Baozun Inc (BZUN) 2017 Q4 法說會逐字稿

Hello, ladies and gentlemen, and thank you for standing by for Baozun's Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the meeting over to your host for today's call to Ms. Caroline Dong, Investor Relations Officer. Please proceed, Caroline.

Thank you, operator. Hello everyone and thank you for joining us today. Baozun's earnings release was distributed earlier today and is available on our IR website at ir.baozun.com as well as on Global Newswire (sic) [GlobeNewswire] services.

On the call today from Baozun are Mr. Vincent Qiu, Chairman and Chief Executive Officer and Mr. Beck Chen, Chief Financial Officer. Mr. Qiu will review business operations and company highlights, followed by Mr. Chen, who will discuss financials and guidance. They will be available to answer your questions during the Q&A session that follows.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, beliefs, estimates, targets, going forward, outlook and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

It's now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Mr. Qiu, please go ahead.

Thank you, Caroline and thanks everyone for joining our earnings call today. We delivered another outstanding quarter of financial and operational results, as we are increasingly benefiting from our long-term competitive advantage.

Total GMV increased by 75%, making the 8th consecutive quarter that our GMV has grown by more than 50%. Non-GAAP operating net margin was 12.1%, more than double from a year ago. I believe this solid growth momentum is a direct result of our long-term strategy to develop new and innovative technologies, optimize existing online store operating efficiency, and improve customer and the brand satisfaction.

We closed out the year with a number of brand partners, increasing to 152 from 133 as of the end of 2016. The newly-added brands are mainly in apparel, cosmetics and the home and furnishing categories, and we are predominantly under our non-distribution business model. Our business pipeline for 2018 remains strong and includes apparel, cosmetics, luxury products and FMCG brands, as well as leading global sportswear brands and a leading global home furniture brand. To maintain healthy growth, we are consistently developing new relationships with high-quality brand partners.

Technologies continues to play a central role in our strategy and it further solidifies our competitive advantage, improves brand satisfaction, and operational efficiency, and it creates a significant barrier to entry for other players.

The Innovation Center, we established during the second quarter of 2017 continues to make solid progress. We completed the development of several standardized models focused on analyzing big data, improving operational efficiency and further integrating all of our solutions.

Trial operations will begin shortly where we will further optimize these models as they progress through the various rounds of testing. We will continue to invest in technology, not only to grow our existing business, but also to nurture new and innovative businesses and to solidify our long-term competitive advantages. We've also further strengthened and expanded our portfolio of omni-channel e-commerce solutions by further integrating all those solutions, building social commerce tools and developing products for emerging marketplaces.

We are committed to anticipating and satisfying the needs of our brand partners and their rapid growth of new marketplaces that's created new opportunities, which we are taking full advantages of. We continue to build upon the progress of our digital marketing services made throughout the quarter by continuing to develop highly relevant personalized content and the community-driven experiences. In recognition of our big data analysis capabilities and in-depth understanding of consumer behavior, we won 3 awards during the first Alibaba Databank competition and several more at the Golden Wheat Award and the 5th Mawards -- M Awards. I believe these results demonstrate the enormous progress we have made in building out our high-quality digital media business, which is on par with our global peers.

We will continue to strengthen our competitive advantages in digital marketing services, which I am confident, will help us develop new relationships with brand partners and deepen existing ones.

We are in the final stages of trial operations before launch of our warehouse in Chengdu, which we will further expand our logistics network in Western China. This new warehouse will focus on efficiently distributing to 10 provinces in Western China. In addition to our warehouses in Suzhou, Hong Kong, [Guangzhou] and Beijing, the Chengdu warehouse will seamlessly fit into our overall e-commerce logistics network in China. The geographic expansion of our warehouses will provide our brand partners import resources to reduce transportation costs and lead time to core Western cities.

Overall, I'm very pleased with our outstanding performance during the quarter. Our long-term strategy is yielding solid results, and I look forward to further expanding our portfolio of services and the development (technical difficulty).

(technical difficulty) a few housekeeping items in advance. We believe year-over-year comparisons are one of the most useful ways to judge our performance. All percentage changes I'm going to give will be on that basis.

Now let's start to review the financials. Total GMV during the quarter increased by about 76% to RMB 8.4 billion. Our focus remains on growing our non-distribution business, which saw GMV increase by 93% this quarter. We will continue to optimize our business model mix towards the non-distribution model going forward. The increase of distribution GMV was primarily due to the strong same-store sales growth and the increase in effective marketing and the promotional campaigns, which were partially offset by the transitioning of the leading electronics brand business to the non-distribution model.

