Hello. Thank you for standing for JD.com's fourth quarter and full year 2014 earnings conference call. 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. Welcome to our first quarter 2014 earnings conference call. Joining today on the call are Richard Liu, founder, chairman, and CEO, and Sidney Huang, our CFO. For today's agenda, management will discuss highlights for the fourth quarter and full year 2014. Following the prepared remarks, Haoyu Shen, CEO of JD Mall, will join Mr. Liu and Mr. Huang for the question and answer portion of the call. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as well. We will make forward-looking statements. Also, this call includes discussion of certain non-GAAP financial measures. Please refer to our earnings release, which contains our 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 all in RMB.
Now, I would like to turn the call over to our founder, chairman, and CEO, Richard Liu.
Thank you, Rui. Our focus on authenticity and user experience is breaking through with Chinese consumers. We have 96.6 million active users on our platform for the full year of 2014, which represents a year-on-year growth rate of 104%. At the same time, we are building much stronger relationships with our suppliers and merchants by implementing sophisticated supply chain management processes and constantly enhancing the services we offer to sellers on our marketplace platform. We grew to over 60,000 sellers on our marketplace as of December 31st, 2014. This is a pace of growth that is fast but manageable, enabling us to maintain our high standards. We strictly vet all sellers to ensure that they meet our stringent standards for quality. Our strong results in the fourth quarter point to some of the exciting drivers of growth for the quarters ahead. I would like to share some of these.
I'm sorry. First, we continue to increase mobile orders rapidly. In Q4, 36% of our orders came from mobile, up 372% from the same period of 2013. WeChat and Mobile QQ are making meaningful contributions to mobile orders. Clearly, our Tencent partnership is beginning to bear fruit. Second, our fulfillment network expansion efforts are delivering real results. As of the end of 2014, our delivery network covered 1,862 counties and districts across China, 40% more than a year ago. For JD Mall, the number of orders from lower-tier cities in the fourth quarter grew 126% from Q4 last year. We believe that this is a promising and high-growth area. We will continue to strengthen our user experience in lower-tier cities through our mobile platforms, enhanced product offerings, and improved fulfillment capabilities.
Third, most importantly, JD is increasingly distinguished as the most trusted platform in China for guaranteed quality and authenticity. We are expanding our leadership here. In the fourth quarter, we continued to establish important partnerships with key international brands, which opened flagship stores on our site, as well as companies like Bitauto, who bring key vertical expertise to our site. We also worked closely with the relevant regulatory authorities in China to further enhance our anti-counterfeit practices and share our expertise and knowledge. These partnerships strengthen our reputation for authentic products. The key to our success over the last year is simple. China's online shoppers trust the JD experience. They know when they shop on our site, they get quality, they get authenticity, they get superior service, they get all this delivered right to their door at an amazing speed.
As we move into 2015, we are better positioned than ever to deliver our vision of a world-class online shopping experience to Chinese consumers. I am excited for the year ahead. I am confident that we will continue to expand our leadership in the industry. With that, I will turn the call over to our CFO, Sidney Huang, who can provide more details on our financial performance for the quarter and the year. Thank you.
Thank you, Richard, hello, everyone. I'll spend the next 10 minutes also to walk through our Q4 financial results and Q1 outlook. We're very pleased with our fourth quarter growth and margin trend. Our GMV year-on-year growth further accelerated to 119%, compared to 111% achieved in the third quarter. Excluding the GMV contribution from Paipai and QQ Wanggou marketplaces that were acquired from Tencent, our JD Mall GMV grew 105% year-on-year, compared to 97% achieved in the third quarter. Our net revenue growth also accelerated to 73% year-on-year in Q4 versus 61% in Q3. This acceleration benefits from a highly successful November promotion campaign, which attracted millions of new customers to try out the JD shopping experience. It is also a direct result of our continued focus on customer experience with our zero-tolerance policy on counterfeits, constantly expanding product selection, fast delivery service.
