京東 (JD) 2018 Q4 法說會逐字稿

Hello, and thank you for standing by for JD.com's Fourth Quarter and Full Year 2018 Earnings Conference Call.

(Operator Instructions)

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

I'll now turn the meeting over to your host for today's conference, Ruiyu Li.

Thank you, operator, and welcome to our Fourth Quarter and Full Year 2008 (sic) [2018] Earnings Conference Call.

Joining me today on the call are JD.com's Group CEO, Richard Liu; Mr. Xu Lei, CEO of JD Retail;

Mr. Wang Zhenhui, CEO of JD Logistics; Sidney Huang, our CFO; and Jianwen Liao, our CSO.

For today's agenda Mr. Huang will discuss highlights of the fourth quarter and full year 2008 (sic) 2018 . Other management will join the Q&A session.

Before we continue, I refer you to our safe harbor statement in the earnings press release, which apply 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 unless otherwise stated, all the figures mentioned during this conference call are in RMB.

Now I would like to turn the call to Sidney.

Thank you, Lee.

Hello, everyone.

Thank you for joining us today.

We are pleased to deliver another strong quarter with solid top line and bottom line results.

Our net revenue growth reached the high end of our expectation, and our non-GAAP net income increased by 67% from the same quarter a year ago.

During the fourth quarter of 2018, our net revenues grew 22.4%, a solid performance on top of an exceptionally strong fourth quarter in 2017 despite relatively soft consumption in large ticket electronics and appliance categories.

Revenues from general merchandise categories grew 38% during the quarter, driven by home goods, skincare and cosmetics categories.

In addition fulfilled marketplace GMV again grew over 40% year-over-year, as we continue to improve marketplace operations.

Net service revenues grew by 45.7% year-over-year, driven by JD Logistics third-party revenues and advertising services.

For the full year of 2018, our net revenues increased by 27.5% and our total GMV grew by 30%, as we continue to take market share and outperform the industries we participated in.

Revenues from general merchandise categories grew over 42% during the year, as a result of more diversified, high-quality product selection and our superior customer experience.

Net service revenues grew over 50% and contributed nearly 10% of our total revenues in 2018, up from 8.4% in 2017, as we leveraged our retail infrastructure to expand into these segments.

Gross margin in the fourth quarter was 14.2% compared to 13% in the fourth quarter 2017.

The margin expansion was attributable to the continued margin improvement of both JD Mall and JD Logistics.

JD Mall gross margin increased over 60 basis points, mainly driven by economies of scale from the 1P business, up 38 basis points in Q3 as well as solid advertising revenue growth.

JD Logistics' third-party business also achieved significant gross margin improvement during the quarter, as it continues to grow to scale and optimize its operations.

On a full-year basis, non-GAAP gross margin improved from 13.8% in 2017 to 14.1% in 2018, mainly driven from JD Mall gross margin expansion of 38 basis points during the year, partially offset by investments in new businesses.

Fulfillment expense ratio in the fourth quarter was 6.6%, down from 7.2% in the same quarter last year, thanks to improved utilization of our logistics capacity and higher workforce productivity in the seasonally high quarter.

During the fourth quarter, our R&D expense increased to 70% from the same quarter of 2017, but were relatively flat as compared with Q3.

For the full year of 2018, the expenses increased over 80% to RMB 12.1 billion, as we hired top R&D talent around the world to enhance our technology infrastructure and implement our AI-driven digital strategy.

With key leaders and various levels of staff now in place, we expect R&D expenses to stabilize in 2019.

Our marketing expense ratio was 4.7% in the fourth quarter 2018, up from 4.3% in the same quarter a year ago.

And our 2018 full-year marketing expense ratio was 4.2% comparable to the 2017 level.

Our fourth quarter and full year G&A expense ratios were 1% and 1.1% respectively, comparable to the same periods in 2017.

Coming to the bottom line.

