Earnings Call: Q2 2014

Aug 15, 2014

Earnings release

Hello, and thank you for standing by for jd.com's 2nd Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms. Ruiyu Li. Please go ahead, ma'am. Thank you, operator, and welcome to our Q2 2014 earnings conference call. Joining today on the call are Richard Liu, Chairman and CEO and Sidney Huang, Chief Financial Officer. For today's agenda, management will discuss highlights for the Q2 2014. Following the prepared remarks, Paul Yuxian, CEO of JD Mall will join Mr. Liu and Mr. Huang for the Q and A section of the call. Before we continue, I refer you to our Safe Harbor statement in the earnings press release, which applies to this call as we will make forward looking statements. Also, this call includes discussions of certain non GAAP measures. Please refer to our earnings release, which contains our reconciliation of non GAAP measures to most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. Now, I would like to turn the call over to our Chairman and CEO, Richard Liu. Good day, everyone. Welcome to our 2nd quarter 2014 earnings conference call. Let me begin with a brief factor overview. The e commerce market in China saw strong growth during the Q2. The long term shift in China towards B2C continued, feeding into Jindong's giant skills. Within this context, Jingdong outperformed the industry further gaining market share. Jinlng's model of providing authentic goods, leading customer service and convenient one day and the next day deliver helped us gain traction. But we remain focused on further strengthening our advantage in these areas. I believe that Chinese consumers deserve to know that everything they buy is authentic. This creates a better customer experience and we continue to devote resources to ensure that products on our site are always real. Let me update you on our logistics. While the foundation of Genu's success is our self operated nationwide fulfillment import structure, which is the largest among e commerce companies in China. Our rugged last mile delivery network creates a great experience that our customers know they can rely on. It also helps our 3rd party merchants simplify their businesses, enhance customer experience and build loyalty. Expanding this network to high growth market is a top strategic priority And at the end of the Q2, our self operated delivery network covered 1780 counties and districts, up from 1404 counties and districts at the end of the Q1. Going forward, we will continue to strengthen our network in fast growing lower tier cities. This will enable Jingdong to reach a much wider range of key consumer demographics. Turning to mobile. Creating the best mobile shopping expense is also core to our growth strategy. Our mobile app is gaining strong traction, while smart devices are becoming central to China's Internet users. Meanwhile, our close partnership with Peasant is vital to our mobile strategy. We recently introduced Level 1 Access to Weixin and Mobile QQ, which have more than 400,000,000 active users. Respectively, this game changing initiatives bring to China's 2 leading social communications platforms. Overall, we are seeing strong positive trends with over 24% of our orders placed on mobile during the 2nd quarter. Looking beyond Jingdong Mall, in addition to our leadership in B2C e commerce, Jingdong also aims to provide a trusted C2C platform for buying authentic products online in China. We recently relaunched PayPay with the goal of bringing the Jingdong experience to a Chinese C2C e commerce market with lower marketing costs, better search and access Juno's delivery network. We believe that the buyers and sellers will understand the clear advantages our platform offers. Turning to the future. We see many opportunities for Jidong to expand our sector leadership. We will expand our range of products and services, build our fulfillment import structure, optimize our mobile offerings, and use technology like leveraging big data to continuously enhance customer experience. We are excited about our future potential and committed to our vision of bringing world class online shopping to customers. Now, I will turn the call over to Sidney Fang, Juno's CFO. Sanjay? Thank you, Richard, and hello, everyone. I would like to spend the next few minutes to go through our Q2 financial results and our Q3 outlook. We are quite pleased with our 2nd quarter top line and bottom line results. Our GMV more than doubled from the same period last year, benefiting from our continuously improving customer experience, enhanced brand recognition, lower tier city penetration initiatives and our strategic collaboration with Tencent. Even excluding the GMV contribution from PIPAI and 1 Go, which are the 2 marketplace platforms acquired from Tencent. Our jd.com percent year over year and 31% sequentially, a very strong showing given our large size. The GMV composition also showed an encouraging trend towards further category diversification. GMV contribution from electronics and home appliances decreased from 61% in Q1 2014 to 55% in Q2. GMV from general merchandise categories grew 1 167% and accounted for 45% of total GMV. If you look at the number of orders, well over 2 thirds of all orders are now for non electronic products. Of the general merchandise categories, apparel and shoes, sporting goods, packaged food, jewelry and handbags are the fastest growing subcategories. GMV from our marketplace business grew 2 46% in Q2 and accounted for 