Hello, and thank you for standing by for JD.com's third quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. 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, Ruiyu Li.
Thank you, operator, and welcome to our third quarter 2015 earnings call. Joining me today on the call are Richard Liu, Founder, Chair, CEO, and Sidney Huang, our CFO. For today's agenda, management will discuss highlights for the third quarter 2015. Following the prepared remarks, Haoyu Shen, CEO of JD Mall, will join Mr. Liu and Mr. Huang for the Q&A session of the call. Before we continue, I refer you to our safe harbor statement in the earnings press release, which apply to this call, as we will make forward-looking statements. Also, this call including 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 Founder, Chairman, and CEO, Richard Liu.
Thank you, Rui, and welcome, everyone. We are pleased to announce another strong quarter of growth and progress. JD.com has always been the leader in bringing Chinese consumers the best brands with the fastest, most convenient, and worry-free shopping experience. And with our world-class nationwide logistics coverage, I'm proud to say that over the last two months, nearly 90% of JD.com direct sales orders were delivered on the same or next day. And JD.com's mobile shopping experience continues to be the envy of the industry. On November 11, more than 70% of orders were placed through our mobile platforms. As you may have read, we recently made the decision to close our C2C platform, paipai.com, as of December 31st.
We have worked very hard to develop paipai.com, but at the end of the day, we have found that it is impossible to control counterfeits on a C2C e-commerce platform in China. The simple fact is that only a pure B2C direct sales and a marketplace platform can deliver a reliably high-quality customer experience that is up to JD.com's standard. Thank you for dialing in today. I will now turn the call over to Sidney.
Thank you, Richard, and hello, everyone. We're very encouraged by our top-line growth in the third quarter, despite intensified competition in the industry. Excluding paipai.com, our year-over-year core GMV growth was 76%, a very strong showing in light of the relatively slow consumption growth during the third quarter. This quarter also represents a more apples-to-apples comparison than the previous quarter as we launched our mobile access on WeChat in late May of 2014 and on Mobile QQ in early August last year. Our net revenue growth was 52% in Q3, above the midpoint of our guidance. As we cautioned on our last earnings call, the slowing macroeconomic condition could impact our business, although the extent of such impact has been relatively small in the third quarter.
We continue to be confident that with our differentiated value proposition and a better customer experience, JD.com is in a better position than our competition to weather any macro headwind. During the third quarter, our active customer counts and average orders per customer have both seen healthy sequential growth over the seasonally strong second quarter. Our GMV composition was largely consistent with the prior quarters. Since we are discontinuing our paipai.com C2C operations, going forward, we will focus our analysis on the core GMV, excluding paipai numbers. In the third quarter, our core GMV from general merchandise categories grew 98% and accounted for nearly 49% of total core GMV during the quarter. Apparel and footwear continued to be the largest general merchandise category, with triple-digit year-over-year growth over a very strong prior quarter.
Other fast-growing key categories included home furnishing, food and beverage, cosmetics, and sporting goods, all growing at triple-digit rates. Core GMV from our marketplace business grew 121% in Q3 and accounted for nearly 45% of our core GMV during the period. Sequentially, it grew 13% over the seasonally strong second quarter. A couple of highlights on our specialty business lines. First, our flash sales business, launched in early 2014, saw its GMV growing over 300% on a year-over-year basis and contributed more than 1% of our total GMV in the third quarter. Apparel, cosmetics, and accessories contribute the bulk of the business. Second, our cross-border business, launched in Q1 this year, also saw significant momentum with a sequential growth rate of over 100% compared to the seasonally strong second quarter. Key categories included baby products, packaged food, and cosmetics.
Our direct sales revenues grew 48.5% year-over-year, led by food and beverage, cosmetics, mobile and home appliance categories. Services and other revenue grew 111% year-over-year, an acceleration from the second quarter growth. This triple-digit growth rate demonstrated the strong momentum of our marketplace business and a healthy monetization of the platform. Our non-GAAP gross margin improved to 13.4%, up from 12.2% 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, mainly due to short-term brand-driven competition in the mobile device industry, where several brands are selling their products at near cost prices, which in turn temporarily affected the retail margin in the third quarter.
