Vipshop Holdings Ltd (VIPS) 2013 Q2 法說會逐字稿

Good day everyone and welcome to Vipshop Holdings' second-quarter 2013 earnings conference call.

At this point, I would like to turn the call to Ms. Millicent Tu, Vipshop's Director of Investor Relations. Please proceed.

Thank you, operator. Hi everyone and thank you for joining Vipshop's second-quarter 2013 earnings conference call. Before we begin, I will read the forward-looking statement.

During this conference call we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates, and projections about Vipshop Holdings Limited and its industry. All statements other than statements of historical fact we may make during this call are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as anticipate, believe, continue, estimate, expect, intend, is/are likely to, may, plan, should, will, aim, potential, or other similar expressions. These forward-looking statements speak only of the date hereof and are subject to change at any time, and we have no obligation to update these forward-looking statements.

Joining us on today's call are Eric Shen, Chairman, the Company's CEO and Co-Founder; and Donghao Yang, the Company's Chief Financial Officer.

At this point I would like to turn the call over to Eric Shen.

Hello everyone. Welcome to our second-quarter 2013 earnings conference call. We are proud of -- proud to report another solid quarter with strong revenue growth and the margin's expansion. Total active customer count increased by almost 140% year over year to 3.5 million, helping to drive a 160% year-over-year increase in sales to over $351 million. At the same time we continued to grow our profitability with GAAP net income increasing to $9 million. We believe that this result attest to our growing market leadership and brand reputation as China's leading online discount retailer for brands.

We believe that this unique and clear position gives us two key benefits, first by being focused on specializing in the underdeveloped in discount retailing market in China we have built a core competence and a leadership position. Through this intense focus, our capabilities in merchandizing, logistic, brand partnership and the consumer intelligence are designed for the flash sales and online discount retailing business. By leveraging these skill sets, we continue to provide our 3,200 brand partners with a robust one-stop solution for efficient inventory and the cash flow turnaround. This is in the stark contrast to many other B2C sites and the marketplace operators that have recently setup their own discount retailing channels and are simply providing listing capabilities.

Second, there is a scale effect inherent in our business model. Our improving the scale not only enabled this strong sales growth but it also helped reduce our operating cost as a percentage of sales, further improving our profitability. We are now reaching levels in the e-commerce economy of scale that now make Vipshop the preferred go-to platform for major retailers, hoping to quickly liquidate excess inventory. This in turn attracts a wider range of shoppers looking for their preferred brand products, further driving our top and bottom line. This provide us increasing confidence in our ability to manage this strong growth and continue to drive top and bottom line growth. In today's market, Vipshop has become a much bigger and stronger business. We firmly believe, and our results show, that we have the right model and the core competence that are important to expanding and sustaining our business going forward.

At this point, let me handover the call to our CFO, Donghao Yang, so that he may discuss some new user growth tends as well as this quarter's financial achievements.

Thanks, Eric, and hello everyone. As Eric discussed, we are extremely pleased about our strong operational performance and ability to manage this tremendous growth. At the same time we are excited to discuss some new initiatives we have that are aimed at expanding our customer base and improving the user experience on our properties.

To begin with, a key initiative for us in the past few quarters has been the explosive growth on our mobile site. Our mobile sales have increased 67% quarter over quarter. This tremendous growth was fuelled by two key factors. First, by nature of the flash sales model mobile is extremely well-suited for these quick-decision shopping that is inherent in flash sales offers. Through our multiple mobile commerce options, which now consist of three mobile applications and a mobile Internet website, we provide shoppers with a convenient way to purchase their desired products on our platform any time, anywhere and on any device.

Second, we continued to improve our user experience on our apps by improving the graphics for viewing items as well as easing the purchasing process for users once they decide they like an item. Such improvements have further helped to increase overall customer interaction and stickiness on our platform. These results demonstrate the increasing appeal for conveniently accessing Vipshop for customers looking for uniquely priced offers on their favorite brand.

