Earnings Call: Q4 2014

Mar 3, 2015

Hello. Thank you for standing for JD dotcom's 4th 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, and welcome to our Q1 2014 earnings conference call. Joining me 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 Q4 and full year 2014. Following the prepared remarks, Hao Yu Shen, CEO of GDMO, 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 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 all in RMB. Now, I would like to turn the call over to our Founder, Chairman and CEO, Richard Liu. Thank you, Ruiyi. Authenticity and the user experience is breaking through with Chinese consumers. We have 96,600,000 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 and 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 31, 2014. This is a pace of growth that is fast, but manageable in number of us to maintain our high standards. We secretly vet all sellers to ensure that they meet our stringent standards for quality. Our strong results in the 4th 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 holder rapidly. In Q4, 36% of our orders came from mobile, up 372% from the same period of 2013. Weixin and Mobile QQ are making meaningful contributions to mobile orders. Clearly, our Tencent partnership is beginning to bear fruit. 2nd, our fulfillment network expansion efforts are delivering real results. As of the end of 2014, our delivery network covered 1862 counties and districts across China, 40% more than a year ago. For GDMO, the number of orders from lower tier cities during the Q4 grew 126% from Q4 last year. We believe that this is a a promising and high growth area and we will continue to strengthen our user experience in lower tier cities through our mobile platforms, enhanced product offerings and improved fulfillment capabilities. 3rd and most importantly, JD is increasingly distinguished as the most trusted platform in China for guaranteed quality and authenticity. And we are expanding our leadership here. In the Q4, we continued to establish important partnerships with key international banks, which opened flagship stores on our site, as well as companies like Bitauto, who bring key vertical expertise to our site. We also worked close with the relation regularly in China to further enhance our anti counterfeit tactics 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 GD experience. They know when they shop on our site, they get quality, they get authenticity, they get superior service and they get all of these delivered right to their dock 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 and 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, and 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 4th quarter growth and margin Our GMV year on year growth further accelerated to 119%, compared to 111% achieved in the 3rd quarter. Excluding the GMV contribution from pipeline 1 gold marketplaces that were acquired from Tencent, our JD Mall GMV grew 105 percent year on year compared to 97% achieved in the 3rd 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 0 tolerance policy on counterfeits, constantly expanding product selection and fast delivery service. Finally, GMV from Weixin and Mobile QQ entry points more than doubled the Q3 level and it became 2 important user acquisition channels for the JD platforms. Roughly 20% of our first time customers in Q4 were from these 2 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 continue 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 2 78%. Other fast growing categories included home furnishing, watches and handbags, cosmetics and auto related products. GMV from our marketplace business grew 2 20% in Q4 and accounted for 44% of our GMV during the period. Excluding pipeline and Wang Gou 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 logistics 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. Now 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 logistics service business which has an expense ratio close to 100%. Fulfilling 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 partly was due to our elevated marketing efforts during the November shopping festival and it reflects our strategy to invest optimistically to drive growth and market share. Lastly, both non GAAP R and D and G and A expense ratios remained fairly stable as compared to the previous quarter. Therefore, adding together the sequentially higher non GAAP operating expense ratio was almost entirely driven by the higher promotional spending during the quarter. As we mentioned before, marketing is the most discretionary expense item and it can be adjusted relatively easily based on expected ROI of such spending. As a result, our non GAAP net income was RMB84 1,000,000 with a non GAAP net margin of 0.2% in the 4th quarter. For the full year 2014, our non GAAP net income was RMB363 1,000,000 with a non GAAP net margin of 0.3 percent, which is consistent with 2013 margin level and slightly ahead of our breakeven to negative 1% guided range. By now we have actually had 2 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 top line growth and increasing scale economies. It also validates our belief that profit should not be our focus in the hyper growth market, where superior customer experience will drive scale and the scale will drive profitability. Looking back with the GMV base of RMB125 1,000,000,000 and revenue base of RMB69 1,000,000,000 at the end of 2013, We more than doubled our GMV size in 2014 to reach RMB260 1,000,000,000 and we grew our revenue by 66 percent to RMB115 1,000,000,000. The numbers speak for themselves. We believe our reinvestment made sense and we intend to continue this investment strategy in 2015. Now let's look at our cash flow and working capital. As guided on our last earnings call, our 4th 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. Lastly, let's discuss our financial outlook. We expect our Q1 net revenue to be between RMB34.8 1,000,000,000 RMB35.8 billion representing a year on year growth between 54% 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 we'll continue to invest in high ROI business initiatives to capture the market share. However, given our larger scale and operating discipline, 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. Now we can move to the Q and A session. 