Vipshop Holdings Ltd (VIPS) 2017 Q1 法說會逐字稿

Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited First Quarter 2017 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. Hello, everyone, and thank you for joining Vipshop's First Quarter 2017 Earnings Conference Call.

Before we begin, I'll read the safe harbor 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's Holdings Limited and its industry. All statements, other than statements of historical facts 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 as of date hereof and are subject to the change at any time, and we have no obligation to update these forward-looking statements.

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

At this time, I would like to turn the call over to Eric Shen-Zong.

Good morning, and good evening, everyone. Welcome, and thank you for joining our first quarter 2017 earnings conference call. We are pleased to have report solid results in the first quarter of 2017. Our total active customers for the trailing 12 months ending with March 2017 increased by 38% to over 55 million. Our user penetration in China online shopping population is still small, therefore, we continue to believe that there is plenty of room to grow our customer base in the years ahead. We continue to make efforts to improve our user stickiness. Recently, we test a new Super VIP paid membership program, which offers exclusive or early access to promotional events, special saving and free shipping and returns. Early results show significantly improvements in average order frequency and average revenue per user for those who joined the program.

As always, we care a lot about product quality and the merchandising improvements. From our end, we added more sub-categories to our existing portfolio and increased the daily average SKUs online by 161% to 1.7 million compared to the same period last year. On the other hand, we remain focused on bringing in high-quality international brand such as Giorgio Armani, Guess and Versace. We are also preparing for more custom-made and exclusive SKUs that will only be available on Vipshop and are very excited about the opportunities.

In addition, we remain focused on new technologies to improve our efficiency and lower our costs. For example, we are in the process of developing intelligent customer service chatbots that provide shopping guides before purchase and after sale service. We also added a number of warehouse, automation and intelligent logistics initiative during the quarter, which Donghao will discuss later on.

Overall, we are pleased to have start 2017 on a strong note, both financially and operationally. Over the past few years, we gained trust from our customers and suppliers as we scaled our business and delivered on our promise. We have become an important partner for brands to manage their product life cycle, which leads to more high-quality and diversified merchandise to our growing user base.

At this point, let me hand over the call to our CFO, Donghao Yang, so that he may discuss our strategies in more detail and go over our operational and financial results.

Thanks, Eric, and hello, everyone. In the past quarter, we delivered robust results with solid top line growth, while challenging our product margins. Importantly, we continued to generate sustainable healthy cash flow in the first quarter of 2017 with free cash flow of RMB 0.43 billion. Our free cash flow trailing 12 months ended March 31, 2017 remained strong at RMB 3.26 billion.

Moving on, we're pleased to announce that our Board of Directors have authorized the company to explore a proposed spin-off of our Internet finance business into a dedicated entity. The objective of the proposed spin-off is to shift any associated benefits and costs to this dedicated entity and alleviate the Internet finance business financial impact on our core e-commerce business. Additionally, it may enable the Internet finance business to accelerate its growth as an independent entity going forward. It has been proposed that Vipshop will eject all of our Internet finance business and related assets into the dedicated entity and restructure the existing variable interest entity arrangement with that dedicated entity. Certain key members of the Internet finance business management may acquire minority equity interests in the dedicated entity. Our Board of Directors has authorized our directors and officers to further explore, negotiate and finalize the terms and arrangements of the proposed spin-off for its final approval.

Our Board of Directors has also authorized the formation of a new entity dedicated to our logistics business, aiming to open up our logistics services to a broader market. This will lower costs for both Vipshop shop and our business partners by accelerating increased economy of scale in this part of our business, as well as enable us to explore a new initiative of online and offline retail integration and provide consistent delivery services with a more comprehensive nationwide network coverage.

During the first quarter of 2017, we duly notified all holders of our 1.5% convertible senior notes due 2019 of their one-time put right under the terms of the indenture for the notes, of which USD 632.5 million aggregate principal amount was outstanding at the time of the notification. Approximately USD 3.1 million aggregate principal amount of the notes were validly and timely surrendered and not withdrawn, and we accepted all of these notes for repurchase. We believe the result of the put right exercise of our notes is an endorsement of our financial strength and high credit quality. It also represents a vote of confidence from the capital market for our future growth prospects and market potential.