In addition, we have expanded our warehouse capacity in our four leased logistics centers in Shanghai, Chengdu, Beijing, and Guangzhou, and are on track to further increase it to approximately 300,000 square meters by the end of this year. This ramp-up in warehousing space will allow us to better accommodate the surging demand of our customers in China's northeast and eastern regions.

Also in anticipation of the continued growth in consumer demand, we are planning to complete construction of our own warehouses in Guangzhou and Hubei for a total of 300,000 square meters by the end of 2015 and expect it to cost approximately $200 million.

To conclude, we aim to further expand upon the growth opportunities associated with China's large and underdeveloped discount retail market.

Building upon our increasing scale we remain confident that our market positioning and leadership roles will further strengthen Vipshop's customer loyalty and brand partner satisfaction while fostering sustainable growth over the long term.

Now, moving on to our quarterly financial highlights. Before I get started I would like to clarify that all the financial numbers we're presenting today are in US dollars amounts and all the percentage changes refer to year-over-year changes unless otherwise noted.

Total net revenues in the second quarter of 2013 increased by 159.7% to $351.3 million. This tremendous growth was primarily driven by a 138.7% increase in the number of total active customers to 3.5 million, and a 136.3% increase in the number of total orders to 11 million.

Gross margins further improved to 23.5% from 21.8% in the prior year period and gross profit increasing by 179.6% to $82.6 million. This improvement was driven by the increased scale of our business leading to larger discount from our brand partners, which lowered our product acquisition costs as a percentage of sales.

Moreover, as we discussed earlier, we continued to see improvement in operating margins as a result of improved economies of scale and increased operational leverage. More specifically, fulfillment expenses increased by 108.4% to $42.8 million for the second quarter of 2013. As a percentage of total net revenues, fulfillment expenses decreased to 12.2% from 15.2% in the prior year period. This cost reduction was primarily due to the successful implementation of our distributed warehouse strategy as well as our continued shift to high-quality regional and local couriers, lowering our fulfillment cost while shortening delivery time to our end customers.

Marketing expenses increased by 128.9% to $15.1 million. As a percentage of total net revenues, marketing expenses decreased to 4.3% from 4.9% in the prior year period. As you may have noticed, we initiated several large advertising campaigns which helped generate a lot of buzz and attention around our April sales event. Despite the additional marketing spend on brand advertising, we still remain focused on word-of-mouth referrals. Going forward, we will continue to take a disciplined approach to managing our marketing expenses.

Technology and content expenses increased to $8.7 million. As a percentage of total net revenues, technology and content expenses was 2.5% compared with 2% in the prior year period. This is a part of our continued efforts to invest in our IT system and mobile e-commerce capabilities to better support our future growth.

General and administrative expenses increased by 92.9% to $10.8 million. As a percentage of total net revenues, general and administrative expenses decreased to 3.1% from 4.1% in the prior year period. The cost reduction reflected our Company's continued cost-control efforts and increased operational leverage.

Driven by the growing scale of our Company's operations, improved gross margin and costs control, we realized $6.7 million in net -- in income from operations for the second quarter of 2013. This is compared to a loss from operations of $5.4 million in the prior year period. Operating income margin was 1.9% compared to an operating loss margin of 4% in the prior year period.

Non-GAAP income from operations, which excludes share-based compensation expenses, increased to $9.5 million, compared to a non-GAAP loss from operations of $3.8 million in the prior year period. Non-GAAP operating income margin increased to 2.7%, compared to a non-GAAP operating loss margin of 2.8% in the prior year period.

Our net income for the second quarter of 2013 was $9 million, compared to a net loss attributable to ordinary shareholders of $5.8 million in the prior year period. Net income margin increased to 2.6%, compared with a net loss margin of 4.3% in the prior year period.

Net income per diluted ADS increased to $0.16 compared to a net loss per diluted ADS of $0.11 in the prior year period.

Non-GAAP net income increased to $11.8 million compared to a non-GAAP net loss of $4.2 million in the prior year period. Non-GAAP net income margin increased to 3.4% compared with a non-GAAP net loss margin of 3.1% in the prior year period.

