Earnings Call: Q3 2014

Nov 17, 2014

Earnings release

Hello and thank you for standing by for jdstockcom's 3rd Quarter 2013 Earnings Conference Call. At this time, all participants are in 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, Wu Yu Li. Thank you, operator, and welcome to our 3rd quarter 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 Q3 2014. Following the prepared remarks, Hao Yu 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 statements in earnings press release, which applies to this call as we will make forward looking statements. Also, this call includes discussions of certain non GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non GAAP measures to the most directly comparable GAAP measures. Finally, please note that, unless otherwise stated, all the figures mentioned during this conference call are in RMB. I would like to turn the call over to our Founder, Chairman and CEO, Richard Liu right now. Thank you, Ruiyi, and hello, everyone. I'm pleased to report we saw excellent growth momentum in the Q3 as we continue to build the most trusted e commerce platform in China. During the quarter, we had over 46,000,000 active customers on Jingdong platforms. That is an increase of 109% from last year. This helped us generate over RMB67 1,000,000,000 in GMV, an increase of 100 and 11 percent. Central to our strategy is our 100% commitment to product authenticity, we recently launched a strategic initiative with the Ministry of Commerce to ensure counterfeits remain off our sites. Consumers and the merchants understand they have 0 tolerance for fix, which is an important part of why they choose Jingdong. To provide secure customer experience, we are also focused on building out a huge selection of products. In the Q3, we welcomed 13,000 new machines to our B2C market place and saw particularly strong increase in apparel, home decor and sports selections. Another way that we deliver superior customer experience is through our nationwide fulfillment infrastructure. Our seamless delivery network sets the benchmark for speed in the industry with more than 80% of our direct sales orders delivered on the same day the order is placed or on the next day. We also continue to develop our industry leading logistics network. We recently launched our 1st Asian number 1 warehouse in Shanghai. This set our facility demonstrates our unrivaled capabilities in building e commerce fulfillment infrastructure and will significantly improve our long term operating efficiency. Over time, it will also enable 3rd party sellers to stock merchandise with Jundong. So we can expand the benefits of our fulfillment efficiency and rapid delivery service to our marketplace type partners. In the Q3, mobile orders increased by over 500% year over year to almost 30% of the total orders. All of our mobile channels, including our native app and the Weixin and Mobile QQ Level 1 entry points are performing extremely well and these mobile channels have also been effective in strengthening our position in lower tier cities. While still in the early stage, our partnership with Tencent is making good progress. Tencent brings an unmatched user base to the Jingdong platform and we see outstanding potential for further collaboration. Looking ahead, expanding product selection across our platforms, reaching a broader range of customers in high growth markets and enhancing mobile offerings remain our key priorities. We are confident this strategy will help us build market share and further strengthen our industry leadership. Now, I will turn the call over to Sidney Huang, our CFO. Thank you. Thank you, Richard, and hello, everyone. Let me spend the next few minutes to go through our Q3 financial results and Q4 outlook. We are very pleased with our Q3 top line and bottom line results. Our GMV year on year growth accelerated to 111% compared to 107% achieved in the 2nd quarter. Excluding the GMV contribution from Paipay and Wangou marketplaces that were acquired from This acceleration is a result of our constantly improving customer experience through highly disciplined quality assurance, enlarged product selection and superior delivery and post sale services. It also benefited from our lower tier city penetration initiatives and expanding mobile user base through our close collaboration with Tencent. The GMV composition continued its trend towards category diversification. GMV from general merchandise categories grew 177% and accounted for 46% of total GMV. If you look at the number of orders, nearly 70% of all fulfilled orders were for non electronic products and apparel and shoes is now the most popular physical goods category on JD platform in terms of orders placed and fulfilled. In terms of GMV, apparel and shoes was the fastest growing category with a year on year growth rate of over 300%. Other fast growing categories included sports, jewelry and handbags and food and beverage. GMV from our marketplace business grew 248% in Q3 and accounted for 40% of our GMV during the period. Excluding PiePai and Wangko contribution, GMV from our JD Mall