38% of our GMV during the period. This has clearly accelerated our original timetable of reaching 40% of GMV from marketplace by 2016, thanks to the incremental GMV from the acquired Tencent e commerce platforms. But even excluding Taipei and WangGo contribution, our POP Marketplace GMV grew nearly 150% from a year ago as the number of third party merchants grew 130% during the same period. The strong growth in our marketplace demonstrated our commitment and progress in bringing more long tail products to our customers. Our net revenues grew 64% year over year and 26% sequentially. The revenue growth reflects largely our 1P business momentum with home appliances and general merchandise leading the growth. Services and other revenues began with a lower base and grew 186% year over year and 82% sequentially, driven by the higher marketplace GMV, increased advertising income and Before I continue, I would like to note that gross margin in our case is not a GAAP measure, partly due to the difficulty in separating fulfillment costs for 3rd party logistics services from our own fulfillment expenses. Therefore, we do not show gross profit on our income statements and this analysis is for your information only. So if you take our total net revenues minus the cost of revenues, you will get a gross margin of 11% for the Q2 2014 compared to 8.9% in the same period last year. The improvement is mainly a result of the higher service revenues discussed earlier. However, this is not to say that higher gross margin was all contributed by our 3P business. In particular, a substantial amount of advertising income came from the suppliers of our 1P business as jt.com increasingly becomes a powerful distribution channel for brand owners. Now let's discuss the operating expenses. For ease of comparison, I will focus on the non GAAP expense ratios of these expense lines. First, the non GAAP fulfillment expense ratio rose 96 basis points to 6.86% compared to 5.9% in Q1 2014. After 96 basis point difference, an estimated 30 basis points can be attributable to the expanded logistics services to our 3rd party merchants, if we assume the incremental fulfillment cost is the same as the incremental logistics revenues booked under services and others. This estimate is a decent proxy because we our current strategy is to price these services at breakeven to a slight loss in order to attract the merchants to try our service offerings. Nearly 30% of our POP Marketplace orders were delivered by our delivery staff in Q3. The remaining 66 percent no, the remaining 66 basis point increase in fulfillment expense ratio is mainly due to 2 short term reasons. 1 is the seasonal increase in the number of fulfillment employees hired in anticipation of our anniversary sales event to ensure a smooth customer experience during the mid year peak shopping season. The other is the short term overcapacity resulting from the integration of Tencent logistics employees in certain overlapping regions. The non GAAP marketing expense ratio remained at 2.6%, the same as the previous quarter, but higher than 2.4% in the same quarter last year, as we continue to invest in brand advertising and the lower tier city marketing activities. The non GAAP R and D expense ratio increased to 0.4% compared to 1.2% in the prior quarter and the same quarter last year. The increase reflects the additional R and D and the mobile technology talent from the Tencent transaction and our commitment to hire more experienced R and D staff. Lastly, the non GAAP G and A expense ratio remains stable at approximately 0.9%. As a result, non GAAP operating margin was negative 0.8% compared to a negative 1% in the Q2 last year. Our non GAAP bottom line roughly at breakeven in the Q2, which is better than expected. However, I would like to reiterate that our strategic focus is to grow our scale and enhance our customer experience. Our better than expected Q2 bottom line does not in any way reflect a change in our strategy, and our non GAAP net margin outlook remains at breakeven to negative 1% for the remainder of this year as well as for the year 2015. Now let's turn to our cash flow and working capital. We are pleased to see a positive free cash flow in the 2nd quarter despite the increase of CapEx spending. Our inventory turnover and accounts payable turnover days are generally in line with previous quarters. I just want to explain one technical detail here. As disclosed in our earnings release, our supplier financing business has grown significantly over the past 6 months with a RMB1.4 billion balance as of June 30. This amount offsets the accounts payable on the balance sheet. But in calculating accounts payable turnover days, we added FACT to reflect the underlying payment terms to our suppliers. Similarly, for free cash flow calculation, even though the market practice is to classify our Internet finance activities in operating cash flow, as they are deemed to be related to our e commerce business, we added back the changes in supplier and consumer financing balances to the free cash flow analysis to reflect the underlying core business cash flow. Here, I would like to give you a quick update on CapEx. Based on our first half actual spending and the second half forecast, we now expect our CapEx in 2014 to be between RMB3.5 billion and RMB4.5 billion, with part of the difference pushed into next year due to the lengthy land acquisition process typical in China. Lastly, let's discuss our Q3 outlook. We