Non-GAAP net income per diluted ADS was $0.20 in the second quarter of 2013 compared to a non-GAAP net loss per diluted ADS of $0.08 in the prior year period.

As of June 30, 2013, our Company had cash and cash equivalents of $167.2 million and held-to-maturity securities of $217.3 million. For the second quarter of 2013, net cash from operating activities was $11.1 million.

Looking at our business outlook, for the third quarter of 2013 we expect our total net revenues to be between $365 million and $370 million, representing a year-over-year growth rate of approximately 134% to 137%. These forecasts reflect our current and preliminary view on the market and operational conditions, which are subject to change.

With that, I would now like to open the call to Q&A.

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)

[Brendan Carney], JPMorgan.

I have two questions. The first is about the competitive landscape in China for sales market. Can you give some update on this topic? And what kind of impact do you expect it will bring on Vipshop, especially like some e-commerce platforms like Dangdang and 360buy entering this market? Thanks.

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So to answer your question and to summarize what Eric has said just now, we are not concerned about competition. We have always had competitors in the past, but now these peers in the past are no longer our close competitors because we have significantly widened the gap between ourselves and these guys.

And our -- as our business model has grown increasingly sizable and powerful and there are few entry barriers that we think it's difficult for other e-commerce players to replicate over in the short period of time.

First, Vipshop is a dedicated special offer discount retailer. We now have over 5,000 employees focusing 100% on discount retailing. And what we offer to customers are the best product collection at the lowest prices available on the daily sale.

And second, we have the biggest merchandizing team of over 300 experienced buyers who are dedicated to selecting best products from the best brands. So over the past few years we have actually accumulated a great number of sales events and developed strong business intelligence data mining capability which are vital for merchandizing.

And additionally because we are dedicated and we are committed, we have better knowledge and understanding of brands and their needs. So for brands, as you can imagine, they demand capable and proven partners to handle their best inventories without diluting their brand images, because we are focused again, we avoid in-season, off-season sales cannibalization, which will be difficult for the other e-commerce players to overcome.

And another important thing to point out is unlike other e-commerce players who's supposed flash sales channel is operated by a third-party platform, we are being a retailer, we are able to consolidate orders and offer a one-stop solution for brands.

Our integrated services, as I recall, include merchandizing, photo shooting, sales, packaging, warehousing team, and shipping, customer service, so on and so forth. So from this regard, we have accumulated the most in-depth knowledge and experience. And last but not least, as of now we have over 6,000 brands and we have over 870 exclusive contracts.

Well, and in addition to Eric's comment, as a matter of fact if you look our financials, for Q2 2013 in top line grew very strong and our bottom line still also improved quite significantly both year over year and quarter over quarter. So from those financial numbers, we don't see any significant pressure from the new entrants in our business, in our industry.

Okay. Thank you.

And I have a second question. Can you share a little bit more about your logistic expansion plan over the next 12 months and what kind of impact do you expect on your margins? Thank you.

We have a strategic plan to expand our warehouse space by 300,000 square meters Company-owned warehouses in the next two years. And that's going to cost us about $200 million. And we've just signed an agreement with the local government in Hubei to acquire a very large piece of land to build our central warehouse.

If everything goes as planned, the local government is going to complete all the legal regulatory procedures on the land in the next couple of months and we can start construction by the end of this year, and it's going to take us like 10, 12 months to finish the project. So this year we don't think that there is going to be any significant change on our CapEx, but starting from next year we're going to spend pretty heavily on the construction of the new warehouses.

Okay, great.

And also we're in the negotiation process with the local government near Guangzhou to try to get another piece of land to build our central warehouse in Southern China, and hopefully we can get that piece of land sooner rather than later.

Thank you.

Caroline Li, Goldman Sachs.

(Spoken in foreign language) Congratulations on a very good quarter. I have two questions. Number one is regarding your advertising strategy. Could you share more color and probably help us to understand the relationship between your ad spending and what kind of function it drives active customer growth. To that extent, if you could share some strategic plan for your advertising spending into 2014 that would be very helpful.