On the logistics side, we added around 160,000 square meters of warehouse space in Jianyang, China, in the first quarter, and currently have approximately 2.1 million square meters of warehouse capacity nationwide. In order to be closer to our customers, shorten delivery time and improve the efficiency of our distribution, in addition to our 5 regional and centralized warehouses, we expanded our local warehouses to include 2 facilities in Guiyang and Kunming in China, increasing the total number of local warehouses to 7 as of March 31, 2017. We plan to have 1 local warehouse in each major province by the end of 2017.

(inaudible) after adding around 3,000 last-mile delivery staff in the quarter, we now have more than 23,000 last-mile delivery staff in total. Currently, we have approximately 2,800 self-operated delivery stations and are able to deliver more than 93% of our orders through our last-mile network as compared with 83% in the prior year period, covering all provinces in China. In addition, we further strengthened our logistics services by having our own delivery staff pick up returns from our customers directly, which currently covers 67% of our total returns, up from 30% of the same period in 2016.

We're excited to share with you that, in the first quarter, we also made progress in improving the automation and technology of our warehouses, aiming to improve our logistics efficiency and reduce our costs. Specifically, we introduced automated systems in our central and southern warehouse facility including conveyor belts and automatic systems for product sorting and storage. Moreover, we scaled up the application of intelligent transportation robot systems in our southern warehouse and rolled out our proprietary warehouse control systems in our southern and central warehouses.

Lastly, as of March 31, 2017, the total balance of credit outstanding to customers was approximately RMB 2.59 billion and the total balance of credit outstanding to suppliers was RMB 746.1 million.

Now moving on to our quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented today are in Renminbi amounts and all the percentage changes referred to year-over-year changes unless otherwise noted. Total net revenue for the first quarter of 2017 increased by 31.1% to 15.95 billion, primarily attributable to a 32% year-over-year increase in the number of active customers, which grew to 26 million and a 23% year-over-year increase in total orders to 72.1 million. Gross profit for the first quarter of 2017 increased by 25% to 3.69 billion, primarily driven by the expanded scale of the business. Gross margin for the first quarter was 23.2% as compared with 24.3% in the prior year period. We expect our gross margin to remain stable in the short-term as we balance our promotional activities and sales with our marketing expenses.

Fulfillment expenses for the first quarter of 2017 were 1.44 billion as compared with 1.08 billion in the prior year period, primarily reflecting an increase in sales volume and number of orders fulfilled. As a percentage of total net revenue, fulfillment expenses were 9% as compared with 8.9% in the prior year period, primarily attributable to our expansion to support an increase in our last-mile business outside of the Vipshop platform.

Marketing expenses for the first quarter of 2017 were 730 million as compared with 604 million in the prior year period, reflecting our strategy to drive long-term growth through sustainable investments in strengthening our brand awareness, attracting new users and expanding our market share. As a percentage of total net revenue, marketing expenses decreased to 4.6% from 5% in the prior year period, primarily attributable to our strategic balance between promotional activities and sales with our broader marketing efforts.

Technology and content expenses for the first quarter of 2017 were 420 million as compared with 327 million in the prior year period, reflecting our continuing efforts to invest in human capital, advanced technologies such as data analytics as well as new business opportunities including our Internet finance business. As a percentage of total net revenue, technology and content expenses decreased to 2.6% from 2.7% in the prior year period.

General and administrative expenses for the first quarter of 2017 were 542 million as compared with 382 million in the prior year period. As a percentage of total net revenue, general and administrative expenses were 3.4% as compared with 3.1% in the prior year period, primarily attributable to an increase in share-based compensation as well as the impact from building out the Internet finance business.

Our income from operations increased by 23.6% to 737 million for the first quarter of 2017. Operating margin was 4.6% as compared with 4.9% in the prior year period. Non-GAAP income from operations, which excludes share-based compensation expenses and amortization of intangible assets resulting from business acquisitions increased by 31.2% to 1 billion from 765 million in the prior year period. Non-GAAP operating income margin remained stable at 6.3% year-over-year.

Our net income attributable to Vipshop's shareholders in the first quarter of 2017 increased by 16.3% to 552 million from 475 million in the prior year period. Net margin attributable to Vipshop's shareholders was 3.5% as compared with 3.9% in the prior year period. Net income per diluted ADS increased to RMB 0.92 from RMB 0.8 in the prior year period.

