and O2O, our core JDMOL business remained profitable on a non GAAP basis in Q4. For full year 2015, our overall non GAAP net margin was within our guidance range of breakeven to negative 0.5%. Now let's discuss our cash flow and working capital. Our Q4 adjusted free cash flow was RMB266 1,000,000 and our full year free cash flow remains strong at RMB7 1,000,000,000 excluding impact from Internet Finance, which had a cash outflow of RMB14 1,000,000,000 in full year 2015. Inventory turnover stayed low at 37 days in 2015 compared to 35 days in 2014 and accounts payable turnover was 45 days in 2015, 4 days longer than the prior year level, but still significantly lower than the general industry level. At the end of the cash flow session in the earnings release, we also disclosed the full year transaction volumes and the year end balances of our key Internet financing business lines. I know some of our investors are increasingly paying attention to our Internet finance exposure. So let me spend a few minutes on our thoughts about this unit and a couple of credit quality data points. We position our Internet Finance unit as a financial technology company that strives to leverage our proprietary data and Internet technology to improve efficiency while reducing cost in financial transactions. Central to this strategy is our focus on developing proprietary risk management tools. We know it's hard and it will take years to achieve a convincing track record on superior risk management. But we are working very, very hard and have a decent early record in our 1st 2 years of operation. The accumulated non performing assets before charge off, which is defined as receivables or loans 90 plus days past due were approximately 0.2% of the total consumer and supply chain financing volume over the past 2 years. And our coverage ratio defined as allowance for bad debt over non performing assets, net of charge off was over 300% as of December 31, 2015, which illustrates our prudent reserve policy. Once again, we understand it takes many years and at least a couple of credit cycles to demonstrate sustained risk management capabilities. We did want to highlight that we are investing heavily in our risk assessment technologies and so far we have a prudent record. And this is also one of the reasons that we were able to raise over US1 $1,000,000,000 in a Series A round recently that valued our Internet finance unit at over US7 $1,000,000,000 in post money valuation. I'm pleased to announce that we just closed the deal today. We hope the Series A round will allow the finance unit to be self funded for its growth in 2016. It is also management's intention that we gradually reduce our own balance sheet exposure and grow the business with our core technology, while leveraging external funds from our partners. We will update you when we achieve more milestones. Now let's discuss our financial outlook. We expect Q1 net revenue growth to be between 45% and 50% on a year over year basis. This guidance reflects the solid growth momentum in the 1st 2 months of 2016 despite a higher seasonality pattern observed throughout the industry. For the non GAAP net income, we expect an overall non GAAP net margin between positive 0.5% and negative 0.5% for the full year 2016. This guidance reflects our plan to meaningfully improve our core business margins. Our commitment to investing in Internet Finance, O2O and other emerging opportunities and the flexibility to compete effectively in this highly dynamic sector. Finally, our free cash flow outlook from the core business remains positive given our commitment to fast inventory turnover and our lower accounts payable cycle relative to our peers. We intend to manage our CapEx at a prudent level generally within the operating cash inflows from our e commerce business. This concludes my prepared remarks and we can now move to the Q and A session. Operator? Operator, we're ready for questions. Thank you. 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 We'll take our first question from Eddie Leung from Merrill Lynch. Please go ahead. Good evening. Thank you for taking my question. I have a question on one of your main product categories, which is electronics. We have heard from some of the offline brands about the slower growth in smartphones as well as to some extent home appliances. So just wondering if you could share a little bit of the electronics business to us and how you guys can maintain pretty good growth despite potential headwinds in the electronics industry? Thank you. So, Eddie, consumer electronics has been strongest categories of company. The company started in that category. Slowest growing in our entire portfolio, although still very fast growth compared with offline retailers. And cell phone has gone through very rapid growth in the past few years as smartphone becomes prevalent in China. The growth rate definitely slowed down. If you look at the entire market, I think it's flat basically last year and it's not going to grow much faster this year. But as online retailer, we're still having very decent