Our non-GAAP net margin in Q4 -- net income in Q4 was RMB 750 million with a net margin of 0.6%, up from 0.4% in the same quarter a year ago.

The improvement was mainly supported by JD Mall's operating margin expansion of 52 basis points during the quarter and the reduced losses at JD Logistics' third-party business.

On a full-year basis, non-GAAP net income attributable to ordinary shareholders was RMB 3.5 billion, with a net margin of 0.7%, down 62 basis points from 2017 largely due to investments in new businesses.

However, as we committed in our revised guidance in August last year, the operating margin for JD Mall remained intact, improving from 1.4% in 2017 to 1.6% in 2018, despite a 34 basis point increase in R&D expense ratio within JD Mall.

This margin improvement demonstrates the resilience of our core margin trend, which is driven by the retail economies of scale and continuous improvement in our operating efficiencies.

On the last August earnings call, I mentioned that we had established a property management group, not only to develop and manage our state-of-the-art facilities, but also to monetize these assets to compensate for our earnings shortfall last year, unlock value for our shareholders, while optimizing our capital structure.

I'm pleased to share with you that we have established our first logistics property Core Fund in February, in partnership with GIC, the sovereign wealth fund of Singapore.

And have just signed a definitive agreement to transfer a portfolio for modern warehouses, valued at approximately RMB 10.9 billion to the Core Fund.

The deal will close in several phases with the majority to be completed in 2019.

And our property management group, we'll continue to manage the assets for the current income stream and receive carried interest for future value appreciation.

The estimated IRR from the transaction will be in excess of 17%, which is the annual return on these investments since we began developing these facilities from as early as 2012.

If we allocate this annual return to the corresponding years, we would have earned at least RMB 1.5 billion in additional profit in the year of 2018 alone.

The GIC Core Fund transaction demonstrates our ability to source, develop, manage and monetize well-located, high-quality logistics facilities.

As we're developing more similar projects that are available for future dispositions, we have designated CapEx related to these developments in a separate line in the cash flow -- free cash flow table, and any future cash proceeds from these asset sales will also be disclosed in this section so you can make better judgment on our free cash flow situation.

Now let's discuss our financial outlook.

In light of the relatively soft demand in certain durable goods categories, we expect 1Q 2019 net revenue growth to be between 18% and 22% on a year-over-year basis.

For the full year of 2019, we expect our non-GAAP net margin to be between 0.8% and 1.2%.

This margin guidance excludes the development profit from our property management business, which will add another 0.5% to 0.6% to our GAAP net margin.

Lastly, one quick note on the disclosure change to the GMV data.

Beginning this year, we will no longer disclose quarterly GMV, but will continue to disclose full year GMV, which is consistent with our major industry peer.

As we discussed in the past, the GMV data currently disclosed are for industry comparisons only and are not meant for financial analysis purposes.

As we expand our service business, GMV is also increasingly less relevant to our revenue streams in the future.

This concludes my prepared remarks, and we can now move to the Q&A session.

(Operator Instructions) Our first question comes from the line of Ronald Keung from Goldman Sachs.

In light of the very strong results, I just want to hear our thoughts into our GMV growth and target, like, how many categories when we think about the growth?

Aren't you thinking about from a user base?

How do we see user growth trending for 2019 and so the strategies in driving that?

And on that front in driving traffic, could you also give us any updates on your JD-Tencent agreement?

Any rough timing that we would see or hear any updates from the 2 partners and aims to achieve on user growth?

So maybe I will first address the category question and then Xu Lei can discuss the user question, and then we will discuss the Tencent question.

So on the categories, as we mentioned in the past, first, we are full category retailer with the largest scale in China.

We continue to believe this put us in a very unique competitive position to expand across the categories.

This has demonstrated in our recent results and also results in the past years.

So we do expect solid growth above the market growth, across all of our key categories, going forward.