marketplace grew over 190% from a year ago, as we continued to expand product selection, especially the long tail products in the general merchandise categories. Our net revenue grew 61% year over year, led by general merchandise categories, especially baby products and food and beverage, as well as the mobile devices and home appliance categories. Services and other increased advertising income from both 1P and 3P businesses and the logistics revenue from our 3rd party merchant services. Our non GAAP gross margin further expanded meaningfully from the 2nd quarter. The sequential improvement was mainly due to the fact that Q3 was a seasonally slow quarter in which we normally do not conduct major promotional activities. As a result, our gross margin for the 1P business improved significantly on a sequential basis. On a year over year basis, however, gross margin for the product sales was largely in line with the same quarter last year and the improvement was primarily from the higher service revenues associated with both 1P and 3P operations discussed earlier. Now let's move on to the operating expenses. For the ease of comparison, I will focus on the non GAAP expense ratios of these operating lines. First, the non GAAP fulfillment expense ratio rose 30 basis points sequentially to 7.2% compared to 6.9% in Q2. The increase was largely due to the expansion of our warehouse and delivery network into the lower tier cities and our growing logistics services to 3rd party merchants. The non GAAP marketing expense ratio declined to 1.9% in Q3 compared to 2.6 percent in Q2 and 2.1% in the same quarter last year. The sequentially lower marketing expense ratio reflected the seasonal nature of our business and our strategy to optimize our marketing dollars for quarter, up from 1.4% in Q2 and 1.3% in the same quarter last year. The increase reflected the hiring of additional R and D talent for our growing business units and mid year salary adjustment for Lastly, the non GAAP G and A expense ratio increased to 1%, up from 0.9% in both Q2 and the same quarter last year, mainly due to incremental G and A expenses related to our new business lines. So adding together, our non GAAP operating expense ratio was 11.8% in the 3rd quarter, which is the same level as in the 2nd quarter. As our gross margin expanded meaningfully, our non GAAP operating margin reached a positive 0.4%, the highest level in the past 6 quarters. As a result, our non GAAP net income reached RMB371 1,000,000 with a net margin of 1.3% in Q3, which was better than expected and set a record. While our near term strategic focus remains to be expanding our market share without pursuing a profit, the better than expected Q3 bottom line does provide an indication of our ability to generate substantial profit on a medium to long term basis as we continue to grow and realize the economies of scale along the way. For the near term, however, we would like to reiterate that our non GAAP net margin outlook remains at breakeven to negative 1% for the Q4 of this year and for the full year 2015. Now let's look at our cash flow and working capital. We are pleased to deliver increased free cash flow in the 3rd quarter, up 150% year on year and 2.78 percent sequentially, despite higher capital expenditures. Our operating cash flow was healthy and inventory turnover and accounts payable turnover days were substantially consistent with the same quarter last year. However, I would like to point out that several large CapEx payments are back loaded, which are scheduled to be paid out in the Q4. Therefore, we do not expect any positive free cash flow in the last quarter of 2014. Lastly, let's discuss our 4th quarter outlook. We expect our Q4 net revenue to be between RMB32 1,000,000,000 and RMB33 1,000,000,000 representing a year on year growth between 59% 64%. This guidance indicates an accelerated growth rate in our net revenue as we invest more resources to our 1st party general merchandise business. Now we can move on to the Q and A session. 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 Your first question comes from the line of Eddie Leung from Merrill Lynch. Your line is open. Please go ahead. Hi, good evening. Thank you for taking my questions. Pretty good results, so congratulations. Just a question on some of your new initiatives. Sidney, I think you mentioned that part of the good results in the quarter, especially on the gross margin is because of higher proportion of revenues from services. So I guess you refer probably to marketing and logistics. So just wondering if you could share more color with us on your financial services, marketing services and logistics services you provide to your merchants? Thanks. Right. So Eddie, firstly, if we are looking at on a year over year basis, the improved gross margin mainly came from higher take rate revenue from the larger marketplace business. So that is the biggest contributor. And secondly is the advertising revenue that will come from both our first party and 3rd party businesses because the 1st party suppliers would also spend more dollars