expect our Q3 net revenue to be between RMB280,000,000 and RMB290 1000000000 representing year over year growth between 55% 61%. We do not provide GMV guidance, but its growth rate is expected to be significantly higher than the revenue growth rate fueled by our marketplace expansion. Sequentially, however, there will be little increase for both GMV and net revenue due to the seasonal high of the second quarter and the lack of holidays or shopping events in the Q3. In the meantime, we will remain focused on improving our customer experience, while executing our growth strategies. With that, I will turn the call back to the operator for 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 question, we will take one question at a time from each caller. Your first question comes from Eddie Leung from Merrill Lynch. Your line is open. Please go ahead. Good evening. Thank you for taking my question. My question is on your mobile channel. You mentioned that it's about 24% of the orders coming from mobile. Just wondering how can you compare the conversion rates as well as the order size of your mobile users versus your PC users? Any color would be very helpful. Thanks. Hi, Eddie. This is Hao Yu. We do we are in a pretty early stage right now in our mobile strategy, right? When we look at our mobile strategy, it's a few different things. We have our own app and we also have our level 1 entry point on Weixin and recently QQ as well. So those key metrics are very different across different different channels. So typically you see conversion rate is conversion is defined by number of orders divided by unique visitor for example. It's higher on apps and it's typically lower on Weixin and we expect the conversion is very early days for mobile QQ, right, but we think that will also be lower than what we see on our app. And as far as basket size, it's also lower than the app is slightly lower than what you see on PC and on the other two entry points, the basket size is lower. Yes. I think this is because for the communication tools, people tend to shop on impulse versus for our own app and on PC end customers tend to come with a shopping desire to begin with. Right. And we have we're definitely planning to improve the conversion rate on the 2 new channels and mobile QQ and Weixin. Got it. Very clear. Thanks. Your next question comes from Erica Wilkin from UBS Bank. Your line is open. Please go ahead. Hello. Good evening, management. Thank you for the presentation. My question is, if you can just share with us some of your operational updates on some of the key categories such as 3C apparel, cosmetics, packaged food, etcetera, whatever you feel comfortable sharing with us? Thank you. Yes. I mentioned earlier that home appliances and general merchandise led growth from a revenue line perspective. If you look at GMV among the general merchandise categories apparel and shoes, sporting goods, packaged food, jewelry and handbags. Those are some of the categories that we saw with above average growth rate. The next question from Could you share with us some of the revenue breakdown or GMV breakdown from these categories? Yes. Right now, we are not disclosing the exact breakdowns. Understand. Thank you. The next question comes from Alicia Yap from Barclays. Your line is open. Please go ahead. Hi, good evening, Richard, Cindy, Haoyan, Ray Yee. Thanks for taking my questions. I have a question. I think how you just now you mentioned about the house behavior is a little bit more impulse spending and also slightly lower conversion rate on the apps versus for example the other integrations. So would you have a plan to launch different type of interface or maybe the SKU for your own app versus the one that linked to the QQ or the Weixin? For example, would you have any interest or plan to launch like the flash sales for the smaller products on the QQ? Thank you. Right. If you look at our interface, user interface on our app and versus Weixin and Mobile QQ, they are already very different because we do have hypothesis on people's mindset when they come to these applications or entry points, if you will. So, but again, everything mobile is in early stage and we do, for example, when we think about Weixin and Mobile QQ, it's different from app, right, it's in a social network context. How to do e commerce in that context more effectively. It's still something that we are going to experiment with. As far as whether we will launch a separate app for flash sale, not at this point. I think overall for flash sale model, we are still exploring. We're doing a lot of testing and really ramping up that business. So at this point, we don't think we will once we have that business, we will definitely integrate that into our main app and integrate into our entry point. But you never say never. So maybe when the business becomes at certain scale, we may think about launching a separate app at this point now. The next question comes from Robert Peck from SunTrust. Your line is open. Please go ahead. Good morning. If you could maybe talk a little bit more about the advertising business. It seems we may have had an inflection point in that business this quarter. Can you give us any color on the revenues generated by it and the margins on it and maybe the expectations of that going forward given the increased interest from clients? We did launch the I think we probably mentioned in the press release, we did launch our advertising platform officially in Q2. So I think