GMV from WeChat and Mobile QQ entry points more than doubled the Q3 level and became two important user acquisition channels for the JD platforms. Roughly 20% of our first-time customers in Q4 were from these two mobile channels, with similar recurring purchase behavior as on other JD platforms. The GMV composition continued its trend towards category diversification. GMV from general merchandise categories grew 173%, and for the first time, accounted for more than half of total GMV during the quarter. Apparel and shoes continued to be the most popular category on JD platform in terms of orders fulfilled and saw a sequential order increase of 70% during the quarter. In terms of GMV, the fastest-growing category was again apparel and shoes, with a year-on-year growth rate of 278%. Other fast-growing categories included home furnishings, watches and handbags, cosmetics, and auto-related products.
GMV from our marketplace business grew 220% in Q4 and accounted for 44% of our GMV during the period. Excluding Paipai and QQ Wanggou contribution, GMV from our JD Mall marketplace grew 171% from a year ago, due to the category expansion discussed earlier. Our direct sales revenues grew 67% year-over-year, led by baby products, cosmetics, food and beverage, as well as mobile devices and home appliance categories. Services and other revenues grew 199% year-on-year, driven by commission income from the higher marketplace GMV, increased advertising income, and the logistic service revenue. Our non-GAAP gross margin further expanded from the Q3 level. The improvement was entirely driven by the increased service revenues, partially offset by a sequential decline in our 1P business gross margin as a result of our November promotion. On a year-over-year basis, gross margin from our 1P product sales remained consistent with that of Q4 last year.
Let's go through the operating expenses. For ease of comparison, I will focus on the non-GAAP expense ratios of these operating lines. First, the non-GAAP fulfillment expense ratio rose slightly to 7.3% compared to 7.2% in Q3. The increase was entirely due to our growing logistic service business, which has an expense ratio close to 100%. Fulfillment expense ratio for our principal business actually declined due to better operating efficiency during this extremely busy quarter. The non-GAAP marketing expense ratio increased to 3.3% in Q4 compared to 1.9% in Q3 and 2.6% in the same quarter last year. The sequential increase was mainly driven by the seasonality, while the year-on-year increase was due to our elevated marketing efforts during the November shopping festival. It reflects our strategy to invest opportunistically to drive growth and market share.
Both non-GAAP R&D and G&A expense ratios remained fairly stable as compared to the previous quarter. Adding together, the sequentially higher non-GAAP operating expense ratio was almost entirely driven by the higher promotional spending during the quarter. We mentioned before, marketing is the most discretionary expense item and can be adjusted relatively easily based on expected ROI of such spending. Our non-GAAP net income was RMB 84 million with a non-GAAP net margin of 0.2% in the fourth quarter. For the full year 2014, our non-GAAP net income was RMB 363 million with a non-GAAP net margin of 0.3%, which is consistent with the 2013 margin level and slightly ahead of our breakeven to negative 1% guided range. We have actually had two years in a row with positive non-GAAP net income above our guided range.
This is not by design, but a natural outcome from the better-than-expected pipeline growth and increasing scale economies. It also validates our belief that profit should not be our focus in a hyper-growth market where superior customer experience will drive scale, and the scale will drive profitability. Looking back with a GMV base of RMB 125 billion and a revenue base of RMB 69 billion at the end of 2013, we more than doubled our GMV size in 2014 to reach RMB 260 billion, and we grew our revenue by 66% to RMB 115 billion. The numbers speak for themselves. We believe our reinvestment made sense, and we intend to continue this investment strategy in 2015. Let's look at our cash flow and working capital.