Now our own growth rate may be impacted by certain durable goods categories, but as I mentioned in the past, within these categories, we continue to significantly outperform the industry.

So we are confident that growth should still be intact from -- per category basis.

(foreign language)

Let me take the question of user base in 2019 from 2 aspects.

The first one is about the retention of existing users.

In 2018, our average revenue per user has been on the rise mainly due to 2 factors: one is product cross category, marketing and also personalized user interface.

(foreign language)

For new customers, new user recruitment, we would do our efforts in following 3 aspects: the first one is pricing.

We will try to provide the right product offerings to the right tiered cities.

And the second one is that we will explore new marketing scenarios, for example, community and campus and off-line experience stores.

In that way, we will provide better product and service to new customers -- to attract the new customers.

And also, we will analyze our marketing expenditure structure and try to keep our resources to those more efficient and effective marketing investment.

Yes.

With regard to JD-Tencent's relationship, both parties are fully committed to such a partnerships of importance to both parties.

And more details to follow.

(Operator Instructions) Our next question comes from the line Eddie Leung from Bank of America.

My question is more about the improvement in gross margin or the trend.

So just could you give us some comments on the following 2 factors.

One is, I remember you mentioned that the electronics appliance category has been under some industry pressure, as you peers, obvious.

And historically, you want to try for your gross margin is increasing negotiation power on bigger scale so that you can get larger discounts and rebates from your suppliers, especially in the electronics and appliances.

So just wondering if these change -- these macro change would affects the pace of the scalability and how would that affect our gross margin?

And separately, again on gross margin, see, you also mentioned that JD Logistics gross margin improving.

So Xu, just wondering if we have any broad time frame that we would expect the subsidies to the third-party users or corporate users would they reduce it and hence we would see potentially positive gross margin from JD Logistics.

Any comment would be helpful?

Sure.

So on the gross margin.

I mentioned, even for electronics and home appliance categories, we remain above the industry growth.

And mainly, we definitely see double-digit growth for example in Q4.

And the industry on the other hand, is in low single digit.

So the growth will continue to drive scale economies.

In fact, when industries flow as the largest retailer, the largest most important channel, we may gain even more economies of scale when we discuss with this client, for example, helping them to create inventory and also order more unique customized product models.

So they are various ways to improve gross margins without compromising the consumer-facing price.

We'll remain as the most competitive price provider from a customer point of view.

On JD Logistics, we mentioned that in the early stage of its business, we had some early discounts to attract the major customers, but after the initial phase, the pricing has been moving back to a more normalized level.

So right now, it is -- most of these clients have passed the initial discount phase.

So that's why the margin, the gross margin, for JD Logistics has been improved quite significantly.

Our next question comes from the line of Alicia Yap from Citigroup.

I have questions on this annual active customer accounts.

Understand that the company actually disclose on the quarterly active customer is experiencing year-over-year growth, right, for a third quarter and fourth quarter.

So just wonder, if we're looking at it on a quarterly active customer base, on a sequential basis, what is the growth rate from 3Q to 4Q?

And should we assume this kind of flattish annual trend to only normalize later in the third quarter of 2019?

Right.

So the Q4 quarterly customer accounts also increased sequentially, roughly 6% in Q4.

So there is still upward trend in the active customer base.

I mentioned in the past, this is -- the divergence of these 2 data points is really -- because we are seeing improving quality of the new customers this year, but the customers in the previous 12 months, we did see more one-time accounts.

So that's why we singled out the recent 2 quarters just to show our customer growth is still relatively healthy.

Our next question comes from John Choi from Daiwa.

Sidney, I have a question on your non-GAAP guidance for 2019.

So it seems like your R&D expenses are going to be flattish.

Assuming other, we see operating expenses across the line OpEx and then hopefully with better improvement of JD Mall and also from improvement on the third-party logistics, shouldn't we be seeing more leverage on your margins?

So can you give us a little bit more color on the margin guidance and the breakdown there?