growth. But it is I think for smartphone, the overall actually just I actually just came back from our one of our events, we just kicked off our campaign our annual campaign for Home Appliances this afternoon with over 100 brands and suppliers. So we're seeing very good growth in that category. We're still taking share very rapidly from offline retailers. So we're very bullish on that category. So overall, I think the entire market is definitely not growing very fast. But as online retailer, we're taking share from offline guys and we're seeing much better growth in the industry overall. JD is already the largest retailer for a lot of these electronics and appliance categories, but it's only maybe 10% if that of the entire market. So for a few years to come, our growth will still be driven by people's move from offline to online, especially from the lower tier cities. If you go to Beijing, Shanghai, Shenzhen, you don't see those marketplaces and electronics anymore. But if you go to lower tier cities, you're seeing a lot of volume in those offline markets. And we're seeing people increasingly moving to online. We'll now take our next question from Erika Poon Werkeun from UBS. Please go ahead. Great. Thank you. Question is on the net margin guidance. Just wonder if you could just elaborate a little bit more on the sources of improved profitability on the e commerce side and then whether you can separately frame the size for the investments needed for the Internet finance and also the ODD JDDAOJI? And also separately on fulfillment, just wondering how much of the 3P businesses you are fulfilling in terms of warehousing and also delivery? Thank you. Yes. Eric, I think the operating profit from our J. D. Moore business will come from, as we mentioned in the past, really scale economies. We illustrated in the past, for example, our 1P business gross margin remained substantially lower than the offline industry leaders And part of that is driven will increasingly driven by our improving scale where we can secure better and better rebates from suppliers as we continue to increase in volume. There are also discretionary spending items like we mentioned on branding activities in the Q4, for example, and also on the logistics that we continue to improve in the lower tier cities and the rural areas. So this in 2015, it was still investing year for a lot of those new regions. And in 2016, there's plenty of room to improve operating leverage. And so we deliberately leave a fairly large range to maintain operating flexibility in 2016, mainly for our new business lines, because when you invest in a new line, especially in highly competitive China Internet market, there is clearly uncertainty, right, at the beginning of the year. So we don't necessarily have a definitive range for those new investments. Now, internally, we do have budget, but I think it is something subject to change. But overall, I think we have a very strong internal budget for our core business in terms of profitability, which leave us plenty of room to invest in both new business initiative and potential special events that drive our core business. To your question about providing logistics services our merchants, we are delivering about 25% parcels for our third party sellers. And we are serving much are serving much smaller percentage of their parcel on warehouse side at this point at a single percentage point. But since the end of last year, I think we're making progress on getting people onto our warehouse platform. We'll now take our next question from Alan Helliwell from Deutsche Bank. Please go ahead. Your line is open. Great. Thank you very much. Just two quick questions. Would love an update on your cross border initiative. Maybe it's waiting in GMV. How we should begin to think about margin structure now that we're quite a ways into it? And then if you don't mind just following a little more on O2O operations, what your incremental geographic coverage goals are and to what extent we feel the need to apply subsidies and whether that will be more or less intense relative to last year? Thank you. Yes. So for O2O right now, we are in 12 cities and we intend to penetrate the consumer base in those 12 cities before moving into new cities. So in other words, we wanted to we target to achieve enough critical mass and scale economies before expanding further into other cities. We don't have a definitive investment amount, as I mentioned earlier, but we do have clearly a competitive advantage in this area because not only we work with some of the best partners such as Yong Hui, but we also potentially we have great supply chain partners in our fresh food categories. Yes. So I know a lot of people are curious about our auto business and some compare us to Instacart in the United States. One very different position for us is we focus on the fresh produce category versus Instacart is delivering more broader kind of grocery category. So for us, we focus exclusively on fresh produce and for other grocery products, we can fulfill them through our own JD Moore 1P platform. So for