We believe such a brand-driven competition is short-term in nature, we expect the mobile device gross margin to stay low in the fourth quarter, but will recover in 2016. Non-GAAP fulfillment expense ratio was 7.7% in Q3, compared to 7.2% in the same quarter last year. The higher fulfillment expense ratio was mainly driven by our investment in the O2O initiative and a lower average order value as a result of higher revenue contribution from general merchandise categories. The non-GAAP marketing expense ratio was 3% in Q3, compared to 3.6% in Q2 and 1.9% in the same quarter last year. The year-over-year increase was mainly driven by increased spending for the new business initiatives in Internet finance and O2O. Our non-GAAP R&D and G&A expense ratios increased 22 basis points and 15 basis points respectively compared to the prior year levels, reflecting incremental investments in our new business lines.
Altogether, our non-GAAP net margin was 0.1% in the third quarter, compared to 1.3% in the same quarter last year. However, if we look at our core JD.com mall business, the non-GAAP operating margin was similar to the prior year level. The decline in group-level operating margin was mainly driven by the investments in various new business initiatives. Let's discuss our cash flow. Our Q3 adjusted free cash flow was slightly negative. This is largely due to timing difference in our payable schedule and higher CapEx during the quarter. The accounts payable balances stayed relatively flat as of September 30th as compared to June 30th. Recall we had a very large cash inflow in Q2, partly driven by a higher payable balance versus the previous quarter end.
As the turnover days are calculated using the simple averages of the beginning and ending balances in the quarter, there is a delayed effect of the higher Q2 ending balance. As a result, the accounts payable turnover increased to 52 days in Q3, even though the actual payable balance was flat. To minimize the impact of these operational timing differences, we could look at the cash flow for the last 12 months, which would have less volatilities. We continue to expect our LTM free cash flow to be positive, excluding impact from Internet finance. As disclosed in our free cash flow calculation, our Internet finance business continued to grow during the third quarter. Cash outflow totaled approximately RMB 3.6 billion, including RMB 1.6 billion to consumer financing and RMB 2 billion to suppliers and merchants.
As mentioned on our last call, given the increasing cash outflow from this business, we started securitizing the loan portfolios. In October and November, we have completed two trenches of the consumer credit asset securitization totaling over RMB 2.1 billion in proceeds. Our first supplier credit securitization is also underway and expected to close in the near future. Looking into 2016, we expect the internet finance business to be self-funded without any further cash outflow from the group. Now let's discuss our financial outlook. We expect our Q4 net revenue growth between 47% and 51% on a year-over-year basis. This guidance reflects the solid growth momentum in our e-commerce core business while incorporating some level of conservatism given the competitive dynamic and uncertain macroeconomic condition. For the non-GAAP bottom line, we maintain our previous guidance of between breakeven to negative 0.5% for the full year 2015.
This concludes my prepared remarks. We can now move to the Q&A session. Operator?
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 one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Your first question comes from Alicia Yap from Barclays. Your line is open. Please go ahead.
Hi. Good morning and good evening, Richard, Sidney, and Haoyu. Thanks for taking my questions. I have a quick question regarding, I think JD.com recently signed a number of agreements with the foreign brands and launched various country malls on the marketplace. Can you give us some colors on the progress of this, any meaningful contributions to GMV in the future that you would expect? Related to that is that I wanted to get a sense, did the El Niño, the weather, have any impact to JD.com merchandise sales in general, and then particularly the apparel got impacted? Thank you.
Hi, Alicia. This is Haoyu. Far as JD.com Worldwide, I think so far we've opened seven country malls on JD.com Worldwide, we're seeing pretty good growth momentum. Sidney just mentioned in his prepared remarks, if you look at Q3 versus Q2, we're seeing 100% growth, albeit on a small scale. It's not a very material part of our GMV yet, we expect to grow into a bigger portion of the business. Far as weather, we haven't seen any meaningful impact on our apparel sales. I've talked to my team recently. We've just had a pretty successful Double Eleven sales event, the apparel category grew very healthily. Far we can't tell any meaningful impact of the weather.