And just if I could followup on your -- it seems like your merchant account is now a bit higher in the fourth quarter versus third quarter.

Has there any -- can you give us an update what has changed in terms of third-party merchants?

Okay.

So Xu Lei will answer the merchant questions.

So on the -- just to take R&D as an example, when I say the R&D expense will stabilize in 2019, it's stabilizing at the Q3, Q4 level.

So full year basis, if you take that run rate, you would still see that net year-over-year probably above our revenue growth.

So that's one factor.

Obviously, we will continue to invest in the various initiatives.

Will be on a more selective basis with more financial discipline, some balanced approach this year, but we will be in select areas where we think it's very critical to company strategy.

We'll continue to invest very aggressively.

So at the beginning of the year, we will rather start with relatively conservative guidance.

Clearly, the margin will be better than last year.

We do hope we can give you more up-sight over the course of the year, especially when we have better clarity on the macro trend.

(Operator Instructions) Our next question comes from Jin Yoon, New Street Research.

I think there is somewhere around 700 basis point delta between online sales and GMV in the quarter.

So just kind of wanted to gauge what that delta would look like going forward?

I understand that you won't give GMV numbers, but it would be interesting to hear kind of what the delta would look like for the upcoming year?

As well as is there -- how much material impact are you seeing from your PINGO business?

Or how much are you seeing contributions from that business?

Right.

So I think you are referring to the growth rate between the revenue and GMV, and the difference would be the marketplace GMV.

I mentioned that our fulfilled marketplace GMV actually grew over 40%.

So that would bridge the gap, in terms of different growth rate of GMV and JD.

(foreign language)

Last April, we tried to launch our PINGO group buying business, and it has proved itself to be very interesting to helping us to reach to lower tier cities and markets.

That's been very useful, helpful.

As you know, as mainstream e-commerce player, we haven't actually leveraged our competitive advantages in those lower tier markets.

And through PINGO now we are positioned to do that.

And also as you know, Weixin market has been growing very fast.

And PINGO has given us the right tool to tap out that opportunity.

So to take up the tier, we have established a social media e-commerce department to help us to reach to lower tier cities and also our female customers.

Our next question comes from the line of Thomas Chong from Credit Suisse.

I have 2 questions.

My first question is about the marketplace business, in particular the apparel category.

How should we think about the trend as we head into this year?

And my second question is about our 7Fresh strategy.

Can management give us some color about how many 7Fresh stores will be opened this year?

And would we pursue the 1P or 3P model going forward?

(foreign language)

For apparel business, we have big plans for 2019.

The first one is that we will step up our efforts to build high-quality brands and the merchants to provide wider choice of product offerings to our customers.

(foreign language)

Second one is that we will build smart operating capabilities.

We will integrate our 1P business with our 3P business based upon our supply chain capabilities.

For example, we will consolidate the warehouses and the stores of the merchants with our warehouses and distribution capabilities to improve the overall efficiency.

(foreign language)

Our third plan is to shop intensively with the existing customers to get more value out of the existing customer base.

And also, we'll do more single group buying business with apparel category because this category is vastly suitable to group buying business model.

(foreign language)

And we are also -- we will look at the composition or the structure of merchants in 2019.

I think that to the product improvement and also improvement of our ecosystem.

The structure, the composition of merchants has increased it's (inaudible) or wholesomeness that is quite going in a very healthy direction.

So we expect to see this trend to continue in 2019.

So on 7Fresh, it's still relatively young business that we started early 2018.

Currently, we have 12 stores.

We're still in experimental phase, exploring various omnichannel strategies and tactics to prove the model.

Honestly, we don't think anyone has proved this model in the market today.

So we will take a more managed pace in the expansion of this business this year.

(Operator Instructions) Our next question comes from the line of (inaudible).

Sydney, I wonder if you can provide us more color for your margin outlook with the property fund impact.

I'm talking about on an ongoing basis, not the one-time impact.