that helps. So it's essentially a platform for our vendors and our suppliers to buy ads on our own website, on JD's website. And also we have a platform for them to bid on other media. It's sort of a DSP kind of arrangement. So we help them to buy traffic from other websites. So the advertising revenue we get from sales of our own traffic and also what they are bidding on other websites both are counted towards advertising revenue. And are you able to break out how much revenue that was during the quarter or just the margin profile on that? Is that a very high margin business? It's definitely a higher margin than our traditional business. But at this point, I don't think we're planning to break down line item. Line item. Yes. Just from an accounting perspective, as I mentioned, the gross margin is not a GAAP measure here. So basically order related cost is booked through our marketing expense line. All right. Thank you very much. No problem. The next question comes from Cynthia Mung from Jefferies Asset Management. Your line is open. Please go ahead. Thank you, management, for giving us the chance. My question is on the push to lower tier cities. Can management give us some color or update on the push to the lower tier markets? And any plan to do it on your own with more promotions or M and A through M and A to go into the lower tier cities. Also if possible, we would appreciate some color on the initial observation that management could share from the launching of mobile through Weixin and also Mobile QQ daily shopping app? Thank you. Okay. So let me translate. So in the second quarter, we accomplished 2 initiatives. 1 is, we significantly expanded our delivery network to cover more cities counties and districts. We opened up delivery stations in more than 300 of them, roughly 20% increase, okay, in the Q2, so that we can cover more of these lower tier cities. And then the second initiative is to have we call it 1 city, 1 billboard. So in 140 cities, we have a very large advertising billboard in the probably the most visible area in the city center to really call attention to the local residents. So the next step, we want to expand our SKUs that are more suitable for lower tier city consumers. So this is another initiative that we are still working on in the Q3. And the launch of Level 1 Entry Point on Mobile QQ will also help us in the penetrating efforts. Now so with these initiatives, we expect to see more results in improving business volume from royalties starting in Q4 of this year. So on the Weixin entry point, since we started in late May, we have seen improving conversion ratio and also improving UV value. However, there are no precedents in this kind of mobile interface historically. So both teams are still working very closely on this new entry point. We have over 1,000 R and D and product development staff in Shenzhen working side by side with the Tencent team, so that we can create more and more user friendly interface. In fact, we have recently started a contest to aim to reward the best design for our Weixin entry point interface. And we gave RMB8 1,000,000 bonus rewards to in total to various winning teams. So both Tencent and jd.com R and D teams can participate. We have seen a lot of very, very positive feedback and the participation. So I believe both Weixin and Mova QQ are 2 gold mines. We have not fully explored the great potential in those two entry points. Just a bit more color to add to what Richard and Cindy said. So, so far we found it to be both ways and I guess in the mobile QQ to be a great channel for us to reach new customers and to reach people in lower tier cities. And also we found it to be a great channel to launch new products to sell hot items if you will. Yes, just to add on that, if you look at our active customers in Q2, we had over 38,000,000 versus about 31,000,000 in Q1. So a net add of 7,000,000 new customers. So that actually is a validation of what attracting new customers. Thank you. Welcome. Your next question comes from Ella Ji from Oppenheimer. Your line is open. Please go ahead. Thank you. Congratulations on a strong quarter. I just wonder if management can share with us in 2Q GMV and revenue, how much of that is your organic versus the one that you acquired from the Tencent partnership? Right. I mentioned earlier, if you look at the total GMV, we if you exclude Taipei and Wangou, our GMV would grow 85% on a year over year basis. And from a revenue perspective, because both Taipan Wango are marketplace businesses, so the revenue could be basically ignored in this case. So essentially all of the 64% revenue growth came from organic sources. Got it. If I can sneak in one more. Relating to your fulfillment expenses, first of all, we are seeing I think you indicated some delays in building other warehouses due to land acquisition process, can you give us an update when do you think additional warehouses can started to construct? And also we have discussed previously that those Asia number 1 are highly automatic and will help with efficiencies. How about the benefits in P and L? How much and when do you think we can start to see the savings in P and L to show up? Right. So for Asia number 1, our first mega warehouse has started in operation in late June as we disclosed. So this one is has been put into operation, but it will take some time to get to full capacity because it's a large warehouse. It probably wouldn't take 6 to 12 months to get to the full capacity level. And