Just add a comment on just overall global brands growth rate. We actually looked at, during November 11th's shopping promotion, during the 12-day period. Out of the top 300 brands, the international brands actually grew faster than the domestic brands. We have seen very encouraging results from our global brand expansion.
Your next question comes from Eddie Leung from Merrill Lynch. Your line is open. Please go ahead.
Hi. Good evening. Thank you for taking my question. My question is more about your logistics services. I remember last quarter you mentioned that because the demand for cash on delivery started to reduce, that affected the proportion of merchants using your logistics services. Wondering if you could give us an update on that front. Just a follow-up question, could you also give us an update on your logistic coverage in the rural areas? I want to get a sense of the progress. Thank you.
Right. The percentage of cash on delivery is still declining. In a sense, it's a very good news for our business because that will reduce our cost and also improve the efficiency of our last mile delivery employees. It does impact the percentage of third-party parcels handled by us. That continues to be the case, and we are still working with our merchants of different categories to prove to them that our logistics services not only help them to improve efficiency, reduce cost, but also help them to improve revenue to drive more sales on JD.com. This continues to be a long-term effort. Second question is the coverage rule, right? Yeah. We continue to penetrate lower-tier cities. Now, the latest number shows with our own employees, we are already covering over 2,200 districts and counties in China.
We now cover, I think 90% of the parcels delivered by us are actually delivered on the same day or next day. We have a few other programs going on. One is to penetrate lower-tier cities' major appliances category, because that's a pretty special category that needs special handling. We have a partnership program called Now it's already in over, I think, 1,200 counties. That's where we have these partnership programs, and it's driving a lot of our major appliances sales. Richard mentioned in previous calls that we have the program, where we hire these agents, representatives in villages to help us drive sales. We passed the 100,000 mark as of Q3, I think. They're helping us. It's still in the early stages. We're still training them. They're still learning how to promote JD.com with their neighbors and the villagers.
We're still putting a lot of effort behind the penetration into lower-tier cities.
Your next question comes from Erica Poon Werkun from UBS. Your line is open. Please go ahead. I do apologize. Your next question comes from Alan Hellawell from Deutsche Bank. Your line is open. Please go ahead.
Great. Thank you very much. First of all, I was hoping you could give us maybe some more explicit update on JD.com. Maybe you can talk to us about scale and what the impact of margins might be this year and going forward. Secondly, I'm not sure if our calculations are correct, but have we sensed a pretty significant increase in return rates on the business in the third quarter? If so, could you give us a little color? Thank you.
We started our business this April. We have a dedicated team working on this. Up to now, we have over 10,000 stores on our platform, and we already have over 300,000 registered crowdsourcing delivery personnel. On Double 11, they delivered over 500,000 parcels for JD.com. We're growing the business by over 30% month by month. In terms of GMV, it's still small compared with JD MALL. We're still operating at a loss as all the O2O players in China do. The loss is at a manageable level and lower than industry level.
Yeah. Let me answer on the return rates. The return rate has been fairly consistent with prior quarters. If you were asking about the difference between GMV and revenue on a year-over-year basis, there was a decline, as we explained it before. The year-over-year decline was partly due to the mobile expansion and partly due to payment success rate. I think both have seen improvement on a sequential basis over the last couple of quarters.
Your next question comes from Erica Poon Werkun from UBS. Your line is open. Please go ahead.
Great. Thank you. Can you share some additional color on Singles Day, such as categories and basket and how much traffic was coming from WeChat, et cetera? What's that implication on your Q4 gross margin of the mix shift between 1P and 3P and also the product mix? Also wanted to check whether you've seen any meaningful changes in the competitive landscape for large home appliances. Thank you.
They have disclosed a lot of information post November 11th. We mentioned a few categories, such as 3C category home appliance, both growing at a triple digit on a year-over-year basis. Also for food and beverage, growing at an even faster growth rate. Overall, we saw growth rate across all categories. Actually, very exciting for the period. On the other hand, it's a short period of time out of the Q4 overall volume, so it's not necessarily indicative of the full quarter performance.