So going forward, in 2019 and onwards, how shall we think about the, for example, fulfillment as a percentage of revenue?

And also your management fee that contribution to the revenue, so revenue and margin impact?

And then clearly, on the PINGO business, I wonder if Xu zong can provide us long-term outlook?

In terms of user and the GMV contribution, where do you think PINGO can help contribute to your bigger picture?

Sure.

So on the property management business, we are still in the process of closing those transactions.

So only after the closing, we'll start to earn the management fee.

With our larger scale, we don't think the management fee will have any material impact on our bottom line at least this year.

But as we continue to monetize the other assets on the portfolio, it could become more meaningful.

There shouldn't be much of an impact on our fulfillment expense after all with our large warehouse network.

Only about -- at the end of the year, roughly 2.5 million square meters of warehouses were self-built.

And now we are monetizing them.

So this is a fraction, roughly about 20-plus percent of our overall warehouse space.

So the current monetization plan does not -- will not have much of a significant impact on the fulfillment expense.

(foreign language)

Let me add something about group buying business.

As I had already pointed out, group buying and PINGO actually is very helpful as Tier 1 to the lower tier cities and female clients through emerging tools or channels like Weixin.

(foreign language)

And also it helps us to activate the bottom tier merchants on our original platform because of the specific characteristics of group buying customers.

(foreign language)

We will continue our tracking assets in group buying in Weixin, and mainly we will step our efforts in the following 2 aspects.

(foreign language)

All right.

The first is that we will build a supply chain that is more suitable for group buying business model.

We established a specialize team to deal with this project.

We will provide not just a efficient product but also a product that actually ships to from factory.

(foreign language)

We will also develop APP specialized for PINGO.

Our next question comes from Jerry Liu, UBS.

My question is just on the broader macro environment.

In the fourth quarter and so for this quarter, have we seen any improvement in the macro environment, especially as we think about consumer sentiment around big-ticket purchases, such as home appliances and the smartphones?

And secondarily, just following up on the margin questions earlier, what's the assumption around the competitive landscape around the competitive intensity over 11/11 last -- in the fourth quarter?

Yes.

So we -- I think if you look at our growth rate and also across the durable goods versus the general merchandise categories, the latter has not been much impacted, but the electronics appliance categories were impacted.

So we do see -- still see double-digit growth.

And at this point, it is tough to tell, but we are cautiously optimistic for the second half of this year when the government levies incentive policies begin to take effect.

So we're cautiously optimistic on the macro for the second half.

Our next question comes from Natalie Wu of CICC.

Firstly, just a little bit follow-up on [LS] question.

For your like 305 million active customer accounts, how many of them are originated from PINGO model?

And what's the current user conversion ratio from Weixin channel team purchase model to your own JD app.

And secondly you have just -- you have recently announced an internal restructure in your annual meeting, I think, and -- in the meanwhile, you've also mentioned that for your business unit leaders, this shouldn't put too much emphasis on GMV as GMV is not a leading indicator but a result.

So just wondering if there's any new change introduced to your original KPI mechanism?

Yes.

So I guess the WeChat channel continues to be a very, very important new customer acquisition channel.

Just overall, we still see over a quarter of our new customers coming from the WeChat channel.

We don't track how much of that from PINGO and subsequent conversion.

So I think -- but overall, it is definitely a very important new customer acquisition channel.

I'll let Xu Lei to answer the second question.

(foreign language)

As pointed out by Sidney, Weixin's market is very important for us to increase our user base.

However, we still have our centralized app channels which are equally important for us to acquire new customers.

And we are stepping up our efforts to come up with newer Weixin products to acquire even more new customers.

However, I am not in a position to say Weixin channel is the new single-most important channel for new customer acquisition.

Actually, it's more of the important channels for us to acquire new customers.

Hi, [Ira].

This is Richard Liu.

I would rather talk more on our strategy of 2019.