As guided on our last earnings call, our fourth quarter free cash flow was negative, mainly driven by certain shorter payment terms and prepayment schemes designed to secure sought-after merchandise such as iPhone 6, as well as higher capital expenditures during the quarter. On a full-year basis, both of our operating cash flow and free cash flow were positive and healthy. The inventory turnover and accounts payable turnover days were both consistent with the same period last year. We intend to maintain positive operating cash flow for 2015 and beyond. Let's discuss our financial outlook. We expect our Q1 net revenue to be between RMB 34.8 billion and RMB 35.8 billion, representing a year-on-year growth between 54% and 58%. This guidance reflects a slower-than-usual first half of January due to the late Chinese New Year holiday season as compared to the previous year.
For 2015 non-GAAP bottom line, as I discussed earlier, we remain bullish on the e-commerce growth potential and will continue to invest in high ROI business initiatives to capture the market share. Given our larger scale and operating discipline, we would like to improve our non-GAAP net margin outlook by narrowing the range to between breakeven to negative 0.5% for the full year 2015. We can move to the Q&A session.
We're about to begin the question and answer section of today's call. If you wish to ask a question, please press star followed by number one on your telephone keypad and wait for your name to be announced. If you wish to cancel a request, please press star followed by the number two. Your first question comes from the line of Eddie Leung from Merrill Lynch. Please go ahead.
Hi. Good evening. Thank you for taking my questions. I have two questions. The first one is about your repeat customers' purchase pattern. You mentioned that you have got quite some new customers, but when we focus on your old customers, could you share a bit more color on, for example, the frequency of the purchases of your older customers as well as the output trends of your older customers? That's my first question. Secondly, about your logistics capabilities helping your 3P merchants, could you share with us the percentage of your 3P merchants which use JD Logistics services? Thank you.
On the first question, recall that at IPO, we disclosed the 2008 customer cohort, and we tracked them for the next five years. In year one, it was 3.7 times a year purchase, and by 2013, it was close to 17 times. We actually calculated for 2014, it became 19 times. The purchase frequency continued to improve on a year-over-year basis. Certainly for other year of customer cohorts, this trend is also pretty consistent. Internally, we also measure the repurchase rate of customers during a year, and it was also improved during 2014. And how you can get second question.
Yeah. Just a few more comments on the first question. As Sidney mentioned, at IPO, we did talk about some numbers in different cohorts. I was just looking at some numbers today. We looked at the 2008 cohorts and 2011 cohorts. We do see over time, for example, for the 2008 cohorts over the past, say, six years, they do increase the frequency of purchase from us. Also, of course, the purchase amount every year. That the same applies to the 2011 cohort. Another thing we found is, for the older or more tenured customers, they tend to buy more categories of merchandise from us. Typically, their basket size, order size is actually smaller. The new customers, we tend to acquire them through traditional 3C products.
Although from last year, we're seeing apparel has increasingly become sort of the first order category for new customers. On your second question, logistic services for third-party merchants. We mentioned before that the main service we're offering to the merchants right now is delivery. Not so much warehouse, but delivery. The percentage of third-party parcels that are delivered by JD Logistics has been steadily increasing, but slowly. Now, just roughly, we deliver about one-third of the third-party parcels. The growth rate has been stable. More importantly, we want to offer warehouse services to our merchants, and we're just getting the system ready. In the next month or two, we're going to market that service to our merchants more broadly.
We do expect some pickup there, although it will probably take longer for the merchants to adopt a warehouse service than the delivery service, because for the merchants, the switch cost will be much higher as they adopt our warehouse services. We do offer them better end-to-end service to their customers if they adopt the warehouse and the delivery services.
Well understood. Thank you, Haoyu and Sidney. Thank you.
Your next question comes from the line of Erica Poon from UBS. Please go ahead.
Thank you management, thank you for your presentation. I've also got two questions. The first one is just wondering whether you can give us a little bit more color on your Tencent relationship. For example, what is the conversion rate, basket size, repeat purchases of the Tencent access? The second question is about your profitability. Sidney just now was giving us a new guidance for 2015 bottom line. Would you now have better visibility into your profitability into 2016? Thank you.