Right. Just to add some qualitative color. Basket size tends to be bigger on Double Eleven or during sales, because all the sales actually has a certain amount. You reach this amount, we give you some cashback. Basket size tends to be higher. I think in our press release, we did talk about just about half of the new buying customers on that day actually came from WeChat and Mobile QQ. It's increasingly becoming a major source of new customer acquisition for us. Also in Q4, because it's a big season for apparel, you tend to see faster growth of third party versus first party in Q4. You also mentioned major appliances. I think we've mentioned that major appliances also had tremendous growth during the 11-day sales event.
I think our leadership position in e-commerce in this major appliance category is probably unrivaled at this point. Richard wants to talk more about
One choosing from two.
Yeah. Go ahead. JD.com has long established its leadership position in electronics category overall, and we also are now very strong in general merchandise, especially after this round of sales. Our sales in general merchandise is probably one of the biggest in China among all the offline and online retailers. Apparel is probably one of the last categories we will establish leadership position eventually. Although competitors had this strategy versus brands and merchants, what I can tell you is very few, maybe a handful of brands didn't participate in our sales event, this Double Eleven. Even these handful of merchants, they told us that they will stay on our platform after Double Eleven. The management is fully confident that we will be a leader in the apparel category.
Yeah. In fact, the same apparel brands mentioned that post November 11, they will come back with more resources on our platform. It's a great validation that JD.com is providing great value to these brands.
Your next question comes from Cynthia Meng from Jefferies. Your line is open. Please go ahead.
Thank you, management. My question is in the logistics advantage you have. We see that last year, I remember, Richard and Shen Haoyu, you talked about using 3C as the category to attract traffic, and JD.com also has the advantage of delivering to end users with the last-mile access. Now, in November 11th, particularly in the 3C consumer electronics and home appliance category, Alibaba also advertises their alliance with Suning in delivering. Just wondering if management can give us your perspective. What do you see as the advantage in logistics? Will this be high enough entry barrier, or do you see your competitive edge having new competitor from Suning and Alibaba, so that your competitive edge is being threatened? Thank you.
Yeah, there are a lot of numbers flowing around regarding the logistics network. I think one key data point that Richard mentioned in his remarks, I think that's really the key. We look at, over the past two months, nearly 90% of all of our direct sales orders are being delivered within the same day or next day. I think that's a figure, if you ask any competition, it will be likely half of that, if not less. I think that's one very important data point for investors to keep in mind, because sometimes competition will refer to the areas they cover, but it doesn't really tell you whether all the customers in that city, for example, are getting delivery within the same day. They will say, "Okay, we cover so many cities with one-day delivery," but the actual coverage is far less, just as on average.
It just says that maybe somebody in that particular region will get same-day delivery. I think that's a very important distinction. Clearly, if you do any consumer survey through third-party independent research firms, the result will also speak for themselves. One thing, that's Richard. Richard encouraged you all to do is to place a few orders with us and place a few orders with our competitor and see what kind of delivery speed you will get. We've been working on this network in the past eight years, and Richard believes that we are probably at least five years ahead of anybody.
Your next question comes from Tian Hou from T.H. Capital. Your line is open. Please go ahead.
Good evening, management. I have a question related to your warehouse. In the press release, you mentioned you newly added 2 Asia No. 1 warehouses in Wuhan and Guangzhou. Along with the previous one, you have 3 now. I wonder, what kind of capacity does this increasing bring you up to? And how far has this capacity relative to your needs? And are you going to build up more in the near future? That's the warehouse issue.
The one in Wuhan and the one in Guangzhou officially went online last quarter. I think in the 11/11 press release, we mentioned that the Asia No. 1 in Guangzhou fulfilled 500,000 orders on that day. The design capacity is not that high, but at peak, it can do that much capacity. These more modern warehouses do help us to increase fulfillment capacity, especially in large cities where the land is scarce. In all of our hub cities and plus a few more central cities, we are going to build Asia No. 1, and we'll have more come online in the next year or two.
Your next question comes from George Meng from Goldman Sachs. Your line is open. Please go ahead.