Because the organization system is really very complicated to explain in a very short time.

In 2019, we will work on 3 most important things.

The first is our lower tier cities.

I think some of you will know, we have talked on lower tier cities for several years.

From last year, the good news is -- I think it was the first year from the lower tier cities over the Tier 1, Tier 2 already.

And this the year where we will take more products to the lower tier cities to attract more customers.

Secondly is our, how to say, digitalization where we will drive our whole group to the traditional management system who bet on our big data and digitalization to improve our management system efficiently.

So we have our partners to keep growing our platform.

Another is off line, where we will offer more and more new biz model to the offline business.

Today, we have (inaudible), we have home appliance, we have (inaudible).

We have a new channel department.

And from this year, we will have more new offline biz model.

On a positive step, we will keep testing until this model is improved.

We will copy as quickly as possible.

Thank you.

(Operator Instructions) Our next question comes from Alex C. Yao from JPMorgan.

I have a follow-up question on your previous commentary around user acquisition strategy into the lower tier cities.

I think you guys have been doing this for quite a few years.

What will you be doing differently this year versus the previous few years?

Apparently, there's a new product launch, such as PINGO, but is there anything incremental you need to do to be more efficiently tap into the lower tier or lower end consumer demand?

For example, is there a change in supply chain merchandising strategy such that you will build relationship with the low end or even super low-end supply chain in China?

Or is there incremental requirement for you to invest more in lower tier city logistic infrastructure?

Any color would be helpful?

As Xu Lei already mentioned, I think, one, what you mentioned going to lower tier city, the lower-priced supply chain product is actually one of our initiatives this year.

Logistics on the other hand, we're already in these lower tier cities.

We already have a full coverage network.

So there is not much extra to be done, but more on the supply chain side, more on the product side.

And also the various online off-line omnichannel strategies will also help the lower tier city expansion.

Our next question comes from the line of Richard Kramer from Arete Research.

I just have one question.

I'd like to ask the outlook for free cash flow for 2019.

Is this something that's expected to again be sharply negative?

And at what point, excluding the real estate transaction, would JD turn to being a sustainably cash flow, free cash flow generated business?

Sure.

So we this time, if you note on cash flow section, I actually separate out the CapEx for development projects available for sale.

So those will be turned into project cash as we monetize those products.

So it is -- the disposition will be part of the (inaudible) CapEx account because those were the cash outflow we have already absorbed.

If you look at the disclosure.

If you subtract this CapEx for development projects available to fulfill, you'll already see a very different cash flow picture even for 2018.

In 2018, we had a one-time event as we communicated early in 2018.

So we do have confidence that cash flow in 2018 will be improved.

And from both operating side because of operating margin will improve and also from CapEx side that now that we have also completed a major CapEx year for our technology infrastructure in 2018.

So we will have less other CapEx.

We will have better margins, operating cash flow, and we will have the development available for sale line separated, which will see cash inflow this year.

So on a combination of all the 3, we should see better cash flow this year.

Our next question comes from the line of Wendy Huang of Macquarie.

I assume that most of the comments you've made earlier was more on the electronic side but not on the home appliance side.

Given the government subsidiaries policy that recently came out on the home appliance side in certain cities, how do you see that actually has driven the home appliance consumption and how actually JD benefit from that?

And also how sustainable this trend could be?

And also to follow up on the cash flow questions that the previous analyst asked, so shall we expect free cash flow to turn positive definitely in 2019, given the 3 factors that you just mentioned?

(foreign language)

(inaudible) by the government has come up with quite a lot of promising regulations that they aim to encourage and motivate or stimulate the development of home appliance market.

And we've been deeply involved in that.

And I think it will take time to take effect and also it will take time for us to preserve the ultimate result of those promises.

(foreign language)

As you know, for home appliances category, JD has been enjoying very high-rent rotation.

And also in terms of online market, JD has not enjoyed notable rate competitive advantage of our peers.