on JD's advertising platform because we now have a huge user base. And then third, it will be the logistics services that we provide to the 3rd parties. On that, we have mentioned in the a And that percentage has been around at a fairly consistent level. But on a year over year basis that does provide a meaningful lift to this non GAAP gross margin, okay. It's not real gross margin as I mentioned in the past, because the fulfillment cost is grouped into the fulfillment expenses. Your next question comes from the line of Erika Poon Werkun from UBS. Your line is open. Please go ahead. Hello, Richard, Sydney and Rui Yu. Thank you for the presentation and congrats on your results. My question is related to Sidney's comment on reiterating the Q4 earnings guidance of breakeven to minus 1%. Sydney, if you don't mind, just elaborate a little bit more on what you expect to be the mix shift between 1st party and the 3rd party and some of the operating expenditure? What do you see the most in terms of back end loading that will actually cause your Q4 to be maintaining at your former guidance? Thank you. Sure. So from a from the pace of our promotional activities throughout the year, really the Q4 would be very similar to Q2. So when you have heavy promotional activities such as November 11 promotional period, you would see normally a lower gross margin on our product sales business similar to the 2nd quarter. And you would also see higher marketing expenses again similar to the 2nd quarter. So that will be 1st and most foremost the 2 major differences from the 3rd quarter. And we obviously also continue to look at a number of new business initiatives. We do not break out the expenses on those new business lines, but they have always contributed to a meaningful increase in our various expense lines as I mentioned earlier. As far as you mentioned anything backloaded, there is on a P and L basis, there is nothing backloaded. What I mentioned earlier was really CapEx payments. So on cash payments, normally for construction related work, payments tend to be backloaded towards the end. Your next question comes from the line of Ella Ji from Oppenheimer. Your line is open. Please go ahead. Thank you and congratulations on a solid quarter. My question is relating to your mobile orders. It represented almost 30% in the quarter. And I think on the November 11 Singles Day, it represented 40%. So do you think this 40% is representative of the trend going forward? And can you talk about, for example, how many orders are from Tencent's QQ and WeChat? And also I think you mentioned previously that you wanted to convert those users from Tencent to your own mobile app. Can you give us an update on the progress? Thanks. Hi. This is Haoyu here. Yes, we did mention that for the entire Q3, the percentage of orders fulfilled from mobile is around 30%. And we did also say that single say on that one day, the order placed account for mobile, including apps and WeChat and QQ account for 40%. But that 40% doesn't it's not indicative of where we will end up for the entire Q4, because on Singles' Day, we have promotions and campaigns specifically for mobile users. We really want to use that user campaign to attract more new users onto our mobile the sort of the breakout between our the sort of the breakout between our native app, QQ and WeChat, we don't break out those numbers. But what I can tell you is at this point, apps still accounts for the majority of our orders from mobile applications. And yes, we mentioned a few times that our collaboration with Tencent, Mobile QQ and Weixin is still in its early stage. So one goal for us is to really attract new users to the brand, to JD brand, so that they get used to our brand, get comfortable with our brand and eventually they may use our app. But also we're starting to see a lot of users, they like our entry point, WeChat and QQ. They want to stay there and they make repeated purchases. And we're happy to see that as well. So we're really seeing starting to see the consumers' behavior shaping up. So I think we're keeping open mind on this one. So we've been doing this for a few months now, both WeChat and QQ, we're seeing steady improvement of conversion rates. And we're pretty confident that when we invest more into these two channels next year, we'll see more progress on customer acquisition and also GMV from these 2 channels. Your next question comes from the line of Alicia Yap from Barclays. Your line is open. Please go ahead. Hi. Good evening, Richard, Sydney and Hao Yi. Thanks for taking my questions. So I wanted to also follow-up on the user profile, the customer profile. Is there any difference in terms of the purchasing behavior, the amount of the spending categories of items that the users are buying between the user traffic coming from Tencent's properties versus your own organic traffic? And probably in relation to that is that on your apparel sales, I think management mentioned that it grew a very significant growth rate this quarter. Wonder is that mainly contribute to different type of customer profile from for