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 the for example, the frequency of the purchases of your older customers as well as the ARPU trend of your older customers? So that's my first question. And then 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. Okay. So on the first question, you call that at IPO we disclosed the 2,008 customer cohort and we track them for the next 5 years. So in year 1, it was 3.7 times a year purchase and by 2013, it was close to 17 times. And we actually calculated for 2014, it became 19 times. So the purchase frequency continued to improve on a year over year basis and certainly for other year of customer cohorts, this trend is also pretty consistent. Internally, we also measure the repurchase rate of customers during the year and it was also improved during 2014. And Harry, you can get second question. Yes, just a few more comments on the first question. So we as you mentioned at IPO, we did talk about some numbers in different cohorts. I was just looking at some numbers today. We looked at the 2,008 cohorts and 2011 cohorts. We do see over time, for example, for the 2,008 cohorts over the past say, 6 years, they do increase the frequency of purchase from us and also, of course, the purchase amount every year. And that's the same applies to the 2011 cohort. And another thing we found is for the older or more tenured customers, they tend to buy more categories of merchandise from us. So typically their basket size, order size smaller. And 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 category for new customers. On your second question, logistics services for 3 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. And the percentage of third party parcels that are delivered by JD Logistics has been steady increasing, but slowly and now just roughly we deliver about 1 third of the 3rd party parcels. So the growth rate has been stable. So more importantly, we want to offer warehouse services to our merchants and we're just getting the system ready and in the next month or 2 we are going to market that service to our merchants more broadly and we do expect some pickup. Although it will probably take longer for the merchants to adopt a warehouse service than the delivery service because it's for the merchants the switch cost will be much higher if they adopt our warehouse services. So we do offer them better end to end service to their customers if they adopt the warehouse and the delivery services. 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 2 questions. The first one is just wondering whether you can give us a little bit 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. Sydney 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. So 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 and the recurring purchase is also good, which is at a comparable level with other channels PC or our own app. And we're also seeing pretty good contribution and new customer acquisition from Weixin and Mobile QQ. So it's and the conversion rate, I think you also asked about conversion rate. It is lower than the conversion rate on our app as you might expect. But it's we were seeing good improvement over time. Yes. Erica, this is Sidney. On your second question for 20 16 beyond, I think again comes back to how we whether there is high ROI investment opportunities that will enable us to drive growth and market share. So if we see that opportunity as strong as today, obviously we will continue to invest. But on the other hand, we do get scale benefits. So we will not at this point, we 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, Cindy and Hao Yi. Congratulations on a solid quarter. I also have two questions. Number 1 is regarding the mobile GMV. So 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? And then among the 36% of mobile GMV, is it mainly how much of it come from the 1P versus the 3P? And 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 1st and the second tier cities customer where during their more fragmented time spent that they actually completed on the mobile? That's still your first question? Yes. And second question very short. That's fine. I'll answer your first question. So the 36% we mentioned in our release and the prepared remarks is not GMV percentage, it's percentage of orders placed. So, we don't disclose the percent of GMV, but you can expect the percent of GMV should be lower because the ASP is lower from mobile. But if you look at 2 of our main mobile channels, one being app, the other is Weixin and Mobile QQ. The ASP order size on our app is lower than what you see on our PC and the ASP on Weixin and Mobile QQ is even lower and this is probably driven categories, by different category mix from different channels. And I think if you compare our app is probably more similar to our PC, our category mix, But if you look at Weixin and Mobile QQ, you tend to see more purchases in apparel and general merchandise categories, hence the lower ASP. And we do see more a higher percentage of customers from lower tier cities for Weixin and Mobile QQ channel, not so much from our I see, I see. Great. That's very helpful. The second question is regarding the 60,000 merchants on your marketplace platform right now. So can you share roughly some of the breakdown in terms of percentage coming from, let's say, apparels, cosmetic and also percentage from overseas versus domestic? Thank you. The