Total net revenues increased by 23% to RMB 1.6 billion. Breaking down further, product sales revenue increased slightly by 1.5% to RMB 783 million, in line with distribution GMV growth. Services revenue rose by 56% to RMB 783 million during the quarter. The increase was primarily attributable to the rapid growth of our consignment and service fee business model, and in particular, growth in sales of existing brand partners and the addition of new brand partners in the apparel categories.

On an apple-to-apple basis, excluding the cost of media procurement from services revenue in both Q4 2017 and Q4 2016, services revenue during the fourth quarter of 2017 grew by 59% (sic) [55.8%] on a year-over-year basis. Total operating expenses were RMB 1.4 billion. Cost of products decreased to RMB 630 million, primarily due to the transitioning of leading electronics brand partners from a distribution model to the consignment model and the improvement in margin of product sales, which were partially offset by increased product sales revenue in the home appliance category.

Product sales gross margin significantly increased from 11.9% to 19.5% during the quarter. Fulfillment expenses rose to RMB 340 million, mainly due to the increase in GMV contribution from our consignment model and the warehouse rental expenses.

Sales and marketing expenses rose to RMB 343 million, primarily due to the recruitment of online store operational staff and the promotional and marketing expenses associated with company-operated online stores. Technology and content expenses rose to RMB 45 million. The increase was primarily due to the increased investments in our technology team and newly-established Innovation Center and the development of innovative technologies, including recruitment of additional technology focused staff and the product manager.

G&A expenses rose to RMB 33 million. The increase was primarily due to an increase in administrative staff, corporate strategy experts and business planning experts. Income from operations increased to RMB 176 million while operating margin improved significantly to 11.2%, compared with 4.9% in the same quarter of last year.

Non-GAAP income from operations was RMB 190 million, an increase when compared to RMB 72 million in the same quarter of last year while non-GAAP operating margin improved significantly to 12.1%, compared with 5.7% in the same quarter of last year.

In Q4 net income attributable to Baozun ordinary shareholders rose to RMB 147 million, an increase of 139% from the same quarter of last year. Basic and diluted net income attributable to ordinary shareholders per ADS was RMB 2.67 and RMB 2.48 respectively, compared to RMB 1.20 and RMB 1.11 respectively during the same quarter of last year.

Non-GAAP net income attributable to Baozun ordinary shareholders rose to RMB 161 million, an increase of 128% compared with the same quarter last year. And basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS were RMB 2.93 and RMB 2.72, respectively, compared with basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS of RMB 1.38 and RMB 1.26, respectively, for the same period of 2016. That completes the profit and loss statement for the quarter.

As of December 31, 2017, the company had RMB 557 million in cash, cash equivalents and short-term investments, a decrease from RMB 957 million as of December 31, 2016, due to investment in our logistics space, technology and higher accounts receivables.

Looking forward for the full year 2018, we expect GMV to grow to over RMB 30 billion and total revenues to increase to over RMB 5.1 billion on a year-over-year basis. Turning to a specific revenue guidance for the first quarter of 2018, we expect total net revenue to be between RMB 860 million and RMB 890 million. We started to provide growth guidance for services revenue last year as in September 2017, we begun transitioning a leading global electronics brand partner's business around the distribution model to the consignment model. The impact from this transition will stretch another 9 months into the third quarter of 2018. And just as a reminder, under the distribution model, we recognize revenue on gross basis as product sales revenue, because we take ownership of the inventory. Under the non-distribution model, we only recognize revenue on a net basis as services revenues. So for the first quarter of 2018, we expect services revenue to increase by over 50% on a year-over-year basis. This concludes our prepared remarks.

Operator, we are now ready to begin the Q&A session. Thank you.

(Operator Instructions) The first question is from Eileen Deng at Deutsche Bank.

My question is mainly regarding the guidance. Wondering whether first quarter revenue can imply the -- overall GMV growth rates? And my second question is on the progress of getting adidas, Tmall and the JD storefront on board? I want to check when is the possible timeline and whether your 2018 full year GMV guidance has already included any expectation of adidas GMV later this year?