My second question is regarding gross margin. As we see that quarter on quarter your gross margin has continued rising which is very encouraging, we typically would benchmark your gross margin with other listing service and e-commerce service business but as well as offline department store concession rates. If we look at department store concession rate, on average it's between 20% to 25%. So you are actually approaching the upper side of that band. Just want to hear your thoughts from a brand mix perspective, from a category perspective, how should we think about the gross margin going forward.

Okay. Let me take your question. And thank you very much, Caroline, for coming to our call.

To your first question, advertising, our marketing expenses as a percent of total net revenue actually decreased year over year from 4.9% to 4.3% in the second quarter of this year. And actually we're taking a very disciplined approach towards managing our marketing expenses as a percent of revenue. But in the first half of this year, we did launch some TV commercials, but those campaigns were primarily aimed to raise awareness of Vipshop among a broader audience in the society as we become a much bigger Company and leader in our industry.

So going forward, we expect the marketing expenses as a percent of revenue and active customer acquisition costs to not increase significantly compared to last year. And again, as I said earlier, we're going to be very disciplined in managing our marketing expenses.

And to your second question, you are right, our gross margin, 23.5%, is already a pretty high number compared to other e-commerce companies as well as other offline department stores. So we've told investors a number of times that our long-term sustainable goal for our gross margin is about 25%. And so if that is our goal, you can see that there is still some room for us to improve on our gross margin, but not a lot. And at the same time, we believe that we have another priority which is to consolidate this huge but very fragmented discount retail market in China, meaning we really need to be focused on driving the top line growth to gain more market share while we maintain a reasonable profitability level.

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So just another point to add from Eric. Obviously we discussed that we'll expand our effort and budget in promoting Vipshop's brand and visibility which we believe long-term will benefit Vipshop's growth in the future.

I have a follow-up question on brand building and the new customer acquisition. In the -- in this past few quarters, do you see any trend between organic traffic and paid traffic? Is there any shift, say, towards your organic traffic just with the impact of TV commercial, et cetera?

Actually we don't see that. Again, our main purpose for launching the TV commercial campaigns is to --- is for branding of the Company, not necessarily for driving more traffic to the website.

Okay. Thanks.

Thank you.

Alan Hellawell, Deutsche Bank.

I'm curious as to whether you're seeing any shift in the mix of products ongoing, and just going forward whether you intend purposely to change that mix. And related to that, whether there are any plans to diversify the offering into totally new product areas? Thanks.

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So, Alan, the product mix hasn't changed much in the past -- in the past quarters, still dominated by apparel, handbag, shoes and cosmetics so on and so forth. Going forward, we will be considering expanding -- going forward, we'll continue to focus on current product categories. But having said that, we'll explore what other offerings that can add in order to better meet customer demands and shopping needs. And, for example, we can be -- could be considering maternity and baby products, [maternity] type products which are high in shopping frequency.

Fantastic. And just a quick follow-up, are you seeing any change in the frequency of return of visitors? And are you contemplating any new programs to improve that or just stimulate customer activity? Thank you.

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So if -- judging from the average number of orders per customers in the second quarter, it's pretty much stable compared to that in the first quarter of this year, which was around 3.1. But going forward we expect that number will increase slightly in the second -- sorry, in the second half of this year.

Thank you very much.

Andy Yeung, Oppenheimer.

My first question is actually about fulfillment cost. We're still accustomed to seeing sequential improvement in your fulfillment cost as a percentage of revenues. But I think this quarter we haven't seen that. Does that have something to do with your warehouse expansions? How should we think about your fulfillment cost over time?

Hi, Andy. Thank you very much for coming.

To your question on fulfillment expenses, actually our fulfillment expenses continue to improve, efficiency continue to improve in Q2 this year. Well, the reason that you saw our fulfillment expenses as a percent of revenue go up slightly in Q2 was not because our efficiency went down but because our average order size for Q2 was down compared to Q1.