fresh products, especially the mid tier to kind of the day to day fresh products, it is very difficult for either 1P business or platform business to operate effectively. So we believe O2O platform O2O model is the only effective way to deliver these fresh products to consumers' hand. But for high end and also organic fresh products, clearly, there is a way for us to operate on a 1P basis. Yes. So we expect the O2O initiative will be a long term investment for us as we did in the past with our other business lines. The biggest challenge today for our auto initiative is the non standardization of the fresh food packaging. So we are working with our supermarket partners to standardize some of these fresh product packaging so that we can fulfill them more effectively. Yes. So we're most pleased that with the initial results, we can see that repeat purchase rates on JD-twenty is much higher than our JD Moore traditional business. So this is very, very encouraging. I think you also had a question about cross border business. We really started the business in Q2 of last year and Q4 is a big quarter for cross border for imports. So we had very good growth actually in Q4. It's still a small business for the company. It's just about 1% of the company right now and it's not profitable. But we are looking to improve the profitability of that business this year without sacrificing healthy growth. And the big categories are baby products, food and supplement and skin care and cosmetics. We think it's a good theoretical selection for our customers. Operator, next question please. We'll now take our next question from Cynthia Meng from Jefferies. Please go ahead. Your line is open. Thank you. Thank you, management for giving us the opportunity and congratulations for strong results. My question is with respect to mobile. In the can management give us some more color on the mobile GMV contribution and the average ticket size per order on mobile compared to the PC users? And any color with respect to contribution from Weixin directed traffic and the conversion rates and that will be helpful. My second question is with respect to lower tier city expansion, maybe management can give us some more update on that front? Thank you. On mobile, I think we mentioned in our release that in Q4, it accounted for 61.4% of total orders. And we've had almost 2 months now in Q1 and what I can tell you is we're seeing continued growth in that number. And we don't disclose GMV contribution from ticket size is smaller. But as you can understand, when it accounts for increasingly high percentage GMV, the basket size order size naturally converges to the overall average. So it's going up, it's getting closer to PC numbers or the overall numbers. And as far as the contribution from WeChat and Mobile QQ to Tencent Properties, we're continuing to see good progress in terms of order contribution and GMV contribution, especially after Double 11 because during Double 11, we had campaigns and it's a great time for us to acquire new users from these two channels. So after that, we're seeing DAU and these numbers go up. And we're also seeing reasonable improvement on comparison. So we're going to continue to focus on working with the Tencent team closely to improve the productivity of those 2 channels. And for lower tier cities, order contribution is around 45% in Q3. In Q4. 75%. Okay. So we had a big year last year actually in penetration of lower tier cities. And this quarter, we that just Richard said, we are seeing this year, 2016, as sort of the last year, we really get the vast majority of the job done. And by end of this year, we'll cover 400,000 villages in China and the total is 600,000, I believe. This will mark by and large the end of almost 10 years of JD's continued increasing coverage of entire country. Once we finish the coverage, we will work on continuing to reduce costs and do innovations. One example is we've got permission from 2 county governments to use drones to deliver packages in China. And we hope by end of this year, we have more places where we can really deliver our JD package to our customers as you can grow. Operator? We'll now take our next question from Sean Zhang from 86 Research. Please go ahead. Your line is open. Thank you, management for taking my question and congratulations on a strong quarter. I remember Richard's speech at Yabulin Forum. He said that he's expecting over 50% contribution in 1P business coming from general merchandise. And now general merchandise already contributed 51% total GMV. I want to know what percentage of 1P GMV coming from the general merchandise. And is 1P general merchandise growing faster or slower than the overall general merchandise GMV? And on the second question, you mentioned you have 4,000,000 square meter warehouse capacity right now. Can you give us any color how we see this number go up next year? At what kind of growth rate? That will be helpful. Thank you. So for our 1P business, general merchandise is definitely growing much, much faster than our electronics categories. So if you look at quickly