Hello and thank you for standing by for JD.Com's First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen only mode. After management’s prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ruiyu Li.

Thank you, operator, and welcome to our first quarter 2015 earnings conference call. Joining today on the call are Richard Liu, Founder, Chairman and CEO; and Sidney Huang, our CFO. For today's agenda, management will discuss highlights for the first quarter 2015. Following the prepared remarks, Haoyu Shen, CEO of JD Mall, will join Mr. Liu and Mr. Huang for the question-and-answer portion of the call. Before we continue, I refer you to our Safe Harbor statement in earnings press release, which applies to this call, as we will make forward-looking statements. Also, this call includes discussion 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 that, unless otherwise stated, all the figures mentioned during this conference call are all in RMB. I would like to turn the call over to our Founder, Chairman and CEO Richard Liu.

Thank you, Ruiyu, and welcome everyone. We are off to a strong start in 2015 as our reputation for quality and service continues to drive rapid growth. During the quarter William Hunt, leading online shopping experience, we expanded our regional products and partnered with top international retailers. As we launched JD worldwide to gain international brand a complete solution to reach Chinese consumers. We’ve made good progress across our O2O initiatives and even at finance avenues as well as geologic verticals such as also through our partnership with [BW]. In addition in March we launched our equity Crowdfunding platform which is helping Chinese entrepreneurs develop their businesses for long-term success. This is exciting time for JD.com. Chinese consumers increasing among high quality authentic products and truly great service and there is a huge demand for new generation of smart products and service that bridge the gap between on and offline. Our all these areas are key to our long-term growth and our experience, reputation and execution capability to give us a powerful advantage. Again thank you for joining us today. I will now turn over the call to Sidney.

Thank you, Richard. And hello everyone I’ll spend the next 10 minutes to walk through our Q1 financial results and Q2 outlook. We’re very encouraged by our continued robust growth in the first quarter. Our year-on-year GMV growth was 99% overall and 94% for JD Mall excluding the effects from the marketplace business acquired from the Tencent transaction. Our net revenue year-on-year growth was 62% in Q1 above our internal expectations due to strong performance in our 1P business during the Chinese New Year holiday. The GMV composition was largely consistent with the prior quarter. GMV from general merchandize categories grew 151% and accounted for more than 49% of total GMV during the quarter. Apparel and shoes continued to be the fastest growing category with the year-over-year growth of 230%. Other fast growing categories included home furnishing, watches and handbags and auto related products. GMV from a marketplace business grew 185% in Q1 and accounted for 42% of our GMV during the period. More notably if you exclude pipeline [vehicle] contribution GMV from our B2C marketplace grew at an accelerated rate of 176% year-over-year compared to 171% growth in Q4 last year. On a sequential basis, our overall marketplace GMV declined 1% due to seasonality but our B2C marketplace managed to box the industry trend which is GMV growing 3% sequentially from the seasonally strong fourth quarter. Even better our first part of GMV had a sequential growth of 5% driven by strong principal business during the Chinese New Year season while third party merchants tend to slow down or take off for the holiday. As a result the 1P GMV contribution increased 2% sequentially to 58% of total GMV. This seasonal mix shift highlights JD's competitive advantage of running a principal business that can ensure quality and consistency in…

The question-and-answer session of this conference call will start in a moment [Operator Instructions]. Your first question comes from the line of Eddie Leung from Merrill Lynch. Your line is open. Please go ahead.

Just I would like to get a sense on two so-called new initiatives. Could you share with us some of your strategy and plans for cross-border trade? It seems a lot of your competitors have been putting a lot of emphasis in that area. And then secondly, any update about your online finance pieces would be great; if you can share any operating metrics that would be wonderful?