Eileen, so for the first question, we -- naturally we don't -- we don't guide the Q1 GMV, we only guide the full year GMV as in the past. So generally, I think you can refer to the GMV growth rate for the full year as your reference for Q1, I think. And in terms of the leading sportswear brands we are in talks with, yes, right now we are still in talks with them and for our GMV guidance, we have given for the full year, which is over RMB 30 billion, we did not count a single dollar into the guidance. So if, hopefully, we can get the deals done as soon as possible the overall GMV contribution will be additional to the total GMV amount.

The next question is from Monica Chen at Credit Suisse.

I have a follow-up question on the 1Q guidance. So can management provide more breakdown on the 1Q GMV guidance, like how much is contributed by our co-existing brands versus like the newly-acquired brands? That's my first question. My second question is regarding, I want to know like what is our top priority in our business for 2018 because we see in 2017 we launched a range of omni-channel marketing initiatives and we set up the Innovation Center for IT investments. Just wondering what is our priority strategy for this year?

Okay. So, Monica, let me take the first question first and Vincent should be able to answer your second question later on. So for the first question, we believe that as in the past, our current quarter's contribution were still mainly coming from the existing brand same-store sales growth, which we are very, very confident in at least from the -- first from the -- the first -- from the first 2 quarters, we have closed -- from the first 2 months we have closed this year and also from the estimation of the -- of March in Q1. So basically, new brands usually when we take -- when we take new brands on board usually it takes time for them to be contributing meaningful revenues or GMVs.

Okay, Monica. This is Vincent. I will take your second question. As you may know actually -- our business, there are 2 very important parts of business. Firstly it's about this business, which is -- we have the existing brands working with us and we have continued to develop new brands. From the beginning of this year, we see this quite positive because we have a very healthy same-store growth, means that these existing brands are quite healthily growing with us. And also we have a very healthy pipeline, which means that in the year we can expect more and more, better brands to join Baozun's portfolio to work with us. So that's always the first part, I mean that we just continue to grow the existing business model. The second part will be more about create. We are actually creating more values, new services through technology and we want to inject all this kind of results into the existing business and trying to find a new way to do more in the market. So generally they are 2 kinds of -- 2 sides of our business. So I think the priory is still the first part, growing the current business healthily, and also bringing new brands on board. So that is the priority.

Next question is from Binnie Wong at Merrill Lynch, Hong Kong.

This is Binnie here from Merrill Lynch. So my first question is related to the overall blended takeaway from the service model, it's slightly down this quarter, right, from 12% to around 10% this quarter. Just wondering that what are reasons we see this? Is it something that is more temporary or is it something that is going to be a trend that we should expect? And then I have a follow-up question on the 2 initiatives that we have announced last year on the NEBULA+ SaaS. I remember we said that was an extension of an existing NEBULA platform and that can help to standardize the process to support the brands on operations. So I just wonder that how that has been progressing in terms of the number of brands that have been adopting our upgraded SaaS using it and how should we expect in terms of the revenue contribution? And then next question is on the margin trend. Longer term, I think we constantly have been hearing -- investors will be asking around -- in terms of the (inaudible) how the company expect the margin trend in terms of the operating leverage we see as a service firm. And then just wondering that given this quarter's improvement here, how should we look at that going forward? And I also have a follow-up on the data bank, but can we just take those 2 questions first?

Okay, let me address your first and the third question first Binnie. So for the blended take rate of the non-distribution service -- non-distribution business model, basically, I think it's temporary because we are doing some transitioning of businesses from distribution to non-distribution like the leading electronic brands which will -- partially which will dilute -- which will dilute calculated blended take rates on paper. But generally we think for each category or for each brand, they're growing healthily. For the third question about the margin trend in terms of operating leverages, as you can see in Q4 and also for the year of 2017 compared to the same quarter last year or compared to the full year 2016, we have seen enough margin growth in operating leverages there. And in terms of the major expenses item, fulfillment expenses and the sales and the marketing expenses, for the full-year base, we think we are confident to achieve operating leverages in 2018. And -- but we will invest in technology expense, just we -- just as we have emphasized in the prepared remarks because we think technologies are the future of the company. So we are dedicated to investing more for the operating profit to the R&D expenses. So -- but for the other major business [operating] margin, we think we can achieve full advantages there and operating leverages there. So, yes, that for the second question, I will pass to Vincent.

Binnie, it's Vincent here. Talking about the new product and software releases will be always a very exciting thing. Actually we just internally announced the new release of our NEBULA+ SaaS and we are expecting a very good result from the intensive testing that are now undergoing. So it is -- we are quite excited and very satisfied with the new version of the software. So in the new release, we have more modules, more -- the software is more configurable and also more maintainable, which means much lower delivery cost. So this give us a very good possibility to deliver more and more -- much more brand sites in the existing team and capacity. So we will make a lot of breakthrough in not only the functions, but also the capacity of the software. So we are expecting the testing results, but we are quite confident that we can make a breakthrough development of the software.