give you a sense, even within 1P, general merchandise is growing at a triple digit. But the contribution today is still relatively lower, but it is quickly catching up. Yes. So we have 4,000,000 square meters and you can expect the growth pretty much consistent with our 1P business growth as well as our development of the 3rd party fulfillment services. So you can take our revenue growth rate and add a margin on top of that to estimate the warehousing square meters growth. Thank you. We'll now take our next question from Thomas Chong from Citigroup. Please go ahead. Your line is open. Hi. Thanks management for taking my questions. I have two questions. My first question is, can management comment about your fresh sales initiative? And what's the contribution to your GMV right now? And my second question is about the new initiative in payment. Can management talk about your expectation in terms of your payment initiative and how many users you would like to achieve for your hosted ecosystem? Thanks. Flash sales continues to grow very, very fast in Q4. I think over 300% growth year over year of a small base. And in absolute terms, it's over 1% of the company's GMV. And we will continue to see very fast growth this year. On the payment adoption rate, we do see increasing bundling of our customers, bundling of their credit cards and debit cards to our payment solutions. So right now, our focus is still mainly on adoption of our consumers to on the JD platform, basically paying for JD purchases using JD Payment. We do have some initiatives partnering with 3rd party and external merchants, but it's still in fairly early stage. Thanks. Thank you. We'll now take our next question from George Meng from Goldman Sachs. Please go ahead. Thanks management for taking my question. Actually a follow-up question from last quarter. So last time you guys mentioned about your omni channel offering to your brand partners such as some of the apparel brands to help them do auto basically. I think now you took this one step forward by signing a strategic cooperation agreement with Leaning last December. So can you elaborate a little bit more on this? What's the progress so far? And what's your plan going forward? Is it just O2O or eventually Lin Yin will also use JD Logistics for all its fulfillment, including warehousing for both online and offline? And do you also have plans to sign similar contract with more brands going forward? If so, I think you just mentioned you have 4,000,000 square meters of warehouses and the 6 Asia number 1 warehouses self built. So can you update us on the proportion between self built and rent warehouses? I mean, in the past, I think you have Asia number 1 already online in Shanghai. Now you have 6. Does that mean the warehouses in Shenyang, Wuhan and Guangzhou are all online now? Thank you very much. So the collaboration with Leaning is we took over their Northern China logistics for logistics services to their stores and also to their resellers. And we also if they're successful, we also intend to roll this out in other regions for them and we'll also probably help them with e commerce logistics as well. So and the initiatives we mentioned last time as far as working with apparel brands stores, leverage that inventory for e commerce. We continue to do that and continue to make progress. And if you look at our entire floor space, which is over 4,000,000, still a pretty small percentage is self built, which is Asia number 1. And we have 6 online now. As we have more of these warehouses come online, the percentage will go up. I think we mentioned we have 6 now in production, but these warehouses are built and they do come online in phases. For example, in Wuhan, we do have a few structures in production right now, but we're still building more structures. So it's a sort of really a phased process. We should just add that in most of these hub cities where we build ratio number 1, they do come in phases, Phase 1, Phase 2, Phase 3, really we pace that according to our sales growth. We'll now take our next question from Vivien Ho from JPMorgan. Please go ahead. Your line is open. Hi. Thank you for taking my question. I have two questions here. Given the headcount expansion in fulfillment personnel, how do we see the fulfillment cost as a percentage of revenue trending this year? And also, do we consider engaging cross sourcing logistic partners for JDDAOJIA to be more cost efficient? My second question is on the margin dilution that you mentioned during the prepared remarks from OTO and Internet Finance. Can you provide more color on the respective margin profile for the business? And also, what is the revenue contribution from OTO and JD Finance, respectively? Thank you. As far as the logistic cost as a component of percentage of revenue, it goes up. But we on a day to day basis, we manage logistic cost per order in RMB terms. So we continue to see that number go down, which is quite amazing considering we already have we are the leading e commerce operator in China. But as we have more innovation in our processes and as we