The first question, the partnership, especially on Weixin and Mobile QQ with Tencent, as we mentioned in the prepared remarks, we're seeing now meaningful contribution from that partnership from the level 1 entry point. The recurring purchase is also good, which is at a comparable level with other channels, PC or our own app. We're also seeing pretty good contribution in new customer acquisition from Weixin and Mobile QQ. The conversion rate, I think you also asked about conversion rate. It is lower than conversion rate on our app, as you might expect. We were seeing good improvement over time.
Yeah. Erica, this is Sidney. On your second question, for 2016 and beyond, I think, again, it comes back to whether there is high ROI investment opportunities that will enable us to drive growth and market share. If we see that opportunity as strong as today, obviously we will continue to invest. On the other hand, we do get scale benefits. At this point, we'll stick to the current guidance for 2015, and we will update you in the second half of this year.
Great. Thank you both.
No problem.
Your next question comes from the line of Alicia Yap from Barclays. Please go ahead.
Hi. Good evening, Richard, Sidney, and Haoyu. Congratulations on the solid quarter. I also have 2 questions. Number 1 is regarding the mobile GMV. Can you elaborate a little bit more detail what type of product categories mainly contribute to the mobile GMV? For example, also, any average selling price difference on the mobile GMV compared to the ASP on the PC. Among the 36% of mobile GMV, how much of it come from the 1P versus the 3P? If I can, sorry, this is still part of the first question, is based on your data tracking, is most of these mobile GMV come from the lower tier city?
customer that actually might only have mobile as the only internet devices, or is it come from the first and the second-tier cities customer where during their more fragmented time span, did they actually complete it on the mobile?
That's still your first question?
Yes. second question very short is.
That's fine. I'll answer your first question. The 36% we mentioned in our release and prepared remarks is not GMV percentage, it's percentage of orders placed. We don't disclose the percentage GMV, you can expect the percentage GMV should be lower because the ASP is lower from mobile. If you look at two of our main mobile channels, one being app, the other is Weixin, and Mobile QQ, the ASP or order size on our app is lower than what you see on our PC, the ASP on Weixin and Mobile QQ is even lower, this is probably driven by categories, by different category mix from different channels.
I think if you compare, our app is probably more similar to our PC, our category mix, if you look at Weixin and Mobile QQ, you tend to see more purchases in apparel and general merchandise categories, hence the lower ASP. We do see a higher percentage of customers from lower tier cities for Weixin and Mobile QQ channel, not so much from our app.
I see. Great. That's very helpful. The second question is regarding the 60,000 merchants on your marketplace platform right now. Can you share roughly some of the breakdown in terms of percentage coming from, let's say, apparels, cosmetics, also percentage from overseas versus domestic? Thank you.
The vast majority is domestic. The big categories are apparel, home decoration, cosmetics, food. These are the major categories.
Okay, great. Thank you.
Your next question comes from the line of LRG from Oppenheimer. Please go ahead.
Good evening, congratulations on strong quarter. I also have two questions. First, relating to your GMV contribution from 3P. I see 3P is growing definitely faster than 1P. I wonder if management can talk about your outlook of GMV from marketplaces in the next two to three years. This definitely is a more profitable business for you, but in the meanwhile, we all know that it is also more challenging to maintain high quality of products and services. I wonder if you can share your thoughts on maintaining the percentage between first party and third party. That's my first question. Thank you.
Right. 1P business focuses on standard merchandise, as you know, the market size for non-standard products, merchandise is much bigger than standard products. Over time, as you already see this quarter, the GMV from marketplace has already overtaken the GMV from first party. I would not be surprised that most of our GMV will be from third-party merchants. Quality control, as Richard mentioned in his prepared remarks, we vet all our merchants with very stringent standards. Despite very fast growth, we only have right now about 60,000 merchants on our platform, not like some other platforms with millions of merchants. We do want to maintain a very high-quality group of merchants on our site. Every platform over time has developed its culture. Because of our heritage, we're a platform that stresses authenticity and quality of services. We have zero tolerance for fake products.