And just want to follow up here is that -- is that in terms of anything quantitative that in terms of the (inaudible) or maybe you see potentially what percentage of our client base would be willing to adopt this program or do you think this is more incremental with new brand partner gets signed up with us, maybe some smaller size or some small and middle size brand might be more preferably signing up with us? Just want to get some color on that in terms of the business development here.

Again, it's also a very good question. We actually would divide the software into 2 parts. One is for the larger brands and the other version is for smaller brands which are all based on the same foundation. So for the new clients, no matter it's big or medium size or small, we will all go to the new release. That is one thing. The other thing, the existing brands, we will talk to them and showcase the lowered maintenance cost for them and a lot of new functions we are winning to them. So I believe that most of the brands will have very strong intention stuffed into the new release of the software.

The next question is from Joyce Ju at Citibank.

Congratulations on the strong fourth quarter and 2017 results. I have 2 questions. My first question is regarding our sales and marketing services. Of course Vincent earlier mentioned that we have won a couple of awards in the Databank -- like Databank competition. So could you elaborate more what we have done currently with our clients and any feedbacks and what kind of like potential financial impact we should expect for Baozun? And what kind of like value add that we provided and -- which we believe will have business potential? And my second question is regarding the software product, Vincent just introduced. I wonder are we going to add any like specific -- like sales staff just try to sell those software to clients, like old brand clients or our existing clients? Is it going to cause like higher sales and marketing, like revenue sharing maybe at the beginning and then because it's a SaaS product, then later recovering revenue?

Okay. Thanks for the questions. The first one, marketing -- sales and marketing services, yes, we are working very closely with the platforms like [Hemo] because cloud businesses are being conducted there. We just want to do it in a smarter way. So that's why we are working with Alibaba to develop jointly some of the solutions as ShopCat or customer experience management. So we are the first batch of the data bank consulting service team and also we deliver software to make the marketing more accurate than before. So that is majorly we are working with our brands and also Alibaba platform, trying to bring a better marketing efficiency to the clients. So talking about the financial impact, we are very satisfied with the results the marketing team have achieved last year, because firstly last year they have built up a lot of capabilities. It's one thing which can help us, not only helping the brand but also give us better potential higher profit-making capabilities as well. So I think this already start to impact our financial results, but we believe that this year, the effect will be much more stronger than before. So value-add of course -- in the past 10 years, marketing has not been integrated with the sales activities yet. But starting last year we combined these 2 efforts very tightly to enable one-stop shopping for the brand e-commerce teams. So we make all the marketing dollar, supply chain, retail efforts much more efficient than before. So this one we are achieving rapidly in the market. The second question about the software, yes, we actually have a lot of different offerings not only besides the NEBULA+ SaaS and a lot of other offerings. I think these all based on a much stronger research and development team and also technology team, they are much stronger than before. No matter about the technologies we are doing, but also the engineering and the finished products, related services and consulting solution package, all this kind of thing is delivering very good results. So I think in the future you will see more and more this kind of product solutions in the market. We also have a new round of e-commerce summit this year. So in this year, in May, outside the market we will see a lot of technology and products announces and releases during the event.

Yes, to add more color, we started to hire some sales staff -- sales team and but compare we think the R&D is the core of the software products. So compared to the R&D expenses, sales staff expenses are very small.

Understood. Just one quick follow-up. I wonder have we ever helped any our brand customer already started to establish WeChat Mini Program store or is there any product in our technology teams like current development plan, which is something involved in Tenzing like e-commerce ecosystem?

Yes, we keep putting a lot of efforts in the emerging markets -- in the industries platforms, like yes, what you mentioned today, the WeChat Mini Program platform. Yes, we are doing a lot of different things with different brands on Mini Program platform, just as we did before in even (inaudible) other emerging platforms. So in this case, we are working for the brands not only on the mainstream platforms today, but also the potential other platforms, which enable them not only to gather sales number but also a good way to engage with consumer. So, yes, we are doing -- we are maybe the most active player bringing the brands to work with new social media, social e-commerce platforms.

And next, the question is from [Cheng Bi] at CICC.