Non-GAAP net income attributable to Vipshop's shareholders, which excludes share-based compensation expenses, impairment loss of investments and amortization of intangible assets resulting from business acquisitions and equity method investments, increased by 28.2% to 799 million from 623 million in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders was 5% as compared with 5.1% in the prior year period. Non-GAAP net income per diluted ADS increased to RMB 1.31 from RMB 1.04 in the prior year period.

As of March 31, 2017, our company had cash and cash equivalents of 4.43 billion and held-to-maturity securities of 746 million. For the first quarter of 2017, net cash from operating activities was 0.74 billion.

Looking at our business outlook. For the second quarter of 2017, we expect our total net revenues to be between 17 billion and 17.5 billion, representing a year-over-year growth rate of approximately 26% to 30%.

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

(Operator Instructions) Your first question comes from the line of Alan Hellawell of Deutsche Bank.

I assume that user acquisition costs have stayed at relatively elevated levels. Is that likely to remain the case? Should they increase or decrease? And what would drive us in any such direction? Secondly, ARPU continued to improve and ticket size increased significantly, and we appreciate the explanation there. Where can we expect these figures to trend through the rest of the year? And then finally, you've increased SKU very impressively, what does that mean for business economics from warehousing configuration and costing to fulfillment and other costs?

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(foreign language)

So Alan, the first question is, in the first quarter, the user acquisition cost increased slightly year-over-year, they're actually down sequentially and Eric expects the trend to be maintained at a reasonable healthy level and does not expect a significant fluctuation from where we are now.

(foreign language)

(foreign language)

The average ticket size actually rose year-on-year due to a few factors. So the increased contribution of higher ticket size categories, the improved personalization, which encourage customers to buy more items and also our quality directed to customers, which encourages them to buy multiple items into 1 order, which has some benefit to the fulfillment cost. But as you mentioned, Alan, the trend of the ARPU declined, actually narrowed substantially compared to the first half of last year, and we expect that trend to continue to improve down the road.

(foreign language)

(foreign language)

So actually the substantial increase of SKU numbers increases the complexity of our operations in our warehouses substantially. But actually in terms of the impact of the warehouse (inaudible) is not as significant.

And to add to that point, our warehouse is actually designed and set up for handling most standardized products and one of the characteristics of -- in that standardized product category is that, the huge number of SKUs, so our warehouse is actually well positioned to handle huge amount of SKUs.

Your next question comes from the line of Binnie Wong of Merrill Lynch.

Congrats on the solid quarter and the progresses we made in both our Internet finance and the logistic business units. So my question here is on the spin-off proposal of the Internet finance business. So wonder what is the operating cash flow impact, if that was one of the major trend to working capital last year? And follow on is that, will Vipshop shareholders also have the exposure to the potential upside from the growth in the Internet finance business? Any potential option to convert into equity stake or profit sharing? And second question is on the logistic unit. With the formation of this new unit and also the fast growth in revenue from fees earned on last mile for free promotions, is it fair to say we are transitioning this unit from a cost to revenue center too?

Okay. Well, Binnie, thanks -- thank you very much for the question. First of all, after we spin-off the Internet finance business, it's going to be (inaudible) in terms of the cash flow from the e-commerce business perspective, because at the end of the first quarter of 2017, the total outstanding credit balance for the Internet finance business was about RMB 3.3 billion. So just imagine, if the spin-off had been completed in Q1, it would have been a RMB 3.3 billion cash flow increase from the e-commerce business unit perspective. Second -- your -- secondly, we are just been authorized by the Board of Directors to start exploring potential terms and arrangements for the spin-off of the Internet finance business, so we do not have a -- the specific detail to share with you. But if you look at what our peer companies have done in their own -- in the spin-off of their own finance business units, I would say some type of profit-sharing arrangement will be negotiated and put in the final agreement. You had third question was about the -- I'm sorry, Binnie, can you repeat your second [third [sic]] question?