Once we found a merchant selling fake products or not providing high-standard products, merchandise, or services, we will de-list them and shut down the sources. Over time, to be a successful seller on our platform, the only way to do that is to sell high-quality products and provide high-quality services to our JD customers.
Thank you. My second question is relating to your sales and marketing spending. We saw this is a big step up in Q4. I wonder, Sidney, if you can break down and provide some colors as far as, for example, how much is spent to acquire new customers versus maintaining or increase the shopping frequencies of existing customers, also, for example, how much is spent on mobile versus PC. Relating to that, we understand that you participated in the WeChat Red Envelope promotion event during the Chinese New Year. Can you talk about the result of the performance as a result, also, on an accounting basis, where should we expect to see all this coupon spending to reflect on your P&L?
Okay. At least I'll get the first part. For the marketing spending in Q4, you can assume that the vast majority of the incremental marketing expenses were brand advertising expenses. Okay. They're not necessarily traffic costs. The traffic acquisition costs will be, one, consistent with our volume growth. Two is, as we expand our marketing service to third-party merchants, we begin to acquire outside advertising resources and resell to the merchants. For that part though, the direct cost is not included in cost of revenue. That is not in the marketing expenses. Majority will be brand advertising in Q4 related to our November promotion. Second contributor would be, we did increase some spending because of our expanded advertising business unit.
On whether the split between mobile and PC, because it's brand advertising, there's really not much related to a split between PC and mobile. For the Red Envelope, maybe Haoyu can talk about impact, but accounting-wise, they will be in our marketing expenses in Q1.
The Red Envelope spending, other than for branding purposes, it's also for new customer acquisition purposes. Because by default, people who get the cash Red Envelope from us, they will subscribe to our public account on WeChat. I was just looking at some numbers today. We're starting to do targeted marketing to those new subscribers, so to speak, and we're seeing some good early results.
Your next question comes from Marc Miller, from William Blair. Sorry, next question from Robert Lin, from Morgan Stanley. Please go ahead.
Hi, management, congratulations on the results. I guess I have three questions. I think, obvious question for this year remain your gross margin expansion. Both from your 1P and 3P perspective. First question, just thinking about your gross margin for 1P business. I think, your general merchandise probably about 20% of your 1P business. Can the management provide some color on if that split is correct, and how should we think about your general merchandise margin versus your electronic and home appliance margin for this year. Then I guess the relevant question to that third-party business, I think you got some incremental this year. I think one is obviously Tencent advertising, and second is Bitauto deferred revenue recognition in the second half of this year. Incrementally, what do you think that will contribute to your net revenue line for other revenues? That's my first question.
Right. On the gross margin between different categories, as I mentioned in Q4, for example, on a year-over-year basis for product sales, gross margin remained pretty consistent. This is part of our strategy to continue to provide the customers with the best price possible. Given that general merchandise generally do carry higher margin, you can see that the magnitude of our promotion is still fairly strong because, on a branded basis, actually, the product sale gross margin remain pretty much the same. In terms of spread, we should disclose in our 20F a breakdown. You will see that number in the near future. For the second part, currently, for Bitauto at least, we do not factor any income at this point because it is still in the early stage.
Obviously, we have a very high expectation for a much better shopping experience for auto consumers on our site. Before we get enough clarity, we should certainly not account for anything, certainly not in our current year net guidance. In Q1, obviously, there is also no effect from this transaction anyway.
Right. Okay.
Sorry, other than Bitauto, what is the other?
It's from Tencent advertising referral.
Oh, well, that's just part of Yeah. Remember, we had a very robust advertising platform from our own team set up last year. We've seen very strong growth in our advertising business, both within our own platform and also through the Tencent platform.