Eddie, it’s Haoyu, I’ll take the cross border business question. We formerly launched JD worldwide April '15 now we have 600 merchants online selling I think very big number of SKUs in 100s of 1,000s and we do operate a few different models. We’ve rented bonded warehouses in a few cities in China. So we do direct import we also let some merchants use our rented bonded warehouses in the city. We also do dock shipping mostly through third party merchants. So it’s in its early days and we think overseas shopping has a very good fit with JD’s customer base and JD’s association with authenticity and so we have -- it looks like a very promising business for us, that is in early days right now.

Can I ask you a follow up question on that front? When you select products, how can you avoid cannibalization between the existing -- branded products on your platform versus those imported products?

In lot of cases there is not much cannibalization because of the selection, so a lot of the SKUs are just not available in China in cases where there is similar SKUs, we don’t at this point we don’t look into that too much because the markets there, the consumer demand is there. So, we just meet our customer’s demand.

And on your second question, Eddie on Internet finance we see robust growth in our consumer finance business. We have gradually expanded the target customer base among again still a selective group of JD customers. And we also through public meetings you probably saw that we have some new initiatives on equity cross funding and a number of other new products. But generally they are still in fairly early stage other than the supply chain financing and also consumer financing products. So at this point we have not disclosed any metrics but we’ll probably do so over the next few quarters. Richard wanted to add a few words about the cross border ecommerce. So we’re really focusing on two things this year for this business. The first one is to work with our customers and bonded warehouses in different cities. Right now we are already working with three cities and we’re right now as we speak we are working with two other cities. So hopefully by the end of the year we’ll have five cities that we can do this business through. And the second thing is we are in selection we’ve gone to these overseas recruiting [cities] we’ve been to Korea, France and Japan, and we're going to Australia soon, really going to those cities -- those countries recruit seller and looking at different merchandizes that will fit Chinese consumers need. So again it's early that numbers are looking promising and we will continue to invest in this business and again it's a great fit with our brand image.

[Operator Instructions]. Your next question comes from the line of Erica Poon Werkun from UBS. Your line is open. Please go ahead.

My question is on your customer add. Just wondering if you can share how many new active customer you added in Q1, and how many of those are from the Tencent, Weixin and QQ access point? And relatedly, I also wanted to understand on the Tencent relationship, wondering if you can share some other metrics such as traffic data, GMV contribution, et cetera?

So we had disclosed the couple of metrics last quarter. With the November 11 shopping festival we saw a huge increase from those entry points. So sequentially because of the seasonality and a lesser promotional quarter, so you don’t necessary the same amount of new customer expert in terms of the contribution to new customer acquisition the percentage was still close. Last time we mentioned about few 20% and in Q1 it is still fairly close to that number even without your November 11 type of that promotion. So it is still very, very healthy, so customer base also sequentially increased on a quarterly basis even though Q4 was really a strong quarter. But starting this year we will only disclose annual customer annual active customers. So you can see that on a trailing 12 months basis we did see a 90% growth this year in the first quarter.

Your next question comes from the line of Alicia Yap from Barclays. Your line is open. Please go ahead.

I have questions regarding the JD Baitiao. So can management elaborate a little bit on this initiative? I understand it is still on a testing mode and may be limited to Beijing, or maybe some other city. So I wanted to know how has been the traction so far, and should we expect this category to have a meaningful contribution down the road? And if you could also provide the margin profile for these fresh food category?

So we formally launched our wholesale business recently we've been as you matter always been testing this for over a year now. And we think we have fixed, we've finalized the business model right now as we know we're only in Beijing but we're testing as we speak in Shanghai already. So by the end of Q2 hopefully we'll get to four cities Beijing, Shanghai, Guangzhou, and Shenzhen. And we're adding more provincial capitals by the end of the year. So we're looking closely looking at the numbers everyday is growing very fast and is very much like to buy our customers. Right now we're really focusing on growing customer base where we are working with supermarkets and the take rate is very low at this point. But that’s not our focus is going. What we really want to do going forward is crowdsourcing logistics and we believe this model will enable us to serve more customers. By end of May we we'll open up a recruit crowdsourcing delivery personnel.