before that, you may not see any cost savings, but it does create a great technology know how for our future warehousing buildup. On the other projects, we right now the Shenyang and Guangzhou ones are still in construction and Wuhan, right. So we expect those to be putting operations next year. Yes. So even though a single agent number 1 warehouse is fairly large, but because we already have a very large warehouse capacity nationwide already. So any single Asia number 1 warehouse will not have a huge impact on the overall capacity. Thank you. You're welcome. Your next question comes from Gene Munster from Piper Jaffray. Your line is open. Please go ahead. Good evening and congratulations. And my question is a follow-up from the previous question far as the build out of the fulfillment centers that gets pushed a little bit into 2015. How should we think about that having the impact on revenue growth? I realize you don't give guidance, but as these fulfillment centers start to get opened up, would they have some longer term positive impact on revenue growth that should be that would be helpful to think about when we're modeling 2014 2015? Yes. Well, we have been operating at very fast growth pace over the past 10 years without the big Asia number 1 warehouses. So we can continue to certainly continue to grow. If we need capacity, we can always lease the warehouses in various locations. So I don't see any impact on our GMV or revenue growth. So the strategic significance of opening Asia Number 1 warehouses is really to allow us to provide our 3rd party merchants warehousing services and so that we can provide a more integral logistics services including both warehousing and delivery to our merchants, which in turn will improve our user experience. That makes sense. Thank you. Your next question comes from John Blackledge from Cowen and Company. Your line is open. Please go ahead. Great. Thank you. I have two questions. I know you don't guide to GMV growth, but could you give us a sense of the drivers of GMV growth in the 3rd quarter? And then my second question is drivers of CapEx and how we should think about the CapEx to sales ratio over the long term? So, yes, if you look at the as I mentioned in my prepared remarks, the Q3 GMV growth is actually although it's fairly high, I mean revenue growth, but on a sequential basis, it actually has fairly limited upside given the seasonal changes, right? Our Q3 is a seasonally low quarter. So we will just continue focusing on the current categories that we have been in and grow our business throughout our platform. On the CapEx, we have disclosed in our prospectus that we expect to spend about $1,000,000,000 to $1,200,000,000 over the next 3 years. So currently we do not have any change to that original CapEx plan. So that's $1,000,000,000 to $1,200,000,000 in total for the next 3 years. Your next question comes from Ida Yu from CICC. Your line is open. Please go ahead. Hi. Good morning. Sorry, good evening. Can you just give us more updates about your June 18 on operation side? And can you also share some of your opinion to see the competition between Sunmi and Gourmet as you see the they both announced a price war in August. So how would you see that? Thank you. What's your first question? On the June 18, we had a very short press release. Our order number more than doubled from a year ago. And basically we received very, very good reception from consumers. And because of our well prepared logistics network, so we actually also ensure timely delivery. Right. To add to what Sune said, so overall in Q2, we see very good results in our home appliance sector. So we are really gaining share from So we do we did notice that some of the other players are gearing up on the e commerce business. But what's important for us is to focus on what we do. So to respond to the question on the price war, which is saying that today, it's any simple price war will not be effective or at least not as effective as several years ago because today consumers in China will look for a variety of attributes in their shopping decision, right? So they will look at the quality of products, the variety of products available and the service level and as well as the price, right? So price is only one attribute in this whole shopping decision making process. So a simple price war should not have a very effective consequence. Thank you very much. Your next question comes from Mark Miller from William Blair. Your line is open. Please go ahead. Thank you and good evening. Regarding the 3rd parties using JD's fulfillment capabilities, beyond the AsiaOne fulfillment center, what are the other things you're doing to try to get them to adopt this service? And then once the AsiaOne facility is running and you have broad coverage, how high do you think that penetration can go for 3rd parties? And then from a 3rd party seller standpoint, what kind of savings do they see using JD services compared to shipping on their own? Thank you. So right now, as we mentioned, we handle about 30% of the parcels sold by 3rd party merchants on our site. And as Richard mentioned, but this is only last mile, not many of the merchants are putting their inventory in our warehouse yet because we don't have much extra capacity for them to use. But once we have more warehouses constructed such as Asia Number 1, we will have more capacity for them to put their stock into our warehouses. And only by doing this can we offer them the best