example Tencent or is it mainly because of the new merchants that we are able to attract? Thank you. So we do see the users from the Tencent, the 2 Tencent properties, they tend to be from lower tier cities. I mean that's in comparison to our PC and our own app maybe because that's how their users, the WeChat and Q2 users are distributed. And also we see the basket side, the order side tend to be smaller on these two properties, which is not surprising, I guess, because these tend to be new users and when it's a more involved purchase or bigger ticket purchase, at this point anyway, people are probably still more comfortable with PC. As far as apparel, we do see apparel account for a pretty big percentage of purchases through the Tencent property. But also we're seeing especially in the past single day campaign, we're seeing tremendous growth of apparel category in our PC and our own app as well. And I think you talked about are we adding more brands? Yes, we are. Part of the growth of our apparel category is driven by us being able to attract more apparel brands be it offline or online to our platform. Your next question comes from the line of Eric Yuan from China Renaissance Securities. Your line is open. Please go ahead. Thank you very much for taking my questions, Sidney, Haoyu and Liu Zhang. I have a question on your GMV. Can you give us an update on the sequential GMV growth of the Paipay 2Q Buy business? And give us some updates on the time line for the completion of the acquisition of 51 Buy from Tencent please? Thanks. Okay. So on Pie Pie, this is just the merchant base. And we are also working innovatively with PayPay and Weixin in close collaboration, especially the Weixin public accounts. So these are some of the new initiatives that for pipel.com, but at this point, the numbers are still fairly small. For Wang Go business, as we mentioned earlier, we are the business is winding down. So we actually see meaningful decline in the Q3. And for 51 Buy, it's still a standalone company under Tencent, but we have opened a JD store on 51 Buy, where we sell our electronics products on that website. Your next question comes from the line of Robert SunTrust. Your line is open. Please go ahead. Yes. Hey, Sydney. Just three quick questions if you don't mind. One, high level, as you have more of the GMV mix shift going towards 3rd party, how should investors look at your top line growth? Is revenues the more appropriate metric or should be more of gross profit? And then as we look past 2015, how should investors think about 2016 net income leverages and margin there? And then lastly, as more and more of your GMV shifts to marketplace, could you just go through some of the competitive advantages and differentiation you have versus Alibaba? Thanks so much. Sure. So first on revenue versus GMV, they are both very important metrics for us. In fact, we have internally made it very clear that we want to take a balanced approach to both businesses, meaning 1P and 3P businesses. So you will continue to see fairly balanced growth, but certainly marketplace because we start from a smaller base will probably continue to grow at a faster pace. But our 1P business should also profitability, as I mentioned, Q3 profitability was higher than expected, but we do not we did not target this kind of profitability. We do not intend to target such profitability next year. For 2016, I think it will be really based on what we have achieved next year and how we look at the competitive environment towards the second half of next year. I think but regardless our ability to generate profit is less a question. The question is really when is optimal for the company and also ultimately for our investors to begin pursue profitability. As far as the marketplace growth versus our competitor, We mentioned before that our core competency and our differentiation is to grow our product selection, but at the same time ensuring product quality and authenticity. So we have put in as Richard mentioned putting several measures including a strategic partnership with the government to really have a very, very tight control over the quality of the products we sell and our 3rd party merchants sell on our marketplace. And secondly is our service level. We are leveraging our logistics network to begin serve our 3rd party merchants on the delivery service and we are targeting to begin our warehousing service to our merchants beginning next year. So when the logistics services has been provided to our merchants, then our customers will ultimately benefit. They will receive the same level of service both on the delivery speed and also on post sales service level. Your next question comes from the line of Thomas Chong from Citigroup. Your line is open. Please go ahead. Hi, good evening. Thanks for taking my questions. I have two questions. The first one is about the number of headcounts. It seems the headcounts has a very slight decrease on a quarter to quarter basis. Can management talk about where the headcount decrease coming from? Because I remember the technology staff should have