Okay. I guess this question is more broader picture. Internet finance is one major initiative. Can the management provide some color on what is the key focus area that we're investing in, whether it's smart homes, whether it's internet finance, M&A prospects, and how that's going to impact both on the top line and your cost structure this year?
We've had very fast growth in our finance business, although the impact on P&L is still very small. This year's focus on finance business are payment, consumer finance, and crowdfunding . Right. Yeah. We're going to focus on two groups of demographics. One is college students, the other is rural residents. We started a small hardware business unit that we're going to explore in that area as well. Yeah. At this point, we don't have anything concrete to share with you yet on the hardware business. Yeah.
Okay. I guess my last question, just on marketing spend. I think if I look at your number versus the BAT, I think your gross profit compared to Alibaba's [monetization] and revenue is about 20%-23%. Your marketing spend could be as big as 40%-60% of Alibaba [monetization]. Obviously, that's quite a high level, and understandably because you're trying to gain market share. How are we allocating this marketing spend, and what return do we think is justifiable so that we could dial back some of this marketing spend? Just a little more context on marketing spend.
Right. Rob, as I mentioned, actually most of the marketing spend, especially in the fourth quarter, was related to brand advertising. Those are very discretionary expenses that are not really directly driving the near-term revenue or near-term GMV. We think this high level of spending, using your metrics, is worthwhile because of the growth, right? If you take gross margin, for example, as a proxy for other companies' revenue, our gross margin also grew over 110% in the fourth quarter on a year-over-year basis. With this kind of growth, the marketing spending is definitely worthwhile, with very high ROI. If our growth rate slows down to the BAT level, then obviously, the ROI will be reduced, and we can certainly reevaluate the ROI and adjust the marketing spending.
If I can just follow up on that. I think Liu Qiangdong before was talking about 20% of fourth quarter customers add was coming from WeChat or/and Mobile QQ. You guys naturally have this advantage because you have sort of partnership with Tencent, and that marketing dollar is spent somewhere else. I think mobile investment in terms of user acquisition, relatively limited. I'm just trying to figure out what other avenue of marketing besides offline, especially in mobile, can you spend on that will surprise on the upside in terms of marketing spend?
Yeah, maybe I can add some more color. It's true that we are a big offline marketer. You can see that we spend a lot on offline, TV, outdoors, and focused media type. For the online part, we are still spending a lot of money on PC to drive traffic, performance-based, and on search engines, on third-party sites. We are spending a lot of money on mobile app installation as well. Although mobile advertising is still new, people are still trying to figure out how to do advertising once app is installed. You are right that at this point, most of the spending on mobile is for the installation of apps. Going forward, we expect we'll spend more on mobile advertising other than for the purpose of app installation.
At this point, initiatives such as going to campus, going to rural areas, these all require major marketing spend, be it offline or online. Going forward, I can't speak for Sidney, but I think as long as we can afford to spend on marketing to drive growth, I think we'll continue to do that.
Yeah. The other element is also our marketing service to third-party merchants and suppliers. This year we have been actually expanding our spending to acquire traffic through our affiliated marketing partners. At the beginning, you may not fully utilize those acquired traffic for the purpose of your merchants' advertising RMB. For those not, one we acquire, basically they are not fully utilized by the merchants. The incremental part will be also utilized by our own business, which will count as marketing expenses. This you can consider that as a cost of developing our own advertising business. It certainly also has marketing benefits to our own business.
Great. Thank you.
Sure.
Your next question comes from the line of Cynthia Meng from Jefferies. Please go ahead.
Hello. Thank you for giving us the chance. Congratulations for a good set of results. I have two questions. Last quarter, I remember, Liu Qiangdong, you mentioned something about the expanded demographics of your core users, of your core customers, now including more females. Is there any update in the line of that description of your core customer base? If there's any color on the location of your customer base, that would be great. As you build out your product categories and penetrating into the lower tier cities, which will be interesting. Second question is on, can management give us some more color on when the construction of the mega warehouses in Guangzhou, Wuhan, and Shenyang expected to be completed? Is there any change or guidance to the CapEx plan this year versus 2014? Thank you.