The logistics unit – thank you, Donghao. The logistics unit -- with the formation of the new business unit for the logistic business, and also, the fast growth in revenue, right, in other revenue line, we see from the fees we earned from the last-mile deliveries. What is our -- like what's -- is it fair to say that we're also transitioning it from just a cost center logistic business unit to potentially it could be a revenue center that we are charging on top of like not just a cost, but actually a premium to generate revenue from this logistic unit?

Well, yes, the answer is obviously, yes. And if you look at our financial statement right now, there is 1 -- there is some revenue from the logistics business that has been booked in the other revenue line. So in our logistics business has long since been a revenue profit generating business, rather than the cost center, a pure cost center. And in the future, I believe as our logistics business, especially the last-mile delivery business continues to grow to a much bigger scale, the contribution of that business to the revenue and profit for our core e-commerce business is going to continue to grow.

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

My question is actually regarding your experimental with the new Super VIP paid membership program, so can you share with us some color in terms of how much you plan to charge? Would that be an annual fee or a monthly fee? And who were the target audience during your trial period? And so far, what are the feedback from the customer?

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(foreign language)

So Alicia, as Eric mentioned, the Super VIP paid program at the moment is still in trial, and we are experimenting and at the moment, we are not charging anything. We might be thinking charging a fixed annual fee, but in terms of how much that would be, we haven't decided yet. But we believe it's going to be affordable level. In terms of the coverage of the customers at the moment, it's less than 1 million. And we have selected very carefully of the different ranking of our customers across the board. And so far, each tier of our customers showed significant improvement in terms of the frequency -- shopping frequency and also the average spent per customer. So we are actually quite pleased to see the initial results.

Your next question comes from the line of Evan Zhou of Crédit Suisse.

Questions regarding our gross margin and sales and marketing trends, because I think, we've been talking about this kind of rebalancing from using these 2 cost lines to acquire customer in a more efficient way. I think used to be a more skewed to the gross profit side, and I think, for this quarter's input, it's kind of -- I think, we're kind of doing more aggressive promotions on rebate side for the consumer. So how shall we expect I guess the trend going forward? And also on the sales and marketing side, shall we kind of expect some leverage on the sales and marketing on the back of the gross margin sacrifice from the rebate?

So Evan, so in terms of the gross margin, as you have continued to see that we are still trying to strike a balance between marketing expenses and then reinvestment into gross margin with the aim to gain more customers and gain more market share. So obviously, in the near term, it is our priority to grow as fast as we can, and during that period, we do think that gross margin is going to be largely stable. Longer-term, we do believe (inaudible) in growing the market share gain. We would be able to increase the gross margin when we become a bit more sizable. So I think, we do say, when it comes to user acquisition, either can come from the gross margin line in the form of rebate or come into the marketing expenses in the form of acquiring traffic, both of which is actually sharing one goal, that would be top line growth, user growth and then market share gain. So we believe short-term is going to be largely stable.

Your next question comes from the line of Ronald Keung of Goldman Sachs.

Just want to ask about the growth by categories. I remember, you mentioned about home goods was a very fast-growing segment. If you could break down home goods, apparel, toys, kids and baby, that segment actually saw some slower growth in 2016, how has it been tracking and also cosmetics? And longer-term, do you see any new categories that could come in?

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So Ronald, actually, to review 2017, the first quarter across the board, most of our categories achieved stable year-over-year growth rate compared to our overall top line growth. And if anything having 2 of the categories, it might be growing a little bit slower than the overall business. But having said that, we continue to adjust and optimize the portfolio going forward. Your second question on new category expansion, yes, we are actually proactively thinking and exploring opportunities in this regard in a few areas. Some categories that we actually, at the moment, not offering, which are not available for customers. And some products that are already on our website, but are not in obvious places, and we might need to make adjustment to the display, the webpages. And in particular, some high-frequency patches, SKUs and categories that, at the moment, not largely available on that platform. In these regards, we'd be making a relentless effort and aggressively exploring opportunities ahead.

Your next question comes from the line of Natalie Wu of CICC.

So basically two questions here. The first one is about the spin-off of the Internet finance business. You talked about the positive effect on your cash flow. So just wondering what kind of the impact that endeavor will have on your income statement except for R&D, G&A expenses? And the second one is about the average return rate. So just wondering is there any notable change for the average return rate for your top brands as well as the platform -- the overall platform versus a year ago?