a Q on Q increase. And how should we think about the headcounts in 20 15 2016? And my second question is about the Lumberhaul Asia Lumber 1 warehouses to be completed in 2015 2016? Thanks. Okay. So I will take the first question. Harry will take the second. For the headcount, actually the last disclosed number was as of July 31. And the number was high because of the June 18th anniversary sale when we hired a lot of staff. And we do not downsize them. So we just let it naturally run down through natural attrition. But the September end number is actually not indicative of our current scale given the November 11 promotional activities we have actually expanded our headcount quite significantly from the September 30 level. So there will be some volatility based on of headcount based on the seasonality of our business. But generally, if you take a longer timeframe, it will it should be growing in line with our overall scale and especially with the number of orders. So in regard to Asia Number 1, we have our first Asia Number 1, which is in Shanghai, is already online, which is part of the Singlese event. And right now, we have 3 more in construction as we speak and all of these 3 will be in production Your next question comes from the line of Jiang Xiao from Macquarie Securities. Your line is open. Please go ahead. Good evening, rather. Thank you for taking my questions. I have two follow ups, if I may. Firstly, I think, Cindy, you just highlighted beginning of next year, you're going to target your 3P merchants through with your logistic offerings. I was wondering how much of your 3P sales today or orders today are currently carried out by your own logistics? And the second follow-up is on your apparel and shoes business, which you also highlighted is a very promising area for you. Could you remind us what's the percentage of GMV for this category, the apparel and shoes? And what's the split between 1P and the 3P today? And what do you think is going to go in the next couple of years? Thank you. Okay. So on the question is so long, I forgot the first question. The first question is that I'll answer that question. Is what percentage is we are doing logistics for the 3rd party sellers. I think Cindy mentioned this in the earlier that we deliver about 30% of the parcels for third party sellers and that ratio has been stable for a while now. And as we are adding more capacity to our fulfillment centers, I. E. Our warehouses, we expect that ratio to go up next year. And on the apparel question, right now, it's substantially substantial portion of that is through our marketplace business. And but we are actually looking at 1P business mainly through the flash sales model for the apparel business. GMV wise, the contribution will be smaller than the number of orders because the ticket size for apparel is generally smaller. Your next question comes from the line of Cynthia Meng from Jefferies. Your line is open. Please go ahead. Thank you, management and congratulations for good results. I have two questions regarding the penetration into lower tier cities. Number 1 is, can you give us some color on the revenue breakdown by tier of cities in China? And number 2, will management share with us your progress in deepening penetration into the lower tier cities? As Alibaba publicly said, they will push into rural e commerce and what will be JD's strategy in that space? Or any update regarding your lower tier city penetration strategy? Thank you. Right. Well, maybe let me first comment on numbers and see if Rich and Holly will add on the strategy. Just on the lower tier city contribution, we realized that there's actually no standard definition of Tier 1, Tier 2 cities. So based on our own internal measure, we actually classified top 52 cities as Tier 1 in the bucket of Tier 1 and Tier 2. So beyond those top 52 cities, we have seen very meaningful improvement in terms of revenue and order contribution. We roughly look at the in terms of orders on a year over year basis, we saw 145% increase, year over year increase in terms of number of orders from lower tier cities. So it is growing meaningfully higher faster than the Tier 1, Tier 2 cities. But we are still a little reluctant to disclose a percentage breakdown because the definition there's no standard definition. So we will be we'll see if we can have a more industry standard in terms of classification before we release the actual percentage. Penetration into lower tier cities has been a top priority one of the top priorities for us this year and it will be still be the one of the priorities next year as well. And if you noticed that in Q2 this year, that's the quarter that where when we added the most new counties and districts that we get that we got into ever. And actually in Q3, we added close to 100 new counties and districts to our last mile coverage. And we are exploring in Q4, we are going to do some pilot in terms of getting into villages around bigger cities. And we're thinking at this point, this is the early stage, we're thinking about some sort of a franchise model that might work in