Can you explain what is crowdsourcing delivery?

These are basically free lancers if you will, contractors not JD specific JD employees and they do delivery for orders placed on JD.com. So the delivery model of Uber.

Your next question comes from the line of Mark Miller from William Blair. Your line is open. Please go ahead.

Could you share with us your visibility on the backlog of third-party sellers, their interest in utilizing your fulfillment capabilities? And then, is that a business that can be material as you progress through 2015? And the ramp up in that is that more constrained by your own capacity and logistics' considerations? Or is that a service that you need to market and build interest, and show that it accelerates the volume for sellers?

There is not so much backlog in terms of merchants waiting to use our services. As we mentioned in previous call we do handle about 30% of the merchants parcels already in terms of last mile delivery I think what we will focus on going forward is convince more and more of them to use our warehouses. So our warehouse space has been a constraint capacity wise but not so much anymore so at this point we're really focusing on selling into these merchants to use our warehouses. But it’s more it is more convincing for them to use our warehouses than just to use our last mile delivery services. So we’ve made some progress and as you might know we’ve started working with UNIQLO recently, the Japanese SaaS business and they’re using our not only last mile delivery but also our warehouses. But it will take some time.

And if I could ask one other question, the take rate on third-party sales continues to migrate down, at least that computed percentage. Can you share with us the dynamics in terms of how we think about that contribution?

The take rate is stable but it does vary by category so some fluctuation from quarter-to-quarter might be due to the mix shift.

Because for example in the fourth quarter during November 11 first of all there will be more apparel sales which has higher take rate and comparatively speaking in Q1 there will be more buying for food and beverage and other kind of new year season gifts. So the take rate will be a little bit different from the mix.

Your next question comes from the lie of Ella Ji from Oppenheimer. Your line is open. Please go ahead.

First, I have a quick follow-up relating to your worldwide business. So your logistics in the delivery services has been one of your key differentiations. Could you also talk about your services for the worldwide segment? If now we've added one more step, which is customs clearance, do you still think your logistics in the deliveries are better than other competitors on the market? And so far, what is the average delivery time for the orders made on the worldwide? And then the next question is relating to your partnership with Tuniu, I just want to clarify that if Tuniu is going to be your sole operator on JD Travel? And if that's right, I understand that Tuniu is mostly an outbound online travel agency. So is it fair to say that your travel channel is going to be focused on outbound travel only?

For the cross border business for the high velocity, high frequency SKUs we, our goal is to stock down them in the bonded warehouses and so far the customer clearance time is very fast. O2O direct shipping for the long tail SKUs concerning the inventories risk then naturally the customer experience will not be as good as SKUs that goes through the bonded warehouses. Depending on the categories different in countries it takes anywhere between four to 15 days to arrive.

On the Tuniu question we only give Tuniu exclusive right to operate the package tool in some related leisure travel channels, we do allow Tuniu to be a preferred partner on air and hotel booking services but that’s not exclusive. So we will still maintain our own travel channel but we will give Tuniu exclusive access to several sub channels within the travel category.

The next question comes from the line of Cynthia Meng from Jefferies. Your line is open. Please go ahead.

I've a question on the mobile GMV contribution. Can management give us more color on the average ticket price per order on mobile, compared to PC? And related to that, actually, related to the marketplace strategy, can you give us some more color, for the long-term, how management thinks about the third party marketplace GMV contribution would be for the whole company? And where is JD's competitive differentiation in the third-party marketplace, compared to other players in the market.

So I'll take the first question…

The first question I guess was about the G&A contributions on mobile. We don’t disclose that number right we will disclose the percentage of orders.

So you're talking about ticket size. So ticket size has been actually on both PC and mobile and fairly consistent over the last several quarters. For Q1 in particular we have to show some increase in average order size we seeing partly because now everyone is under suspension for the lottery tickets which has low ticket size. But I think excluding that effect should be for the consistent that mobile generally will have a lower ticket size than the PC average order value.