service. If you think about if the packages sold by the 3rd party merchants come out of our warehouses and go into our last mile system, It's really controlled, the end to end experience is controlled by us. It will be very similar or the same to what we are offering to our own merchandise. So we're really very much looking forward to providing the combined warehouse and last mile service to our merchants. At this point, we don't know what's the sort of the seat where the seating is, what's the highest percent we can reach as far as parcels we can handle warehouse wise and last mile wise. But the price is not competition on price is not what we are focusing on. I don't think the our merchants are getting much cheaper price from us. I think the key here, the pitch for us to our merchants is once we handle logistics, the entire logistic process for them, they can sell more because customer experience will be much better. Your next question comes from Wendy Huang from Standard Chartered Bank. Your line is open. Please go ahead. Thank you. Can you provide the GMV or orders breakdown by different payment channels? And also do you have any plan to further utilize Tencent's Tenp and Weixin payments? And also one more housekeeping question is about your P and L. I think there is over $300,000,000 adjustment item related to the marketing amortization from the business acquisition. Is that something related to your transaction with Tencent? And also should we expect this item to be recurring for the future quarters? Thank you. So let me answer the last question first. Yes, the amortization is related to the Tencent transaction and it will recur for the next 5 years. The bulk of it will be the same for the next 5 years, but part of that will be amortized in a shorter period. So for the payment question, right now if you look at our principal the overall out of the overall orders, over half of the orders were paid through credit cards and the remaining was through cash on delivery. Right. So if you look at our sort of traditional PC, Right. So if you look at our sort of traditional PC, I would think it's probably similar in our app case. The majority is still COD, but it's not really cash, it's probably credit cards on delivery and the rest would be online payment. And online, the percent of online payment is going up gradually, but not very fast. And as far as payment, weixin entry point, I think the majority we still offer COD of course, but then as far as online payment, I think the majority is Weixin Pay. And we do plan to have both Weixin and our own payment solution available on our PCM. Okay. That's great. Your next question comes from Zheng Zhao from Macquarie. Your line is open. Please go ahead. Hi. Thank you for taking my question. I have a follow-up question on your mobile product. Would you be able to share with us the rough mix in terms of your mobile traffic into your own mobile app, the Weixin level won't access and mobile QQ level won't access, what current mix looks like? And what do you think the mix will look like say, 3 years from now? Thank you. Yes. So as Hao mentioned earlier, I mean, this is really too early at this point. Any breakdown is not going to be very meaningful. I think our focus is to enhance the overall customer adoption on mobile and for JD Shopping. So we still look at it as a whole package instead of looking at different various channels. Long term, we certainly hope most of shopping shopping experience, especially with the user interface. Okay. Thanks, Sidney. No problem. I just want to also quickly make a correction. I thought I think I may have misspoken about the revenue outlook. It should be $28,000,000,000 to $29,000,000,000 consistent with what's in the earnings release. The next question comes from Sean Hsieh from 86 Research. Your line is open. Please go ahead. Hi management. Thank you for taking my question. My first question is the comparison between JD and Tmall. We get this question a lot. The investor asked what's the driver for merchant to come to JD or choosing JD as their number one choice for marketplace? My second question is, I see your gross profit margin increasing quarter on quarter. This is the result that we proactively increased our volume power? Or is this the result of the change of product mix? Now what's the trend going forward in the next 2 years? Thank you. So first, jd.com through our past 10 years have accumulated a very large customer base with a very good consumption ability. So this is actually the best consumer class, middle class consumers who are paying attention to the quality of products and services. And secondly, even for the merchants, we believe merchants will prefer to be selling their products on a platform that's known for authentic products offerings instead of mix with a very large number of merchants selling products from great channels. Yes. So 3rd, JD Marketplace platform provides a fair playing ground for the merchants, which is certainly very, very important for the merchants to conduct the business. So just to share with one data point, through our past 2 years of efforts, we have now attracted most of the name brands in the apparel category onto our JD Pop platform. Your next question comes from Tian Hou from TH Capital. Your line is open. Please go ahead. Good evening. Thanks for the management for taking my question. My question is related to the Internet finance. So there are lots of reports and talking about that you're entering into