these even lower tier cities. And we're still very optimistic and about the strategy and going forward, going to next year, we think this is still a priority. Your next question comes from the line of Robert So, 3 questions from me. One is in terms of traffic for Q4, we obviously know about 11 very strong. We also think that iPhone 6 launch in October could be quite strong. So can you guys give us some more color on terms of GMV expectation as well as gross margin and margin expectations since GMV looks to be quite looks to be very strong. Gross margin, either direct sales or marketplace could be the offset, perhaps more on the margin side. The second question is the finance business. Sydney, you mentioned a RMB1.4 billion last quarter in terms of supplier finance balance. What would that be for, I guess, this quarter Q3? I guess, the third question is more broadly for Liuzhou. We think the consumers in China are aging. They're not getting younger. So a lot of the Internet companies talking about younger post-ninety five consumers are the core. We actually think the opposite. How do you guys think about the older consumer positioning going forward? Okay. So let me get the first two questions. First, on the Q4 GMV, with the current momentum, GMV should continue to grow significantly faster than the revenue growth. We cannot promise you if it could be an acceleration given that we are beginning to take a more balanced approach to 1P and 3P business. But I can assure you that GMV will continue to grow much faster than our 1P business. And margin wise, as I mentioned earlier, it will probably have a little more similarity compared to our Q2 given the heavy promotional activities and also heavy marketing spending to go with that. So you will probably see our product sale gross margin coming down from the Q3 level, but we could see higher advertising dollars in the Q4. So I can't really give you a direction, but that's some sort of the general lines that you can think about it. On the second question, supplier financing, right now we have reached a decent penetration of our suppliers. So if you look at the supplier financing balance in at the end of Q2 and versus Q3, they are actually fairly consistent. That's because these 2, the Q3 was a seasonally slow quarter. So in terms of their inventory level, they are actually fairly close. As a result, the supplier finance balance would also be fairly close. So Q3, if we see meaningful pickup at our volume, both volume and also inventory level towards the end of the year, then the supplier finance balance will also increase accordingly. So Richard just said that a few years ago when we did customer research, what we found was 80% of our customers are between the age of 25 35. And right now, that number probably have changed to 80% of rollers come from people between 20 45. So we're seeing a much wider range of our customers, both on the lower end and on the higher end. So I think younger and older people are both very important for us as well as our target consumers and we don't we want to serve both of them. The other thing that Richard just shared was young people tend to be very sensitive to delivery the speed of delivery. When a young person buys a consumer electronics products, he is probably very expectant of getting that parcel delivered quickly. And if I may add 2 more points to this question. One is, historically, we tend to compare with some other platforms, we tend to serve people with higher income, more mature, sort of higher spending power. So I think that is in our favor. And also on our platform, we're seeing a lot of younger people are buying from us for their parents. And this is actually a great way for young people to because everybody is busy these days to buy products for their parents and they can be assured that buying someone from Jingdong for their parents for older customers, they can have peace of mind. Your next question comes from the line of John Blaglitsch from Cowen. Your line is open. Please go ahead. Great. Thanks. Just two quick questions. What was the 3Q revenue mix for electronics versus general merchandise? And then the second question would be the 3rd quarter orders per active customer was slightly lower than the Q2. Is that just seasonality? Is there any other driver of the slightly lower order per active customer on a Q over Q basis? Thank you. Sure. So on the electronics and general merchandise breakdown, I mentioned earlier that general merchandise did grow faster within our 1P business. So we do not break out those 2 categories on a quality basis, but general merchandise is growing at a faster pace. And the second question on orders per customer, this is has a lot to do with the Q2 having our anniversary sales event. So during which customers tend to place more orders and also Q3 is a seasonally slower quarter. So even though we attracted a lot more customers, but because of this seasonal pattern that the average orders per customer reduced. Yes. We expect the non GMV from non electronic merchandise will exceed that of electronics next year. Your next