I think we mentioned in the release that in Q1 mobile accounted for 42% sales of orders. So as far GMV as a percent will be lower but not very low but we don’t disclose that number. And your question about third party marketplace growth Q1 if you look at these number sequentially Q1 versus Q4 the Q4 is a big quarter for market place. So if you compare first party versus marketplace the growth was similar for Q1 but going forward we think marketplace will continue and the growth will continue to outpace the growth of first part business. But we don’t have a set goal but I think Richard mentioned before that it's very possible in the next few years that the majority our GMV will be from marketplace sellers. The overall markets size for the category is dominated by marketplace is much larger than the standardized products usually handled by joint model. You also asked question is that what's our differentiator versus some other platforms, I think we talked about this many times before it's for the merchant we have higher income customers and for the merchant we offer logistics services for them. So both of these can be very strong differentiators in the market.

Your next question comes from the line of Alex Yao from JP Morgan. Your line is open. Please go ahead.

I just want to ask about the category expansion strategy for both of your 1P and 3P now that you have investments in Tuniu and, obviously, you are pushing forward for the travel categories. Any update on a two to three years view will be helpful.

Yes, so we are a full category online retailer and so we already covered all the essential categories. The strategic alliance with Tuniu and also with auto last quarter was really to extend our capabilities in more specialized verticals where vertical expertise was very important. So this has not changed our vertical expansion strategy. We are in these verticals it is really just a matter of execution in each and every of these categories. I mentioned a few categories in my prepared remarks which ones are growing faster. But I can tell you just for our marketplace business vast majority of those categories are growing at a triple digit. So we are making very good progress across all categories.

Your next question comes from the line of Gene Munster from Piper Jaffray. Your line is open. Please go ahead.

In the past, you've talked about JD growing at or better than overall e-commerce growth rates and the question is twofold first is, do you still feel long-term that that will be the case? And second is, now that you've had some time to think about and digest Alibaba's strategy, post IPO, has anything changed in how they're approaching the market that may be impacting how you feel about your ability to grow at or above e-commerce growth rates longer term?

We have been growing significantly faster than the industry and also our largest competitor. And in particular over the past several quarters, we have seen in a number of areas accelerating growth. So the track record just provide some evidence that our unique model is working, our focus on customer experience, focus on quality and service, is definitely giving us a competitive edge versus our competitors in the industry. So yes we do not believe there is anything changed from our strategy point of view.

The order growth in ecommerce business is who ever can provide a best customer experience always wins.

Your next question comes from the line of Robert Lin from Morgan Stanley. Your line is open. Please go ahead.

I've two questions here. I noticed that you guys have tested the personalization of the homepage, essentially to change [demand] and some of the articles I've read is that the initial feedback has been positive. Can you just comment on why your initiative is different than other marketplaces like Taobao and the initial conversion rate, as well as the potential for long rollout too, the timing of the rollout for this year? Second question is your third-party margin; there is a substantial decrease. Now I notice, Sidney, you said it's a mix issue. Are there any other factors that is contributing to that decline, meaning your warehousing services or your logistics services that's tracking down, besides just a mix shift? Can you provide that color?

So I’ll take the homepage question. We did revamp our homepage in the first quarter after lot of testing and we’ve added more proposition components in our homepage. But I think we are not doing enough yet I mean this is just a start. I think as we grow our customer base, as we grow number of orders every day, we get more data about customers as they purchase, visit our site more frequently we get more data about them. So we'll keep improving preparation and recently made a few very good hires, technology hires on this front. So, you should expect to see more in that respect from us. But nothing in particular to add.