grow in our scale, we continue to see logistic cost per order go down. As a percentage of revenue then it relates to basket size. As Cindy mentioned, in Q4, we're seeing we did a preview campaign on consumables, which tend to have a small gasket size. So as we as the mix shifts in our categories, this will drive the change of basket size. But also as Cindy mentioned, we are looking into different ways to encourage customers to increase their basket size, so that our economics will be better. But we're very vigilant on these metrics. Yes. On the respective margin profiles, as I mentioned that in Q4, excluding tenant finance and O2O, our core business net margin, non GAAP net margin was positive. So because it was a fairly there's a fairly steep loss in Q4 on the non GAAP basis, you can have a sense that basically that entire loss was attributable to those new business lines. So you get a sense on the extent of investments we are making in those two businesses. And also we mentioned that for 2016, on a core business basis, our operating margin is budgeted to improve significantly from the current level for JD Moore Business. But we wanted to remain some flexibility the beginning of the year in terms of the extent of investment in those new areas. So as the core retail e commerce business improves its profitability. And then we also think that the new business, the absolute loss, absolute investment for these new business in absolute terms will not increase a lot year over year. So combine these two dynamics, you will see our overall profitability of the company will improve over time. Recently, 2 major carriers in China, I think they're called STO and YTO, went public in China, so we did get a chance to see their numbers. If you look at the numbers of price per parcel on average in China, it's about RMB13 per parcel over RMB13 per parcel. And if we look at our internal numbers as far as delivery is concerned, it's lower than that. So we are very encouraged by these numbers and we're even more convinced than before that because of our scale, because of our innovation, doing this internally in house was a very good decision we made years ago. We'll now take our next question from Tian Hou from TH Capital. The question is related to your crowdfunding business. And we witnessed that Taobao also had such business and recently growing pretty rapidly. So how do you see this online crowding market is evolving in the future? And what is jd.com's advantage over others? So that's the number one question. I have a second one following on the JD Finance. I remember one quarter, I asked the question regarding how do we record GMV or revenue from JD Finance. At that time, the revenue was recorded as something against the cost. And as JD Finance has developed in much more variety, And I wonder how do we record the GMV revenue from JD Finance now? Thank you. That's all my question. Yes. So for crowdfunding, I'll take a shot first. We have both product crowdfunding and equity crowdfunding, right. So for product side, we do have a 1P platform to support the latest innovative products that are on our cloud funding side of the business. And we are the pioneer in this business. So despite of multiple players in the market, we will continue to be confident in maintaining our market leadership. For equity crowdfunding then this is more about the ecosystem that you build around this business by introducing various third party service providers like marketing firms, branding, design firms. So we have built an ecosystem to support our cloud funding partners, our equity cloud funding partners to develop their business. Having said that, this is still a fairly new business. So we're not saying that this is where we have clearly we can claim victory. I think every player still has a fair chance to try their best and become a leader in this industry. So we will see in the next few quarters how we continue to develop this business. For GMV, from our financial finance business, only the cofounding product side will be recorded in GMV terms. None of the other businesses will be part of the GMV that we disclosed. And they are internally, we look at gross transaction volume, which we actually disclosed in our earnings release, on the financing side. So it's gross transaction volume, not for especially on the supplier side. For revenue, if it's the interest income from supplier financing, it will continue to be recorded as a reduction to cost. If it's interest from consumers and yes, that will be recorded as part of revenue. But because right now, the interest level is still fairly low, we have just recently started differentiated pricing, this risk based pricing. So at this point, the revenue contribution is still very, very small. One, could you talk about any impact, if any, from just the general economy slowdown or gyrations in the stock markets on GMV growth? And then number 2, your competitor talked about the impact of weather during the quarter. I was wondering if you give us any quantification on the impact, if any at all on weather? Thanks so much. Sure. Yes. So