Well, thanks for your question. Let me answer your first one about the spin-off of our Internet finance business. Well, our Internet finance business has been growing really fast, but it has also been a loss-making business. So I think, the potential spin-off if completed, will have a roughly 0.5% positive impact on our bottom line for the -- for a public company.

So the second question (foreign language)

(foreign language)

So Natalie, the return rate for our product is actually has been very stable at around 20%.

Your next question comes from the line of John Choi of Daiwa.

I do have a couple questions here. On -- first of all, on the fulfillment expense. We noticed that there was a slight upward trend and management did highlight the reasons behind it. But going forward for the subsequent quarters, how should we be thinking about this fulfillment expense? And secondly, just to follow-up on the impact on the higher number of SKUs. I think, if you look at the traditional flash sales model, would this have any impact on the sell-through rate? And in longer-term, how is this going to really impact when it comes to the business model? Is there -- are you guys think about more of a large size, more of a B2C model on a change of the business?

John, the first question on the fulfillment cost, actually, as a percentage of top line, it remain largely stable compared to the first quarter of 2016. And obviously, if you look at the economic -- the unit economic, in my -- by calculation, it might increase slightly, but that's due to the increasing expansion of our last-mile capability. So it would be too simple to just calculate using the total orders, but -- and using the total fulfillment cost to get the per unit cost. But your second part of the question would be, what kind of the trend going forward. As Eric and Donghao mentioned in their prepared remarks, we are doing a lot of automation efforts and initiatives. So we believe that down the road, there would be some room to achieve -- to further improve efficiency and lower cost.

(foreign language)

(foreign language)

So the sell-through rate actually will not be impacted due to the increase in number of SKUs, because we explained that in the logistics -- our logistics will have different models. We have the traditional pass-in, pass-out, and then we have increasing portion of just-in-time. And obviously, we have the co-location as well. So overall, it's not -- that would not impact our sell-through rate because the just-in-time model, it becomes a significant portion of our business.

Just to add one more thing on your question. As of today, 150% of our inventory is under the so-called just-in-time model. So the just-in-time model means before we get an order from a customer, the inventory that we are selling still sits in the warehouses of our suppliers. So that means a lot of the SKUs that we are adding to our website are not actually sitting in our warehouses before we actually get an order from the customer. So by that, without -- we can add a lot of SKUs to sell on our website without adding too much complexity to our own warehouse operations.

Your next question comes from the line of (inaudible) of JP Morgan.

So my question is, you mentioned that the benefit from spin-off Internet finance may result in 0.5% positive impact. What's your plan on way to deploying that positive impact? Do you plan to kind of reinvest to kind of generate more faster top line growth? Or you are happy to realize the margin increase?

Thanks for the question. Well, our strategy will not change due to the spin-off of the Internet finance business. Meaning, we will continue to try to grow our top line as fast as possible, while maintaining a stable net margins. So basically, we will most likely, reinvest the positive impact from the spin-off of the finance unit back to our business -- the e-commerce business to drive faster top line growth.

Your next question comes from the line of Eric Wen of Blue Lotus.

I just want to know more about our logistic ambitions. As we know, our sales -- our flash sales model keeps very low inventories. And now with our renewed focus on providing a local warehouse in each provinces by the end of this year, how does this translate to an impact to our gross margin and fulfillment cost going forward?

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So Eric, maybe to begin with, for the co-location and third-party logistics is actually accounting for around 20% of our other net revenue in terms of competition. So we believe that -- and also just a bit more information on the other net revenue line where people are also asking about the last-mile contribution and that is also 45 -- 44% of the other net revenue. So the contribution to the gross margin is actually reflected in the other net revenue line, which over the past few years, it has increased and it became accretive to our overall gross margin.

(foreign language) local distribution center, well -- okay, well, let may take. Well, Eric, thank you. Well, sorry about the misunderstanding of your question. Well, I think, the addition of more regional warehouses will help us shorten the delivery time to our customers, which will obviously make our customers happier and more satisfied. And of course, if they're happier and more satisfied, they will come back more often and buy more stuff from us. So I think, initially, the addition of more regional warehouses may have some negative impacts on our margin, but in the long term, it will help us grow our business even faster and achieve better margins.