mass majority is domestic and 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 Ella Ji from Oppenheimer. Please go ahead. Good evening and congratulations on strong quarter. I also have two questions. First, relating to your GMV contribution from 3P, I see it's 3P is faster than 1P. I wonder if management can talk about your outlook of GMV from marketplaces in the next 2 to 3 years. I mean 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. So I wonder if you can share your thoughts on maintaining the percentage between 1st party and 3rd party. And that's my first question. Thank you. Right. We the 1P business focuses on standard merchandise, but 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 is already taken the GMV from 1st party. So I would not be surprised that most of our GMV will be from 3rd party merchants. Quality control, as Richard mentioned in his prepared remarks, we've got all our merchants with very stringent standard. 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. So we do want to maintain very high quality group of merchants on our side. Every platform over time has developed its culture. We because of our heritage, we were a platform that stretches authenticity and quality of services. We have 0 tolerance for fake products. Once we found the merchant selling fake products or not providing high standard products, merchandise or services, we will de list them and shut down the stores. 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. And then my thinking second And then my second question is relating to your sales and marketing spending. Yes, we saw this is a big step up in 4Q. I wonder if you can break down and provide some color as far as for example, how much is spent to acquire new customers versus maintaining or increase the shopping frequencies of existing customers? And also, for example, how much you spent to on mobile versus PC? And then relating to that, we understand that you participated in the Weixin Red Envelope promotion event during the Chinese New Year. Can you talk about the result of the performance as a result? And also on an accounting basis, where should we expect to see all these coupon spending to reflect on your P and L? Okay. So at least I'll get the first part. So for the marketing spending in Q4, you can assume that vast majority of the incremental marketing expenses were brand advertising expenses, okay. So they're not necessarily or necessary traffic costs. The traffic acquisition costs will be 1 kind of consistent with our volume growth. And then 2 is, as we're expanding as we expand our marketing service to third party merchants, we begin to acquire outside advertising resources and resell to the merchants. So for that part though, the direct cost is not included in cost of revenue. So that is not actually in the marketing expenses. So but majority will be brand advertising in Q4 related to our November promotion. And then 2nd contributor would be, we did increase some spending for because of our expanded advertising business unit. And whether the split between mobile and PC because it's brand advertising, so it's not there's really not much to related to a split between PC and mobile. And for the red envelope, maybe how you can talk about impact, but accounting wise, they will be in our marketing expenses in Q1. So 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 Weixin. So I was just looking at some numbers. Today, we are 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 Mark Miller from William Blair. Sorry, next question from Robert Lin from Morgan Stanley. Please go ahead. Hi, management and congratulations on the results. I guess I have 3 questions. I think obvious question for this year remain your gross margin expansion, I mean, both from your 1P and 3P perspective. So first question, just kind of thinking about your gross margin for 1P business. I think your general merchandise is 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 merchandising margin versus your electronic and home appliance margin for this year? So and then I guess the relevant question to that 3rd party business, I think you got some incremental this year. I think one is obviously Tencent Advertising and second is Bitauto, different 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. So 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. So this is part of our strategy to continue to provide the customers with the best price possible. And given that general merchandise generally do carry higher margin, so you can see that our promotional the magnitude of our promotion is still fairly strong, because on a branded basis, actually the product sales gross margin remain pretty much the same. So in terms of split, we will probably we should disclose in our 20 F breakdown. So you will see that number in the near future. And for the second part, currently we for bid already, so we do not fact in any income at this point, because it's still in early stage. Obviously, we have a very high expectation for a much better shopping experience for consumers and for auto consumers on our site. But before we get enough clarity, we should certainly not account for anything, certainly not in our current year net guidance. In Q1 obviously there's also no effect from this transaction. Right. Okay. Sorry, what's the other other than Bitauto, what's the other? It's from Tencent Advertising referral. Well, that's just part of yes, yes, because we remember we also we had a very, very robust advertising platform from our own team set up last year. So we've seen very strong growth in our advertising business, both within our own platform and also through Guangdiantong, the Tencent platform. I guess this question is more broader big picture. I mean 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 and A prospects like 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 T and L is still very small. This year's focus on finance business is our payment, consumer finance and Yes. We're going to focus on 2 groups of demographics. 