Our average order size, average ticket size in Q1, which was winter season, very cold, was about $35, and our average order size in Q2 when it's a lot warmer was only $32. So the average order size has come down quite significantly. So that's why when you see the fulfillment expenses go up slightly, but in fact it has come down.

I see. I understand.

And then the next question is about marketing spending. I think when we look at some of your competitors, including yourself, we have seen marketing spending going up in the e-commerce space. Can you just give us some colors in term of the competitive landscape as far as in term of e-commerce with advertising spending is concerned and have you seen significant price increase in advertising pricing?

Again, if you compare year over year, our marketing expenses as a percent of revenue in Q2 this year it has actually come down to 4.3% from 4.9% a year ago. So as a long-term trend, our marketing expenses have actually continued to come down in the past three to four years.

And the reason, again I have explained this earlier, the reason we launched some TV commercials was not because we had a tremendous pressure from competitors so that we needed those campaigns to drive traffic to the website, but instead we actually launched the marketing campaigns for primarily branding purposes to -- again to raise awareness of Vipshop in the society.

So again if you look at our financials, for Q2 top line growth, gross margin, operating margin, and bottom line all -- those profitability indicators have all improved. So you don't -- we don't see any pressure or significant pressure from the competitors.

Great. Thanks for the clarification.

Mark Marostica, Piper Jaffray.

First question I have is just related to the experience so far in the third quarter and I was wondering if you could give us a sense of traction in the month of July around traffic, customer ads, order growth, anything you can provide to give us some education of trend in the business since the end of the June quarter?

Well, both the June quarter and July quarter -- well, and the September quarter were actually low seasons for e-commerce companies as well as other traditional retailers. And our peak season will start towards the end of August through September and December. So if you ask me about July number, I can -- what I can tell you is the traffic in terms of daily unique visitors went up pretty significantly because we had that big promotional event on July the 19th.

Okay. That's helpful.

With regards to the promotional event, can you give us your takeaways in terms of what you learned from the two events that you've done so far? Are these events that you'll repeat in other months? And if so how frequently? Any color there would be helpful.

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So, Mark, the recent big promotion that we launched in July generated great numbers. So in fact we had 1 million orders in that one single day. Going forward, we haven't decided whether -- especially on the -- on our needs we would decide whether we will carry out in the future, and if so the timing and the frequency.

Okay. And then my last question is more of a margin question. You gave us nice color on gross margins and on fulfillment and marketing spend. If you add all that together, trying to get a sense of what's the practical limit or perhaps a long-term target for your operating margins going forward. Thank you.

Well, we've actually communicated our long-term sustainable goal on operating margin to the investors. It is about 7% to 8% in the long term.

Okay. Thank you.

Thank you.

Eric Wen, China Renaissance.

And congratulations on the strong quarter. I have several questions. The first question is for your third quarter guidance, how much platform or marketplace revenues. I noticed that you breakout the platform revenues as other revenues in the current quarter. I just want to know how much of that is going to be in your guidance in the third quarter. I have two follow-up questions. Thanks.

Okay. Well, a very small number of revenue from the platform business has been included in our Q3 revenue guidance, a very small number, because we can only record the commission that we charge on those marketplace type of business, that's why it is very small. But the GMV from the marketplace business is going to be pretty significant. According to the current estimate, it's going to be over $20 million for Q3. But we have not indicated that GMV from the third-party platform business in the earnings release. So now I would like to clarify on that point, the $365 million to $370 million revenue for Q3 guidance is, does not include the GMV from the platform business.

Yes, so (inaudible) the $20 million number is actually quite significant, it's close to about 5%, more than 5% of your guidance next quarter. How much do you see that grow, say, to the end of next year? What percentage of your GMV is going to come from marketplace?

Well, we don't provide guidance for next year, but what I can tell you is if you look the GMV from our platform business on a quarterly over quarterly -- quarter-over-quarter basis, if you compare Q3 with Q2 it has grown very, very significantly. We actually only started the marketplace business back in April.

All right.