question comes from the line of Xiao Wang from Nomura. Your line is open. Please go ahead. Hi. Thank you for taking my question. I'm just wondering why sales and marketing expenses on a non GAAP basis declined dramatically in the quarter, while active customer actually grew nicely, how should we think about the trend going forward? Does that mean user acquisition cost declined significantly? Thank you. Right. So this is really our strategy of focusing the marketing dollars during the best time period, which would generate higher ROI. So what we believe is Q3 is a season that does not have a lot of activities. So we decided to reduce the spending and shift it to more productive quarters. But this is actually also a very good indication that the customer acquisition or transaction does not necessarily have a direct impact from the marketing dollars, especially the marketing dollars for branding purposes, right. So normally when you have large promotional activities in second quarter and Q4, a meaningful amount of advertising dollars will be spent on branding activities. And so they will have a fairly meaningful impact, but not necessarily something that will impact your current quarter immediate customer acquisition. Your next question comes from the line of Ida Yu from CICC. Your line is open. Please go ahead. Hi. Thank you for taking my questions. Actually, I have two questions here. The first one is in regard of the gross margin. And based on my estimation, I noticed that actually the gross margin of direct sales reached seasonal high in Q3 this year and the same thing happened last year Q3. I was wondering what's the reason behind it? And my second question is, can you give us more color or more data on your November 11 sales? And what is the revenue or GMV contributions to your Q4 number? Thanks. Right. So on the gross margin for direct sales business, I actually mentioned during my prepared remarks that because Q3 has less promotional activities, so our product sales gross margin will be higher. And actually both 3rd quarters are fairly consistent in that regard because for example when you participate in our anniversary sales we will normally have deeper discounts on the products we sell. So that's really the main reason. And then on the November 11 sales event, we actually run a 12 day promotional activities during which we have each day or 2 we will have a different category. So it's very different from our competitors. Some of them I understand it will actually pre sell long in advance and have customers put down payments and then only to transact on the November 11 on that one single day. And for us we spread out that promotional activities in 12 days. So that's why we I think it's actually not meaningful to compare our single day volume whether it's GMV or orders versus some of our competitors. But what I can say is we do see very meaningful growth year over year growth during those promotional periods. And at this point, we're very optimistic of having a very good quarter, which has been also partially indicated in our 4th quarter guidance. So during Double 11 sales, we saw great growth of our GMV. But more importantly, our advantage in logistics again contributed to great customer experience. So we are able to fulfill all the orders according to our promise to our customers and it was very little customer complaints about the speed of delivery. Your next question comes from the line of Sean Wang from 86 Research. Your line is open. Please go ahead. Hello, management. Congratulations on a strong quarter. I have a follow-up question on the marketplace business. And I noticed that if you look at the rough take rate, 3rd quarter take rate actually went down from 6.7% to 6.1% on the marketplace. Could you tell us what's the driver behind that? On the mobile, I have a follow-up as well. And mobile already accounted for 30% of your GMV. Can you give us some color on your mobile monetization? Thank you. Okay. So I'll try to answer the first one and see how you can address the second one. I think you are looking at the service revenue over GMV, is that how you calculate the effective take rate? Yes. I know that's not exact calculation. But give us a picture of the take rate. Right. So, yes, that's probably not because there are several components in it. One reason Q2 because of our anniversary sales activities, marketing dollars in marketing revenue was actually higher than the Q3. So that would be one reason, but it certainly would not contribute the difference you mentioned. So I guess there are a number of other revenue components in the service revenue also including logistics. So that's why I think that it's just not you cannot calculate the take rate just from these numbers. Yes. As far as mobile contribution, we mentioned is around 30% of the orders fulfilled are from mobile. This includes both our app and from Tencent properties. So it's not GMV, it's number of orders. And if you look at GMV, it's lower because the order size tend to be smaller for mobile channels. And I'm not sure what do you mean by mobile monetization? Your next question comes from the line of Tian Hou from TH Capital. Your line is open. Please go ahead. Hi, Richard, Cindy and Hao Yu. I have a couple of quick questions. One is related to your gross margin for your online direct sales. So certainly, I'd say 6.9% in Q3 this year and last year. So given that your DXL online DXL GMV grew 67% And also on your cost line, you also have some the interest income from your financing. So putting the scale of the economy as well as additional credit from financing and don't we supposed to see a upside in your gross margin? That's number 1. I wonder why we didn't see that. The number 2 is how much the credits come from your financing activities? 