1 is college students, the other is rural residents. We've started small hardware business units that we're going to explore in that area as well. At this point, we don't have anything concrete to share with you yet on the hardware business. I guess my last question just on marketing spend. I think if I kind of look at your number versus the BAT, I think your gross profit compared to like Alibaba's Tencent revenue is about 20% to 23%. But your marketing spend could be as big as 40% to 60% of Alibaba and Tencent. And obviously that's quite high level and understandably because you're trying to get market share. How are we allocating this marketing spend? And like what return do we think is justifiable so that we don't we could dial back on this marketing spend or just a little more context on marketing spend? Right. So Rob, as I mentioned, actually most of the marketing spend, especially in the Q4 was related to the brand advertising. So those are very discretionary expenses that are not really kind of directly driving the near term revenue or near term GMV. So this is we think this high level spending using your metrics is worthwhile because of the growth, right. So if you take gross margin, for example, as proxy for other companies' revenue, our gross margin also grew over 110% in the Q4 on a year over year basis. So with this kind of growth, the market spending is definitely worthwhile with very high ROI. But if our growth rate slows down to the BAT level then obviously the ROI will be reduced and we will we can certainly reevaluate the ROI and adjust the market spending. But if I can just follow-up on that. I think Liudonggang before talking about 20% of 4th quarter customers' ad was coming from WeChat or in Mobile QQ. And you guys naturally have this advantage because you have sort of partnership with Tencent. And that marketing dollar is spent somewhere else. And I think mobile's app mobile investment in terms of user acquisition is 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? Yes. Maybe I can add some more color. So it's true that we are a big offline marketer. You can see that we spend a lot of offline TV, outdoors and focus media type. And 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. And 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, but going forward we expect we'll spend more mobile advertising other than for the purpose of apps installation. So, I think at this point we are initiatives such as going to campus, going to rural areas, these all require major marketing spend, be it offline or online. So, I think going forward, I can't speak for Sinead, but I think as long as we can afford to spend on marketing to drive growth, I think we'll continue to do that. Yes, the other element is also our marketing service to third party merchants and suppliers. So this year we are planning, we have been actually expanding our spending to acquire traffic through our affiliate marketing partners. So at the beginning, you may not fully utilize those acquired traffic to for the purpose of your merchants advertising dollars. So for those not when we acquire basically they are not fully utilized by the merchants. So the incremental part will be also utilized by our own business, which will count as marketing expenses. So this is you can consider as a cost of developing our own advertising business, but it certainly has also has marketing benefits to our own business. Great. Thank you. Sure. Your next question comes from the line of Cynthia Mung from Jefferies. Please go ahead. Hello. Thank you for giving us the chance and congratulations for a good set of results. I have two questions. Last quarter, I remember, Baozong, you mentioned something about the expanded demographics of your core users of your core customers now including more female. Is there any update in the line of that description of your core customer base? And also if there's any color on the location of your customer base that will be great as you build out your product categories and penetrating into the lower tier cities. This will be interesting. Second question is on, I think management gave us some more color on when the construction of the mega warehouses in Guangzhou, Wuhan and Shenyang expected to be completed? And is there any change or to guidance or guidance to the CapEx plan this year versus 2014? Thank you. Okay. I'll take the first one. So we don't have the latest female male split, but just based on the category expansion I discussed earlier, for example, apparel, just apparel orders grew sequentially 70% and volume was actually was bigger. So you can see that female definitely is becoming a bigger and bigger contributor to the JD business. And lower tier cities, we mentioned that in terms of number of orders, it grew 126 percent. That's JD Mall alone. So it grew much faster than the Tier 1 and Tier 2 cities. So those 2 demographic groups are definitely benefiting from our diversifying business strategy. On the warehouse opened up, I'll let Paoli to comment, but CapEx wise, we did have some lagging behind CapEx spending that will from 2,004 to 2015, 2014 to '15. So we will see some higher CapEx spending, but at this point, we do not have a definitive number. But 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 is definitely positive. But we will plan our CapEx spending throughout the year and making sure that we can achieve healthy free cash flow. Yes, the few metal 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 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. Your next question comes from the line of Ed. Thank you very much and congratulations on the quarter. A simple question. What was iPhone 6 and 6 Plus contribution