Okay. I'll take the first one. We don't have the latest female-male split. Just based on the category expansion I discussed earlier, for example, apparel. Just apparel orders grew sequentially 70%. Volume-wise actually was bigger. You can see that female definitely is becoming a bigger and bigger contributor to the JD business. Lower tier cities, we mentioned that, in terms of number of orders, it grew 126%. That's JD Mall alone. It grew much faster than the tier 1 and tier 2 cities. Those two demographic groups are definitely benefiting from our diversifying business strategy. On the warehouse open up, I'll let Hao to comment. CapEx-wise, we did have some lagging behind the CapEx spending that will from 2014 to 2015. We will see some higher CapEx spending. At this point, we do not have a definitive number.
Management will try our best to maintain a positive free cash flow. I cannot promise you, but as I mentioned earlier, for operating cash flow, it's definitely positive. We'll plan our CapEx spending throughout the year and making sure that we can achieve healthy free cash flow.
Yeah. The few mega warehouses we are building, as you know, the one in Shanghai is already in production. The one in Guangzhou is going through government inspection as we speak. The one in Wuhan will hopefully be in production by mid this year. The one in Shenyang will be in production at the end of this year.
Great. Thank you.
The next question comes from the line of
Thank you very much. Congratulations on the quarter. A simple question. What was iPhone 6 and 6 Plus contribution to GMV? Can we estimate how much it might have driven up ARPU in the quarter and whether there might be any kind of incipient impact, assuming it normalizes? Thank you.
Yeah. It's not the number rumored, certainly. Actually, a very small fraction of what was rumored. It is a meaningful contributor, but it's nothing that will cause any one-time spike. Also, without a star product like that, you will have demand for other products. We do not expect the iPhone phenomenon to be a big one-time issue.
Would it be possibly 1% or 2% of the ARPU delta or not even?
I have to check. Yeah, it's not a big significant event.
Thank you.
Your next question comes from the line of Robert Peck from SunTrust. Please go ahead.
Yes. Hi. Thank you for taking my question. Just two quick questions. One, Sidney, I was wondering if you could walk us through the pace of the quarter. We obviously already have two months of the quarter in the bag. As we think about that pace going through the cadence of the rest of the year, 2Q, 3Q, and 4Q growth, can you just give us a feel for how you envision that shaping up? Then I just have a follow-up question.
Well, just for the pace on Q1, as I mentioned, January, we had the first half of January slower than expected because the holiday shopping season normally starts one month before the New Year's holiday. This year, because of the later than usual Chinese New Year holiday, first half of January was pretty quiet. That basically led to a relatively weaker January. From here, otherwise, Q1 should be a pretty robust quarter, given that there's very limited Tencent contribution in Q1 last year. There was only 20 days. Starting Q2, there will be less kind of incremental contribution from the Tencent transaction. At least from a GMV perspective, growth rate will not be as high as in the previous quarters.
Then a quick follow-up question. Obviously, the Tencent partnership is starting off tremendously well so far. As you think about the competitive landscape and maybe some of the lesser players with market share in the market, like an Amazon, does it make sense to pursue any sort of business development deals to work together, potentially opening up even more international customers for JD? Thanks.
Well, we are always very open-minded for any partnership, whether it's strategic or from business perspective. Until something materialized, there's not much can be discussed.
Thank you.
You're welcome.
Your next question comes from Marc Miller from William Blair. Please go ahead.
Yes. Hi, good evening. Where do you see the best opportunities right now to broaden the product offering? Given the very strong growth in apparel and shoes, what is management's view of the outlook for flash sale offering?