So it was a very small business in Q2, but in Q3 it's going to become a lot more significant.

Okay, great. My last question is that in the customer, active customers that you mentioned this quarter, can you tell us how much -- how many of that is new customers and what is the repeat purchase rate? Either number is fine. Thanks.

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So, Eric, we had -- we added 1.5 million new active customers during the quarter and the repeat purchase rate is around 75%.

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Muzhi Li, Citigroup.

Some follow-up questions. One of them is the third-party platform, what does the Company or what would the Company do to guarantee the customer satisfaction, because some of the deliveries in the warehouse will be handled by the merchant and so I would like to know how the Company wants to keep -- retain the customer satisfaction.

And my second follow-up question is the warehouse, would you please give me a approximate number of by the end of 2014 and '15 how many -- what's the total warehouse in terms of the square meters will become fully function? Thank you.

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We started the third-party platform model in April this year but we have our principles in executing this business strategy. So the categories that at the moment we use third-party platforms are typically for key products like furniture, like [3D] products, like bags, mattresses, so on so forth. So our main focus is actually self-run B2C model.

Thank you. Thank you.

And how about the warehouse question?

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Okay. So we are in the process of expanding our warehouse capacity. So by the end of this year, it's going to increase to approximately 400,000 square meters in the next two years, and we expect that number to reach 900,000 square meters. That's our initial estimate.

Thank you. And last question is I want to ask about how many brand partners participate in sales events in the second half and how that compares to previous quarter? Thank you.

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So we -- in the second quarter we ran over 8,000 sales events, and our total brand partners was approximately 3,500.

Thank you very much. It's very helpful.

Jiong Shao, Macquarie.

I have two. Firstly, just really to follow up on the question already about your platform sales. Given you are starting from a low base and expecting a very significant growth in that area, wouldn't that sort of change your margin profile down the road for the better as, may be clarify, you can help us to clarify, I think for the platform you recognize net revenue, i.e. commission as a revenue which pretty much goes straight to the bottom line? That's my first question.

Yes, you're right, absolutely. The platform business is going to help with our margin profile for the better.

Okay. But if that's the case, do you have -- I know you sort of guided your long-term gross margin, does that change your guidance for your longer term gross margin or operating margin?

Not yet, because we have just started our platform business, and it's still too short for us to be able to predict the long-term trend.

Okay. That's fair.

And my second question is about your traffic. I think some of the third-party numbers, recent data apparently showed you saw a bit dip in the month of June for in terms of user traffic and user time. It kind of seems a bit strange given the strong growth in the space. I was wondering, do you have some of your internal data you are willing to share with us, talk about what you see from inside in terms of your user traffic and the time spent, et cetera? Thank you.

Okay. Well, third-party traffic data may have limitations due to sampling methodology and statistical errors. And then, short-term traffic data, I know you're talking about June data from iResearch report, but short-term traffic data may be largely skewed by promotional activities.

For example, there a lot of large e-commerce companies doing big promotional activities back in June. And that's why we saw a much higher traffic data for those e-commerce companies. But Vipshop didn't do very large promotions back in that month, so that's why maybe our number was a bit lower than the other platforms.

And then, June is only one month, and one month data does not reflect long-term trend. And if you do some calculations on the iResearch data and you compare year-over-year traffic and growth among other e-commerce companies, you can see that Vipshop is among the fastest growing web -- e-commerce website.

And you mentioned total time spent. That metric is not really valid for e-commerce companies because we are not online video companies. We don't actually use that total time spent to track our business performance or market share, none of that. What we use is active number of -- number of active customers, repeat purchase rate, number of orders, those numbers are a lot more relevant to e-commerce companies.

And lastly, given our flash sales business model, our customers in general have to make purchasing decisions very quickly. So market share calculations based on total time spent does not really make sense for a flash sales website like Vipshop.

Given -- by the way, I think you mentioned earlier given the promotions you did in July, and I think you also highlighted earlier the traffic has -- growth in July has been very strong.

Yes. We are also looking at some of the third-party traffic data reports as a reference and we did see that our July traffic data went up very significantly.