we I mentioned at the beginning of my remarks that despite of the economic slowdown, the consumption growth and the overall consumption growth in China was still quite healthy with accelerating rate of 11 plus percent in the 4th quarter, up from 10 plus percent in the previous 9 months. So that is a good validation of our assessment in the past that despite of the macro slowdown, the consumption growth remains healthy. And we mentioned a few drivers for that in the past. But again, there could be a lagging effect of the macro slowdown on the consumption. So we remain still that's why we remain cautiously optimistic about our outlook. Yes. Doctor. Weather, I think some people asked this question last time as well. We haven't seen any meaningful impact from weather. And personally, I don't even know it's a cold winter or it's a warm winter because people say different things. Colder days are warmer days. Operator, next question please. Operator? Operator, are you still there? Our next question comes from Jin Yoon from Mizuho Securities. Please go ahead. Good evening, guys. Just a couple of things. Starting with the gross margins, with high competition and lower end handsets hurting gross margins in 2015. Could we assume as they anniversary this year, 1P gross margin should improve throughout 2016? And second question is, I think you said you finished your round of financing for your Internet Finance business. Can you talk about what percentage of that business do you own? And is there a floor to that number going forward? Thanks. Right. For 1T gross margin, I think overall, we expect upward trend in 20 16, whether it's through the mobile phone, which has a meaningful contribution, but overall, we do see gross margin and operating margin to improve for our core e commerce business. For our Internet Finance, you can have a quick calculation. We raised the RMB6.65 billion on top of RMB40 1,000,000,000 in pre money valuation. So we that's about 15% equity stake to the external investors and we maintain 85 percent at this point. Just more color on 1P gross margin. We look at these numbers by category. We look at each category to say that we want to over time want to see gross margin improvement on each category. But at the end it's a blended number. So it depends on the mix shift because different categories do have different gross margin profile. So at the end, it's a weighted number. We do see, for example, in Q4, we had a big campaign on consumables and there is some gross margin pressure for that category and we'll probably continue to see pretty intense competition this year in that category. So there will be some pressure for that category. We'll now take our next question from Jialong Shi from Nomura. Please go ahead. Your line is open. Hi, good evening, management. Thanks for taking my call. I have a question about your Internet Finance business. I So So I was wondering compared to your competitors, what are JD's competitive edge in this Internet finance business? And also, how much of your Q4 GMV is linked to the consumption loan you provide for your customers? Thank you. Right. So for all new products or just as part of general philosophy JD focused on improving customer experience. So if you look at our Jingdong Baitao, the consumer financing product, it definitely improved overall user experience on JD Shopping. So that's very, very important aspect. We also mentioned about risk management, which we focus our large part of our R and D on the risk management. So we hope it will be a differentiated advantage. We also have with JD Moore business, we have unique consumer insight and which can help us in both building the risk management model, but also developing more uniquely customer friendly products. So, Richard mentioned the last point is we have our own internal strict guideline, what kind of products we will develop. In the past couple of years, when there was a huge rush to P2P products and we stayed away from that business and never really get close to it because it didn't really match or fit our own internal risk management appetite and policy. So in addition to our customer first philosophy, our JD Finance business definitely is embracing the innovative spirit and coming up with actually quite a few. Number 1, we are the 1st company to introduce consumer financing for for e commerce. And we are the first in introducing product, crowdfunding and also equity crowdfunding business in China. So we intend to continue to innovate and really generate positive surprises to our consumers. And if we can achieve that, we are confident that our JD Finance business will bring just like JD Moore, bring significant value to our shareholders. We are now approaching to the end of the conference call. I will now turn the call over to JD.com's Ryu Li for closing remarks. Thank you, operator. Thank you for joining us today. Please feel free to contact us if you have any further questions. Thank you for your continued support and looking forward to talking to you in the months. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.