Hey, good evening, management. Thank you very much for taking my question. My question is on your marketplace. This is becoming increasingly more important, the marketplace business. Do you have plans to better help your brand partners to do more like omni-channel? Since many brands already have offline presence, how do you think about this? How do you help them not only achieve success on your platform but also do well in the overall omni-channel distribution? Or you don't really have plans to do that and just focus more on your platform? Because from their standpoint, a lot of them are actually worrying about the conflicts between different channels, in particular, online and offline channels. Thank you very much.
We do have some efforts going on already, helping some of our merchants increase their sales of their offline stores. For example, we're working with a couple of apparel brands who have extensive offline storefronts, and we're helping them to share inventory between their physical stores and their warehouses for their online sales. If a customer places order online, if the e-commerce warehouse doesn't have the inventory, but a nearby store has that particular SKU, that order can be fulfilled by that store. A customer can either pick up that piece of merchandise in the store, or the store can use courier to send that piece of merchandise to the customer. We're definitely aligned with our merchants as far as driving their online sales and offline sales.
We will now move to our next question from Sean Zhang from 86Research. Your line is open. Please go ahead. Sorry, your next question comes from Thomas Chong from Citigroup. Your line is open. Please go ahead.
Hi. Thanks, management, for taking my questions. I have three questions. The first question about the flash sales. Can management talk a bit about your expectation in terms of the GMV contribution going down the road, and how many brands are you cooperating with right now? My second question is about the headcount. Given the headcounts right now is already over 90,000, what's the headcount expansion pack in 2016? My last question is about the pricing of the App Store. Can management also talk about the trend in the fourth quarter and going forward? Thanks.
That's a nice question. The first question is about flash sales. Sidney mentioned in his prepared remarks that we had tremendous growth in Q2, and it now accounts for more than 1% of our GMV. It's mostly apparel, cosmetics, and accessories, and home. I don't have the exact count of how many brands we work with, but we work with a lot of brands on their overstock inventory, and also we work with a lot of the same brands for their in-season merchandise in our apparel business. We have a full range of solutions for these brands, and we also offer logistics services. We do have pretty good progress in handling logistics for flash sales business. Yeah. We've had this business for about two years, over one year now, and I think we've established a meaningful market position in this category.
Our fulfillment capability provided by dozens of warehouses all over China will ensure the customer experience of flash sales will be superior to what customers can get from some other platforms. Yeah. We're gaining the confidence from many brands, many merchants, and we're very optimistic that in the next two years, this business will continue to grow very rapidly.
Yeah, from apparel brands in particular.
Just let me quickly address your second question on headcounts. We did actually announce that our plan for the next years, we expect to reach 150,000 people by the end of next year. Okay, sorry. Let me rephrase that. We announced that we will add at least 40,000 headcounts. Yeah.
There was a third question. I didn't get the.
Your next question comes from Sean Zhang from 86Research. Your line is open. Please go ahead.
Thank you, management. Congratulations on the healthy quarter. My question is, in light with your core user growth above 60% and in light of the increasing mobile migration, how do you view your partnership with Tencent? Would you share with us some color on that? Like percentage of traffic, percentage of GMV from WeChat and Mobile QQ. Also, we're interested in your, the Tencent JD.com plan. Would you share with us so far, through this plan, how many brands have done advertisement on WeChat and QQ? What kind of new ad formats we will see in the future apart from the daily moment ads that we're seeing right now? Thank you.
We value the partnership with Tencent very much, that partnership adds a lot of value to JD.com. The entry point on WeChat's been around for a year and a half, and the entry point on Mobile QQ has been around for over a year now. In the past just about a year and a half, we're seeing steady growth of number of orders and GMV in absolute numbers and also in percentage terms. We're very happy to see that growth. I think one reason is the MAU growth or DAU growth of these 2 apps. Also, I think that's a testament to the effort of the team to working closely with Tencent team in exploring e-commerce in a social context. As I mentioned earlier, on November 11th, over half of the first-time customers are actually from Mobile QQ and WeChat.