Okay. That's good to hear. Thank you very much, Donghao.

Thank you.

Ming Zhao, 86Research.

Two questions. The first question is, mostly if you could comment on the seasonality of the business, the quarter-over-quarter change of your top line, it does seems like your third quarter guidance is pointing to a lower sequential growth from second quarter to third quarter. And why is that? And what about fourth quarter, do you (inaudible) growing in the fourth quarter over the past two years, so any color on that is appreciated.

And the second question is on your promotional activities, you see in the industry some of the players are doing promotions in June, are you guys planning to do it, do something in August or November, December, you guys don't do it there. You choose different months to do the promotions. Is that because you want to avoid the very high ad [planning] rates? And you are not concerned about the traffic going to those guys? Thank you.

Okay. Let me take the first question. There is a very significant seasonality in our business. Usually Q2 and Q3 are the low seasons in a year because it's hot summer, people only buy T-shirts, not very expensive. So that's why typically our Q2 and Q3 are low seasons.

And if you compare Q3 versus Q2, if you look at our guidance, top line, Q3 only grows by about 5% Q over Q. And last year, if you compare Q3 versus Q2, the top line grew by about 15%. And the reason for that is because of the base effect in our quarterly revenue is much, much bigger this year than that year. So you can't expect the same kind of, the same level of growth rate at a much higher base. And Q4 is typically the peak season in a year, and it's going to be definitely much higher in terms of top line than all the -- than the previous three quarters. But I can't tell you how big or how good Q4 is going to be for this year because we don't provide guidance on Q4. But what I can tell you is it's going to be the peak season in a year as always. And the second question, get that one?

Okay. Yes. (Spoken in foreign language).

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So, yes, of course Vipshop has its own unique business model and we don't have to follow suite to join other e-commerce big promotions at the same time. What we are doing is selectively to hold promotional activities which we think that is in the Company's best interest. And to -- and then another point Eric added was that we cannot see any major or increasing media cuts happening in June or July.

Thank you very much.

Thank you.

Dick Wei, Credit Suisse.

My first question is on the third-party platform business. Just wonder what is the rational for the third-party platform, is that more of the different categories compared to our traditional site? And if so, how much value-add Vipshop provide and how sustainable are those categories? Thanks.

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So as Eric mentioned earlier, the principals that we carry out while using third-party platform is for mainly bulky products, such as 3D product or home goods or furniture, these types of products which are bulky and very difficult to transport and at the same time too much space in our warehouse. And the reason that we launched this platform is based on our customers picking it. So obviously if they come to shop at Vipshop they will wish to buy all products that they desire at the same destination.

Maybe just a quick follow-up, if I look at the margins for that business, if I not look at accounting but the actual margin for those business, would that be similar to our in-house products?

Well, I think you're talking about take rate because margin on that business is 100% because we only book the commission that we charge. Once we book that commission as our revenue, there is no cost of good sold. So the gross margin is almost 100%. I think you want to ask about the take rate on average, it really varies depending on the suppliers.

Okay. And maybe just lastly on this topic, does those tend to be more competitive products that other platform could provide as well or is it like a lot of value-add that Vipshop can provide in selecting and suggesting for those products to end customers and good customer experience and delivery ensured?

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So our main goal is still trying to differentiate our products. And what Eric mentioned and emphasized is that we still carefully scrutinize and select the products that we are selling on a third-party platform. Yes, that's the main thing.

Thanks.

Lastly just want to check again on the mobile pageview and the mobile transaction volume on the platform? Thanks.

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We have made substantial improvement with our mobile strategy, and Eric mentioned according to the latest data, sales contribution from mobile has actually increased to around 14% in the second quarter and we expect a higher contribution in Q3 and Q4 this year.

Great. Thank you very much.

Thank you very much. In the interest of time, we will now hand it back for Ms. Millicent for closing remarks. Thank you.

Well, thank you for taking the time to join us, and we look forward to speaking with you next quarter. Thank you all.

Thank you.

Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.