Thank you for taking my question and congrats on the solid quarter. Could management share with us more color -- more color on the development of Innovation Center like which stages are you in currently for new product development and when could we expect new products to come into the market and make revenue contributions? And also could management share with us your thoughts about the competition landscape for this market like focusing on those small to mid-size brands after these new products coming out?

Yes, as I mentioned we have much stronger R&D and engineering team than before. So that is the base we can keep developing and releasing new products. So it is not a different -- we have the full product line and a product roadmap. So each of the product offerings are in different stages. Some of them have already been released and in the stage of commercialization stage. Others may be still in very early stage, in technology development stage, so different products are in different stages. But -- so it is not a one-time effort. This will be a very continuous effort along with development of the company. We are delivering a lot of products as we planned. So the second question about the product offering, yes, the product offering actually not only involves with the small-medium brands or merchants. We -- our product offering is the full range of product offering, including all those of value-added packages working for the top 1,000 brands, working for -- to add value to the existing portfolio of our brand partners and also there are some of the plans working with a wide range of new customers, including the small and medium ones. So we have a full range of product offerings as planned.

I just have a very quick follow-up. Could the management share with us what do you think the competition landscape would be for those new products when they come into the market?

Yes, so Baozun is not a pure software play. So we are very strong in operating the [strong emerging] e-commerce business and also digital marketing services. So all of our software and the services offering build strongly in line with the other services we are providing to our clients today, including the operations, customer service, logistics and the fulfillment, all these kind of services. So we believe by adding the technology into the combined technology offerings we see existing, other service offerings we can be more and more strong in helping the big or small, medium-sized brands to be more successful.

The next question is from Nicky Ge at China Renaissance.

Thank you for taking my question and congratulations for the quarter and a robust general guidance. I have 2 questions here, #1 is that the take rate, actually I think our take rate has been diluted in the past, especially #1 by the electronic brands -- strong growth from the electronic brand and #2 by the other key brands model shift. Going forward in the 2018, I guess there is still some impact on the first 3 quarters due to the model shift, but could the management share about the outlook for 2019? Are we expecting a stabilized service revenue take rate from there? That's my #1 question. And my second question is about the warehouse we have newly rented in Chengdu. What is the financial impact on the financials in the near term?

So thank you for the question Nicky. So for your first question, for 2019, we expect generally the take rate for the full year will bounce back and we should not be impacted -- naturally impacted by any business transitioning in 2019. And with more -- and in the same time, with more offerings just like to acknowledge offerings and the marketing offerings to provide to our brand partners, our overall value -- our overall value added to the brands will be larger than today. So that's why we believe overall the take rate will bounce back in 2019. And in terms of the second question about the investment in Chengdu warehouse, for time being the Chengdu warehouse is the regional distribution center which is small compared to the current -- our centralized distribution center in Suzhou. So the investment in the single warehouse is not so much. But we may have -- cost usually for the first quarter is -- relatively in terms of business volume is the lower compared to the upcoming 3 quarters in the year. So it may take -- we may have some investments, pre-investments in fulfillment expenses for these warehouses, but not so much, not so much.

I have a follow-up on the housekeeping question. What is the same-store sales growth for this quarter?

The same-store sales growth for the fourth quarter is 60%.

The next question is from Billy Leung at Haitong International.

Just, the first one is on the cash flow. The cash flow for this quarter was actually quite strong, mainly due to I guess profit stability and sort of lack of investments. I just wanted to get an idea of outlook for our cash flow, is this going to be invested back into our business? Can management share, maybe the 2018 CapEx plan and where it will be spent? The second question is, just simply on Shopdog product. My understanding is that one of our major clients are using it. Are there any more clients that are planning to sign up for Shopdog and do we expect Shopdog to be a major product for us in the meantime, anytime soon?

Let me take the first question first. In terms of the outlook, for the cash flows in 2018, for CapEx, you know -- as you may know, we have spent like USD 40 million in 2017 to purchase land use right and the properties on that for the warehouse capacities, and we don't expect that to -- and we don't expect that to happen in 2018. And in terms of the general CapEx item, including furnishes purchased and electronics and servers, generally, we think it's in line with the year of 2016 and by a reasonable growth of our GMV. So this is just a general outlook.