As far as the for the November campaign, I think we had about 50 brands working with us and WeChat to spend money on moment ads. I think the integration of social data and our transaction data to enable the brand to do marketing, do branding with Tencent and eventually lead transaction and sales to JD.com's shopping entry points on WeChat and QQ so far proved to be very effective. We'll continue to work together and to give the merchants better ROI and give the customers better experience. Traditionally, there are 2 types of advertising. One is brand-oriented, the other is performance-based, they were never integrated. Is the first time that Tencent and JD.com give the brands and merchants the opportunity to integrate their brand-oriented advertising and the performance advertising together, meaning they do branding on Tencent and drive transaction on JD.com.
They very much like it, and we'll keep improving on it.
Your next question comes from Jin Yoon from Mizuho Securities. Your line is open. Please go ahead.
Hey, good evening, guys. Are you guys actively pursuing sales campaigns for Black Friday and Double Twelve? If so, do you have a sense of what % of GMV these three sales days represent in the quarter? Thanks, guys.
Black Friday, yes, especially from the JD.com wide standpoint, we are going to have campaign then. December the 12th, yes, we'll have some campaign around that, and we're still thinking about what category we'll be focusing on. We can't predict how much GMV that's going to generate.
Your next question comes from Chi Tsang from HSBC. Your line is open. Please go ahead.
Great. Thank you very much for taking my question. I was wondering if you could give us some commentary regarding how the economic slowdown is impacting your business in the tier 1, tier 2 cities versus some of the lower-tier cities. Secondly, I am wondering if you are seeing any signs of stability or maybe improvement in the overall sort of consumption environment. Thanks so much.
Yes. As I mentioned earlier, we suspect the macroeconomic headwind may have some impact on our business. At this point, the extent of this impact, if any, should be very small because clearly, we have not seen much an impact given the growth we had in Q3 and our expected growth in Q4. The impact on tier 1, tier 2, or tier cities will have a similar response to that. If you look at our Q3
Lower-tier city growth rate is clearly growing faster than the tier 1, tier 2 cities. The tier 1, tier 2 remain very healthy in their own growth rates. In fact, if you look at October consumption growth released by the government, it actually improved and reached 11%, which was the highest this year on a monthly basis. Richard just added a few words of his opinion on the overall economy. He believes that when the economy is not doing well, it is actually a great opportunity for the competitive players to do well, to consolidate the industry.
Yeah, as I actually mentioned in the past, top 20 brands in the U.S. contributed over 40% of the overall retail volume, while in China, top 20 contributed only about 13% last year. Any economic slowdown would actually facilitate or accelerate industry consolidation. JD.com, as one of the most competitive player and also already the largest retailer in the industry, should actually enjoy the benefit of this accelerated industry consolidation. In addition to paying attention to our year-over-year growth rate, we encourage investors also look at the relative growth rate compared to the industry competition, both online and offline. We continue to be confident that we'll gain market share in the future.
Your next question comes from Natalie Wu from CICC. Your line is open. Please go ahead.
Hi. Thank you for taking my question. I have two quick questions. The first one is related to, just wondering, have you noticed any difference on retention rate and maybe cohort data between new users attracted through WeChat, Mobile QQ, and your own JD.com app? The second question is, can you update us your supplier finance balance this quarter, and how much does it contribute to your online direct sales GPM currently? Thank you.
The overall retention rate across different categories have been pretty stable, and whether it's on WeChat or our own mobile app and PC. It's been pretty stable and generally in a upward trend. Relatively speaking, the retention rate on WeChat and Mobile QQ would be a little lower than our mobile app. This is fairly natural given that some of the returning customers would probably download JD.com app and become an app user. That's really the reason. Otherwise, we see pretty stable retention rates. On internet finance, we mentioned I think you were asking about contribution to GMV, so that must be consumer credit. The amount we disclose in the earnings release, actually, the ending balance is about RMB 5.3 billion. The transaction volume in the third quarter contributed about 6% of our overall GMV.
It did have a healthy growth, but it is still a very small portion of our overall GMV volume.
Your next question comes from Wendy Huang from Macquarie. Your line is open. Please go ahead.