So that will position us in very favorable position.

(foreign language)

Also, this year in 2019, we will open our 1P or direct sale capabilities to our partners and help them to improve tier sales.

In that way, together we can do the marketing even better.

(foreign language)

And also, we will increase the percentage of the customized products offerings this year.

This will have positive to tap deeper into the lower city customers and also help us to improve our profitability.

(foreign language)

Also, we will penetrate deeper into counties and towns.

We will open more experience stores, and we will work more closely with the local players to get more engagement points with our customers.

So on the free cash flow, we don't give guidance on the free cash flow.

But clearly, that will be our objective.

Internally, we'll be working very hard to achieving positive cash flow.

Our next question comes from the line of Grace Chen of Morgan Stanley.

My question is about Q4 numbers.

The Q4 sales were at the high end of the guidance.

I'm wondering which areas performed better that led to the upside in the 4Q sales.

And for the gross margin of fourth quarter as well, it came in better than the expectation.

So I believe, the substantial improvements in a loss of JD Logistics should be one of the key reasons?

If you could just share with us some more details about JD Logistics, for example, what's the gross margin status now?

And what's your target for gross margin and margin for 2019 and maybe in the mid- to long term?

Anymore color will be very helpful.

Right.

So the Q4 growth, I mentioned, was actually pretty well balanced other than the couple of categories that we singled out, but there were still growing at double digits.

So pretty healthy growth across all the categories.

Now margin expansion was also partly due to the previous Q4.

It was at somewhat of a lower margin base, given -- due to different promotional strategies.

So it is -- obviously, we're very, very pleased with the performance on -- the logistics side was also a very major positive contributor, given the high volume and better utilization of the facilities.

So it is a seasonally high quarter for us, normally in Q4, in terms of utilization, but from year-to-year, there may be different emphasis.

So that will be -- we gave the full year guidance for this year already.

We will see steadily increasing gross margin for JD Mall and also improving margin from JD Logistics.

Our next question comes from the line of Tian Hou from T.H. Capital.

The questions would be related to the new customers.

So what you just mentioned, most of new customers actually come from the lower tier cities and/or some of that driven by the WeChat.

So I wonder when you will increase more lower tier cities, management and the customers, will that impact the GMV per order?

That's number one.

Number two, on the annual basis, for each active or unique customer, what is the ASP on the annual basis?

And also, how many clients they purchased, so that's all the questions relating to new users.

(foreign language)

For PINGO customers, it's true that the initial stage to lay that particular price or the customer price is on the low side compared to other customers.

(foreign language)

However, after we acquire some new customers, we will see a lot of ties into how to retain them and how much they spent afterwards.

We will sell cross categories to them.

So after all those efforts actually we see -- we are quite optimistic picture as the PINGO customer spent with us.

(foreign language)

Let me share with you the April figure with the overall JD Mall average revenue per user.

Actually, last year, in terms of the time customers take to go from, say, middle stickiness customer to a high stickiness customer actually is shortened.

That means that it takes us less time for us to turn all those customers into loyal customers.

(foreign language)

In the future, we will breakeven way intensive efforts to turn new customers into the first-time customers and then to second- and third-time customers.

Our next question comes from the line of Jialong Shi from Nomura.

I have just one question.

Your fulfillment expense slowed down quite meaningfully.

Year-to-year growth slowed down quite meaningfully in Q4.

So I just wonder what was the driver?

And heading into this year, where you see continued leverage on fulfillment expense?

(foreign language)

Let me take this question.

As you know, fourth quarter is our peak season, and we have improved substantially our storage capacity and also warehouse utilization.

That's why we have quite a satisfactory fulfillment rates.

(foreign language)

We think as we looking forward into 2019 as the order intensity increases, our fulfillment base will further improve.

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 comments.

Thank you for joining us today.

Please feel free to contact us if you have any further questions.

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.

Good day.