Okay. About the second question about Shopdog, actually Shopdog is part of the offerings of our omni-channel solution. It is quite front-end because Shopdog is more -- Shopdog is more like a machine or a device, plus software in store -- in physical store. So by this, we can enable online, offline integration. So that is with Shopdog. We actually started to help the brands with omni-channel solutions very early than the other players. So Shopdog has to be a part of that solution. So we develop this solution for them. But right now in the market more and more of the new retail solutions are emerging. So a lot of similar devices or, how to say, front-end devices has been developed. So right now we -- our focus is always very much middle-ended or back-end focus. So we work with the Shopdog with the major clients and we can also work with other device suppliers for the physical store integration. So by this we can integrate a lot of very good solutions together to make the progress faster than before. So that is about the Shopdog. Right now, I think we have made -- make a lot of -- we focus on the middle-end and also back-end and we make a lot of progress in the inventory management, order routing, supply chain efficiency, very big progress on that. So as a whole solution the Baozun omni-channel solutions are getting stronger and stronger.

The next question is from Ryan Roberts at MCM Partners.

Congratulations on the strong finish to the year. My question actually is on R&D tech spending. You talked a lot about some of the initiatives that you're pushing forward this year. I'm sort of curious if you can give us a sense of how should we expect that to shape up kind of as we look into 2018 and furthermore as we look a bit -- let's say, a bit further down the line?

In terms of the R&D expenses, we expect the growth -- the growth will be reaccelerating compared to the past several quarters of last year. So generally R&D growth rate will be bigger than all of the other expenses items like sales and the marketing, fulfillment expenses, and the G&A. So this will be our major focus in the coming years.

Got you. Okay. And just kind of one quick follow-up, on the year, on the balance sheet we saw receivables [employed] a little bit, just wanted to double check if those have all been cleared after the quarter?

Yes, you're right. So generally, we have big quarter in Q4, and usually we need to settle with those brand partners and collect the money back in the first -- in the first half of next year, so which is the first half of -- which is Q1 and Q2 of 2018. So generally it's all include condition.

Got it. And sorry, just one small kind of follow-up for me. Could you please clarify, I didn't quite catch it in your opening remarks, your breakdown kind of in the revenue guidance for Q1, could you please repeat that?

Okay. So for Q1 revenue, we expect the net revenues to be between RMB 860 million and RMB 890 million and for the Q1 services revenue, we expect to grow over 50% on a year-over-year basis.

Right. It's 50%, correct?

Yes. 50%, yes.

The next question is from Wendy Huang at Macquarie.

Congratulations on a great quarter and a remarkable improvement on margins. Can you please give us some insights as to the trends of average value per contract or per client on a year-over-year base? And as we are see clients adopt full services model, Baozun is moving up the value chain. So we expect to see that margin expansion as a percentage of GMV. Should we expect the margin expansion to accelerate this year and if not, can we or can you elaborate the area that you plan on accelerating the spending?

Okay. So Wendy, in terms of the margin after fulfillment and sales and marketing expense, which is more directed to the general GMV businesses, we think we can keep the higher growth rate, just like last -- just like 2017. But as we mentioned and emphasized we plan to invest in R&D expense and technology and content expenses for the coming years so which may certainly -- which may impact our earnings not grow too -- so much fast, but still it's fast, but not so much fast, but we invest for the future and we invest for the long term. So we think we need to keep doing -- keep investing in technologies.

The next question is from Tian Hou at T.H. Capital, Beijing.

Congratulations on strong quarter and guidance. The questions related to your brand partner development. So in Q4, you did add brand partners and may we know who those newly additions were? So that's the #1 question. In your Q1 guidance, what is the brand addition in your assumption for your Q1 guidance? That is also the second one. The third one is also related to brand partner. In 2018, do you have a target? How many new brand partners, do you plan to develop? That's from my brand partner question.

So Tian, let me address the 2 questions. So for the first question in terms of the brand addition for Q4 2017, it's mainly apparel, accessories, mother and baby products and the home furnishing products categories. In terms of the -- your third question generally as with the -- as the same with before, so we expect for year 2018, we can have around 20 new brands on board. And then in terms of the new brands on board in Q1, I think generally the pattern should be similar to the past years.

So Beck what's the pattern? So in Q1, you will add less partners and in Q4 you add more, is that the pattern?

Not necessarily. So generally like -- I think generally you can estimate it's like 3 to 4 -- around 3 to 4 for Q1 and a little more in Q2 and maybe less in Q3 or Q4.

As there are no further questions, I would like to hand the call over back to Ms. Caroline Dong for closing remarks. Caroline, please go ahead.

Thank you, operator. In closing, on behalf of the entire Baozun management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today. This concludes the call.

This concludes our conference call. Thank you all for attending. You may disconnect.