Right. Flash sales is, for the most part, apparel and shoes, some home decoration. We really just started the business last year, and we're going to see the goal for this year for that business unit is quite ambitious. After Chinese New Year, we're seeing a good start. Yeah, that's looking good. As Richard just said, we really started the business in all seriousness last year in 2014. We're not going to give you a year-over-year growth because they will be very, very high. Yeah. If you look at the sequential growth from Q3 to Q4, it's over 100%. Yeah. The growth rate for this year will be much higher than JD's growth rate overall. It's still small part of our overall business, but we think in two to three years, it will become a more meaningful component of our business.
Excellent. Thank you. Then I have a question on the ultimate investment in fulfillment. Is there, in the next couple of years, a leverage point that you expect on fulfillment or do we anticipate that it's going to continue to rise in terms of the investment? I guess I'm looking at the automation with the Asia No. 1 warehouses and whether you just get a broad enough network that you can begin to bring that down at some point in the near term. Thank you.
Right. This is also depending on the growth of the business and also how successful our warehousing services offered to the third-party merchants. It's actually a function of that. From that perspective, if the CapEx continue to rise, it would be actually very good news.
Your next question comes from the line of Gene Munster from Piper Jaffray. Please go ahead.
Good evening, and I'll add my congratulations on the quarter. A question just in terms of, if you could recap in terms of cohort analysis, a typical customer, once you get them, how does their spending change, I guess, six, 12, 24 months after you capture that customer? Thank you.
Yeah. Gene, I don't have those numbers in front of me, but as I said, when I was looking today, I was looking at the 2008 cohorts and 2011 cohorts. We do see over time, every year, they place more orders with us. They buy more stuff from us, but the average order size goes down because they venture into more categories other than the traditional 3C categories, but I can't give you exact numbers now.
Yeah, but the overall annual spending is also increasing. Also, the 19 times on average includes the dormant customers. If you exclude those dormant customers, the 2008 customers are still active today, will actually buy on average more than 30 times a year. It is actually a very good number.
That was 30 times from their original spend?
Oh, well, year one was 3.7 times.
Oh.
If it's more than 30 times, in terms of order frequency.
Frequency
would be eight times.
Got frequency, okay.
Right.
Got it. Okay, that's helpful. Thank you.
You're welcome.
Your next question comes from the line of Sean Zhang from EightySix Research. Please go ahead.
Thank you, management. Congratulations on the strong quarter. My question is on the top-line growth. I look at your mobile growth, which grew 370% and 49% Q on Q. Can you give us some color on the growth of your own native app versus Weixin and Mobile QQ app? Secondly, I also see acceleration of your other revenue almost triple this quarter. I just wonder, could you give us a breakdown in terms of what's the percentage of commission, what's the percentage of advertising revenue, and fulfillment? The last quarter, I remember management said, advertising accounted for roughly a quarter of the other revenue. Just wondering if your advertising business has taken off. What's the percentage now? Thank you.
Yeah, as I mentioned earlier, we do not currently break down the volume between app and Weixin. Certainly, a very large majority of the volume still comes from our own mobile app. On the other hand, the two Tencent mobile channels are great contributors to new user acquisitions and also pretty good recurring purchasers as well on those own channels and also some of them actually begin purchasing on JD's app as well. What was the second one? Sorry, what's the second question?
The second question is, I saw acceleration of your other revenue triple this quarter.
All right.
Yeah.
Right. You can see the commission income will be more or less in line with the marketplace GMV growth, and advertising still to be the second-largest component in the service revenue, and also logistics service revenue is also fast-growing and is the third-largest service category. All three are actually making very meaningful contribution.
Thank you very much.
Sure.
We're now approaching the end of the conference call. We'll now turn the call over to JD.com's Ruiyu Li for her closing remarks.
Once again, thank you for joining us today. Please feel free to contact us if you have any further questions. Thank you for your continuous support, and we look forward to speaking with you again.
This does conclude our today's conference. Thank you all for participating. You may all disconnect.