Thanks, management, and congratulations on solid results. I have some housekeeping questions. First, you mentioned your headcount target by the end of next year. I understand it is probably a little bit early to talk about next year's margin outlook, but since you already provided color on the headcount, can you maybe also comment on the marketing expenditure, fulfillment cost, et cetera, which actually may affect the margin next year? Secondly, the take rate actually declined in the third quarter. Could you provide some color as to the reasons behind the decline in Q3 and whether we should actually expect further decline going forward, and the reason behind that? Lastly, I think you have done some very good investment recently, such as investment in Yonghui Superstores. Can you comment on your recent integration with Yonghui Superstores?
Also, is there any more like M&A deals , especially given recent alliance between Baba and Suning, will you consider to invest in Gome? Why or why not? Thank you.
Okay. As for next year, I think the only guidance we could give is for the core margin on JD MALL business. We believe the margin will trend up next year comparing to this year. However, at group level, because we are committed to investing in new innovative areas to secure growth over the medium to long term, we will also reserve the flexibility to invest in these new initiatives. We will give more definitive guidance at the beginning of next year for full year 2016. I think that what's clear is our JD MALL business should be more profitable next year. On the take rate, if you look at the service revenue versus core GMV on marketplace, there's a slight decrease. The reason was, it's really on the blended commission.
Because for some of our businesses with lower margin, the direct sales business, we did move some of the long tail items to marketplace. Because these categories are having lower margins in general, the take rates on those categories are also relatively lower. It's really a slight mix shift. As far as the take rate on the same category, it's been quite stable. Richard will comment on the last point. JD.com over time has established a supply chain management expertise on many categories. The fresh produce supply chain is very special and we invested in Yonghui to complement our lack of capability in the supply chain of this category. Yonghui is well-recognized as the leader in fresh produce supply chain management. Yeah.
It's an important partnership for us. From both sides, we have dedicated team working on it and you'll see some actions at the beginning of December. One more comment about Daojia. In the annual conference of retailers, which was just held a few weeks ago, the CEO of Sanjiang Shopping Club in Ningbo had a conversation or had a speech about his experience working with JD Daojia. 31 of his physical stores are now working with JD Daojia, and the sales of these 31 stores increased by 20% since he started working with JD Daojia. Yeah. We believe that, next year, when we officially start working with Yonghui, in fresh produce e-commerce, it will bring a lot of value to both companies.
Your next question comes from Robert Lin from Morgan Stanley. Your line is open. Please go ahead.
Thanks for taking the question. I guess I have a few questions. The flash sales, I think Sidney mentioned it's about 1% of GMV, but on an absolute basis, that's quite a meaningful number. It's about RMB 1.2 billion. That's almost 12% of Vipshop. Can you comment on percentage of your buyers that are actually buying these flash sales events products? Do you see impulse purchase slowing because of the slowing macro? And maybe three years out, what do you think this flash event business should contribute to your overall GMV? That's one. Second question is essentially a Tencent cooperation on the data sharing and brand advertising. Will there be changes in the economics? I see that you guys are data sharing. We only get 25% of the advertising cut. This is very valuable data we're sharing here.
Do you think that we should get bigger cut of the overall advertising that we're providing to Tencent? Third, it's about Suning, essentially, the 1P gross margin. If Suning were to be very aggressive on pricing the next couple of quarters, will we follow, or should we be more rational? Those are my questions.
Reaching out to the third question about Suning, he said that we've been in price war with Suning for over three years now, and you all have seen the results, and we have no further comment. First two questions. The flash sales just had a 300% growth. It's very, very fast. It's almost the growth rate that JD.com overall had in the first seven years. We should be able to maintain 100% year-over-year growth-
Over 100%.
Over 100% year-over-year growth. The next two years?
Two, three years, yeah.
Two, three years. All right. The second question is about the partnership with Tencent. I think that both companies are focusing on delivering value. We see these customers with merchants brands as our mutual customers, and it's very hard to quantify who delivers what percentage of value to our customers. As part of the deal, we get 20% cut of the advertising dollar, and I think both parties are happy about it.
We are now approaching the end of the conference call. I will now turn the call over to JD.com's Ruiyu Li for her closing remarks.
Thank you, operator. Once again, thank you for joining us today. Thank you for your continuous support. We look forward to talking with you in the coming months.