Your next question comes from the line of Mitchell Kim of Maybank Kim Eng.

I had a question on your strategy regarding in-season versus off-season items. So if you could share with me what percentage of your inventory or the products sold is in-season versus off-season? And if you could share, also, about overall longer-term strategy, what does this mean as you go towards in-season mode? Is that going to help your gross margin? Or is that going to hurt your gross margin, but helps on the growth side?

(foreign language)

(foreign language)

So in-season and custom-made products accounted for 1/3 of our overall business, and we don't charge our suppliers differently, whether it's in-season or off-season or custom-made channel at the moment.

Your next question comes from the line of (inaudible) of 86Research.

So my question is regarding your opening up logistics services. So is this going to be primarily on the last-mile delivery or a comprehensive logistic solution including warehousing and the packaging? And also, what's your advantage in logistics services when compared to other logistics service providers?

(foreign language)

(foreign language)

So we will open up both our warehousing and logistics to third-party including our in the cities truck and transportation too. So for the warehouse, it depends on our core business growth and the size of our warehouses. We would then decide on how much extra space to be open to third parties. And as you can imagine for logistics, is actually the economic scale of business. The more orders that we can take outside of Vipshop platform, the better. So that would enable us to continue to lower the cost and improve efficiency. In terms of our advantages, obviously, we have 5 regional and centralized warehouses. And on top of that, we have close to 10 local warehouses nationwide. We have our trucking transportation, as Eric mentioned, and 2,800 self-operated delivery stations and of course, 20,000-plus delivery staff. All of these will add to enable Vipshop to provide consistent and better deliver services.

Your next question comes from the line of Jin Yoon of Mizuho Securities.

Just a couple. First of all, just a question on your year-to-date business. Just in the second quarter, could you give me any trends to see what you're seeing quarter-to-date, perhaps your success level on your mid-April sales campaign, kind of -- and what gives you the confidence towards a more of a stable revenue trajectory in the second quarter given your guidance compared to the deceleration we saw in the first quarter?

(foreign language)

Well, thanks Jin Kyu for the question. Usually, we don't comment on the current quarter except with the guidance that we provide to the capital market. And when you look at the guidance, we are -- we do expect our revenue to grow for second quarter from 26% to 30% year-over-year. And I can tell you that the mid-April promotion went really well, and that's part of the reason why we had this confidence to -- in our guidance.

Your next question comes from the line of Jialong Shi of Nomura Securities.

I have two questions. First is about your CapEx. Can you give us an update on the CapEx for this year and next year? And second question is -- it appears you guys are now adding more brands to each sales event. This may mean like more varieties for your customers but it may also dilute the user traffic each individual brand can receive from your platform. So I just wonder if management may provide some colors on that.

Okay, let me take -- well, thanks, Jialong for your question. Let me take your first question. Well, our CapEx for this year, 2017, and next year will be around RMB 3 billion each year. And the major CapEx items will include, of course, the expansion of warehouses and construction of our headquarters in Guangzhou. So the second question, Millicent, I think...

(foreign language)

(foreign language)

So Jialong, the great demand for different plans to cater for different age group of customers, and actually that is a good thing to have, because we can use Big Data and personalization and launch different brands to different age groups of customers. And Eric just mentioned briefly that, we also made progress in terms of personalization and to improve a much bigger number of age groups compared to what we disclosed last quarter.

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

I have a question related to your fulfillment. As you open up your logistic services, delivering services, so I wonder what's the impact to your bottom line. So if you have any services or orders from the third party, and that's considered to be the revenue of logistics, how you're going to report that? Report it as something against your expense or as a revenue, so that is my question.

Well, thank you very much for your question. I think in the long term, the opening -- the open up of our logistic services to third-party customers will definitely have a positive impact on our bottom line, because the biggest driver in P&L essentially in the last mile courier operations is actually the scale. The more you deliver, the lower your average cost. So in the long term, it's going to be definitely a positive impact. And the revenue that our logistics operations generate by delivering for third-party customers is now recorded in the other revenue line item. So it's a revenue, not a cost or negative against the cost.

There are no further questions at this time. I would now like to hand the conference back to management for closing remarks. Please continue.

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

Thank you.

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