3rd one, quick one. In terms of a GMV from electronic and home appliances, would you please give a breakdown in terms of how much from your DXLs? How much from marketplace? That's all my favorite question. Thank you. Okay. Now those are very good questions. I think you the general merchandise did grow faster, but actually the pace was actually fairly close to the average. So there is some higher growth, but we also look at the other categories for electronics are also growing very fast. So we do have the potential to expand that gross margin as we continue to grow scale. But at this time, we do not believe, as we mentioned that we will continue to put our priority on expanding our market share. So even in the Q3, since you look at this closely, what we can say is, we are not in the mode of monetizing always pursued growth over higher gross margin. Basically we are giving this benefit to the consumers. And your question on how much the supplier financing is contributing the gross margin, the number is still fairly small because it's we calculate it, it's actually less than 0.1%, but it's getting close to 0.1% impact. Your next question comes from the line of Alan Hellwell from Deutsche Bank. Your line is open. Please go ahead. Great. Thank you very Now that we're into the peak e commerce season, seemingly all third party courier firms have raised pricing by 25% to 30% and we assume that goes through Chinese New Year's. How does this impact translate for a leading P1 model like yourselves? And then secondly, there just seems to be particularly high profile discounting drives introduced this season. I noticed that Guomei is claiming that its discounting has resulted in 72% of products compared being cheapest on its platform. Are you willing to get more aggressive on pricing? And what might that imply to the P and L? Thank you. Yes. It Yes. It seems as though all of the courier firms we've surveyed have increased their delivery pricing by 25% to 30% and we expect that to continue through February. I'm not sure if you would make the same observation, but in any event, it wouldn't be surprising. And given this inflation in delivery rates, how should we think about it given that you're significantly a Q1 player? Well, yes, how would you want to take that? Yes. I mean, I'm not sure what the question is about. We do have pressure on our labor costs. That's for sure. Everybody has that. But we manage by streamlining our processes both in our warehouses and in our elastomer delivery. And the key is when the order density goes up, we can benefit from that. And we do deliver on the other hand, we do deliver for our 3rd party sellers and we want to have every intention to stay competitive on pricing at this point. So we don't have any sort of plans as of yet right now to increase our price going into the New Year. Right. But I guess given the 3rd party is raising price, at least part of that, if not all of them will be absorbed by consumers on other platforms. So I think this price increase will actually benefit JD as we have a very low threshold for free delivery. And so that should be if anything, should be a positive. And on the price competition question, you mentioned about some of our competitors claim that they are being more aggressive. For any of those players who have online and offline presence, they are discounting when they announce these kind of discounts, normally it applies to only a very small selection of the online products. And you can simply look at their gross margin at a quarter end, you would know that any discount they claim to have will certainly be applicable to a very small selection. Yes. And just one point to add on major appliances, we've been investing in this category for a few years now that we've become a very, very meaningful player in this category and actually in the Singles Day event, we're very happy about what we're seeing in that category. So I think we are against any competitor, we have every intention to stay competitive. And we are at that size. We are now approaching the end of the conference call. I will now turn the call over to JDs.com's Will Yi for closing remarks. Once again, thank you for joining us today. Please feel free to contact us if you have any further questions. Thanks for your continued support, and we're looking forward to talking with you in the future. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.