Internet Finance business. So currently we sell 2 products. One is Jingbao Bei, the other one is Jingdong Beiqiao. So I wonder what's the progress on these two product fronts? And when you get revenue from those two products, how do you recruit them? So that's the number one question. Number 2 is, there are some press report talking about your O2O and such as you want to utilize your logistic infrastructure to serve your clients by cooperating with local convenience stores to deliver general merchandise products. Can you elaborate on that? And what's your strategy on that front? And also you guys also develop to online travel channel. So what's the progress and strategy on that front? That's all my question. Thank you. Okay. So let me take the first question and Richard Hao will take the next 2. Just for the Internet Finance, we mentioned earlier the supplier financing business has seen tremendous growth over the past 6 months. The ending balance at June 30 was roughly RMB1.4 billion. The revenue from that accounting wise is actually quite interesting. Based on the accounting rule, the revenue is actually counted as a reduction to cost of revenues. So that is in the cost. And then for consumer financing, Jindong, Baital, right now, we're also seeing fairly meaningful growth, but the balance is actually very, very insignificant at this point. This is still in an experimental phase. Yes. So for the auto yes, we are in the second quarter, basically, we have connected an increasing number of offline convenience stores. Right now it's just doing the process of integrating the inventory systems. And we expect to have a more meaningful impact really to fully go out to the consumers in the Q4. So is that going to be a revenue going forward? Or it's going to revenue deduction on the fulfillment side? What's that impact going to be? Yes. So the revenue model will be actually similar to our POP marketplace. Basically we'll take we have a take rate from those transactions. I see. So it will be in other service revenues. Okay. That's good. What about the travel channel? So we've had our travel channel channel for a while now. We do sell airline tickets and hotel room nights and we do that really to complement our selection really to make sure that our customers if you do want to buy our products, we offer them on our site. Okay. Very, very helpful. Thank you. That's all my questions. Your next question comes from Eric Yuan from China Renaissance Securities. Your line is open. Please go ahead. Hello. Can everyone hear me? Hello? Yes. Yes. Yes. Hi. Sorry, I have a bad line. Tandemobile has really a very cranky line, maybe speak to your MVNO business. If everyone can hear me, yes, good night. I have two questions. The first question is regarding Sidney, if you can share some color on your food beverage and alcohol category of business? And second is your home electronics business. What's the change in the growth? And is the company trying to spend any additional effort Sorry, we are losing you. So let me first answer your first question on the I believe you were asking about food and beverage growth. I mentioned earlier, it was like growing above average during the Q2. So it's a very strong performing category. For home appliance, it's also a very strong growing category, growing above average from a revenue perspective. But we lost you on the remainder of the question. Yes. So, Richard just added some points on our wine and liquor category. In Q2, we JD became the only online platform that is authorized by the top 8 liquor brands in China including Mauthai, Uyongye, all 8 of them. So we are the only one that are that is authorized by all of them. And then we also formed a professional team to work on imported wine from all over the world. So we actually we believe this is a very promising category going forward. Okay. Thanks very much. I can hear very clearly. My second part of question is your home electronics business. And if I may, if you can you are still hearing me. Can you give us some indication of your profitability of your supply chain finance? I heard you mentioned your loan is about RMB1.4 billion. Can you comment on what is interest rate you are generating and that's all my questions. Thanks. Okay. So yes, for the electronics category, if you exclude home appliances, the mobile devices category was also growing very nicely. But IT digital products category growing slower than the company average, which has been the trend. And the gross margin for Q2 in particular because it's our anniversary sales season, normally the gross margin will not be the highest during the year among the different quarters. But we are working to improve profitability for our home electronics category because we are the market leader in those categories. For the supplier financing, the effective interest rate, I believe, is roughly 9% in the neighborhood of 9%. So it is not really a pure financing business. This is also to provide a service to our suppliers. Thank you very much. Congratulations on the strong growth. Thank you. We are now approaching the end of the conference call. I will now turn the call over to jd.com's Ruiyu Li for closing remarks. Thank you, operator. Thank you all for joining us today. Please feel free to contact us if you have any further questions. We're looking forward to talking with you in the future. Thank you for your participation in today's conference call. This does conclude today's presentation. You may disconnect.