to GMV? And 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. Yes, we don't it's not the number rumored certainly and actually a very small fraction of what was rumored. So it is a meaningful contributor, but it's nothing that will cause any one time spike. And also without a stock product like that, you will have demand for other products. And so we do not expect the iPhone phenomenon to be a big one time issue. So would it be possibly 1% or 2% of the ARPU delta or not even? I have to check. But yes, it's not a big significant event. Thank you. Your next question comes from the line of Robert Pack from SunTrust. Please go ahead. Yes. Hi. Thank you for taking my question. Just two quick questions. One, Sydney, I was wondering if you could walk us through the pace of the quarter. We obviously already have 2 months of the quarter in the bag. And 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? And I just have a follow-up question. Well, just for the pace on Q1, as I mentioned, January, we had first half of January slower than expected because the holiday shopping season normally starts 1 month before the New Year's holiday. So this year because of the later than usual Chinese New Year holiday, so first half of January was pretty quiet. So that basically led to a relatively weaker January. And but from here, otherwise Q1 should be a pretty robust quarter given that there is very limited $0.10 contribution in Q1 last year. There was only 20 days. But starting Q2, you will be there will be less kind of incremental contribution from the Tencent transaction. So at least from a GMV perspective, growth rate will not be as high as in the previous quarters. And 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 potentially opening up even more international together, potentially opening up even more international customers for JD? Thanks. Well, we're always very open minded for any partnership, whether it's strategic or from business perspective. But until something materialized, there's not much can be discussed. Thank you. You're welcome. Your next question comes from Mark 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? And given the very strong growth in apparel and shoes, what is the management's view of the outlook for flash sale offering? Right. So flash sale is for the most part apparel and shoe, some home decoration. And 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. And after Chinese New Year, we're seeing a good start. So, yes, that's looking good. So Richard just said, we really started the business in all series in last year in 2014. So we're not going to give you a year over year growth because they will be very, very high. But if you look at the sequential growth from Q3 to Q4, it's over 100%. The growth rate for this year will be much higher than JD's growth rate overall. It's still a small part of our overall business, but we think in 2 to 3 years it will become a more meaningful component of our business. Excellent. Thank you. And 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 China One 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. I mean, this is also depending on the growth of the business and also how successful our merchants. So it's actually a function of that. And from that perspective, if the CapEx continue to rise, it will be actually very good news. Your next question comes from the line of Jay Monsta from Piper Jaffray. Please go ahead. Good evening and I'll add my congratulations on the quarter. 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, 6, 12, 24 months after you capture that customer? Thank you. Yes. 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 them 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. Yes, but overall spending, annual spending is also increasing. And also the 19 times on average includes the dormant customers. So if you exclude those dormant customers, the 2008 customers are still active today, we actually buy on average more than 30 times a year. So it is actually a very good number. That was 30 times from the original spend? Well, the year 1 was 3.7 times. So if it's more than 30 times, in terms of order frequency it would be 8 times. Got it. Okay, that's helpful. Thank you. You're welcome. Your next question comes from the line of Sean Zhang from 86 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 percent and 49% Q on Q. Can you give us a color give us some color on the growth of your own native app versus Weixin and mobile QQ app? And secondly, also see acceleration of your other revenue, almost tripled this quarter. And 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. So what's the percentage now? Thank you. So, yes, we as I mentioned earlier, we do not currently break down the volume between app and Weixin. But certainly a last a very large majority of the volumes do come from our own mobile app. But on the other hand, the 2 Tencent mobile channels are great contributors to new user acquisitions and also pretty good recurring purchases as well on both its own those own channels and also some of them actually begin purchasing on JD's app as well. And then for sorry, what's the second question? Our second question is, I saw acceleration of your auto revenue tripled this quarter. Just want to All right. Yes. Right. So you can see the commission income will be more or less in line with the marketplace GMV growth and advertising still to be the 2nd largest component in the service revenue and also logistics service revenue is also fast growing and is the 3rd largest service category. So all 3 are actually making very meaningful contribution. Thank you very much. We're now approaching the end of the conference call. I will now turn the call over to JD dotcom's Rui Yu 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 continued support and we look forward to speaking with you again.