So no your second question for sequential gross margin change there are really three key elements, the first is commission and I mentioned about mix shift because apparel was Q4 was a stronger quarter for apparel which happen to have the highest commission rate. And the second element is advertising and it also coincides with high promotional quarters. So Q2 and Q4 will see higher advertising revenue as a percent of total revenue. So that also has impact on sequential decline in Q1 and the third element is the logistic services and because the marketplace activity slowdown in Q1 because of Chinese New Year, so the outsourced third party logistic services also were impacted, so all three actually had seasonal effect basically. And that's why you should look at on a year-over-year basis which we do see improvement across all three elements.

Your next question comes from Ida Yu from CICC. Your line is open please go ahead.

I have one question here. As I noticed that online direct sales GMV maintained very strong growth momentum and its portion also increased to 58% in Q1 from the previous quarter, and I think Sidney mentioned that it was due to the seasonality. I'm also wondering what is the trend, going forward, and will the company devote more resources to develop direct sales business for better quality control. And also, can you also share with us what other categories that will lead this strong growth in direct sales?

So, as I mentioned Q1 was mainly driven by seasonality because third party merchants tend to take off during the holidays, right, so it's more seasonality than company strategy, we will continue to, we'll continue to focus on both direct sales and marketplace businesses as Richard and Haoyu mentioned earlier because of the underlying market is larger for the long-tail products. So we do expect marketplace will continue to outgrow the principal business in the foreseeable future. So Q1 was more of a seasonality issue rather than a company's strategic shift. And for what's the second part of your question?

Your next question comes from Sean Zhang from 86 Research. Your line is open please go ahead.

So my understanding is, JD's still in a very rapid growth stage. I think the biggest driver for me is user growth and the market penetration. So 90% user growth year-over-year, is that a surprise to management as well? Or going forward, what do you see the trend will be? And I also see that your order growth actually fell behind the user growth and also, what will be the trend for order growth, going forward?

So the 90% customer growth is fairly consistent, it actually slowed down a bit from previous quarters on a year-over-year basis. As we continue to become with larger size and that order number is actually consistent with my earlier comment on average ticket size, so we suspect and partly the reasons for lottery tickets even though the GMV contribution was very small but the ticket size was also really, really small. So that's why it actually impacts the number of orders. But other than that there's really nothing unusual, other than we hope the average order size is improving when customers buying more products in each order.

Your next question comes from the line of Thomas Chong from Citi. Your line is open please go ahead.

I have two questions. The first question is about the number of third-party merchants in your 3P business. It seems that it is quite stable at about 60,000. Can management provide us some color about your expectations in the upcoming quarters? And secondly, for fulfillment, can management share some color about the fulfillment as a percentage of revenue that comes from your warehousing and delivery services provided to third-party partners?

On the merchants for the current quarter it's fairly consistent as we continue to closely monitor the quality of our merchant base, we're also increasing the annual service fees for each merchant so you know, really in a effort to continue to focus on the larger and more established merchant base. But longer term we do see that number to increase, I think our target is somewhere around 100,000 merchants that would be probably optimal. As far as fulfillment as a percent of revenue for third party it’s very difficult to separate that we actually because the same delivery staff will deliver for both 1P and 3P parcels. So it’s impossible actually to separate them. That’s why we have no longer even the gross margin is kind of a non-GAAP measures. But it’s somewhere if you just take a look at revenue and assume expense is same as the revenue because we’re running at a breakeven at this point. It’s roughly 1% to slightly higher depending on the quarter.

And just add to what Sidney just said about the number of merchants. So we always have quite high criteria when it comes to recruiting merchants to our platform. And we do offer pretty good selection at this point already so we’re not looking to grow this marketplace into a very crowded marketplace. We do want to offer selections but at the same time to make sure that every merchant can make reasonable money on our platform. So going forward we’re going to definitely going to add more to our platforms but in a very measured way.

Your next question comes from Eric Wen from Blue Lotus. Your line is open. Please go ahead.

My question is regarding your operating cash flow. It looks like our operating cash flow has more than doubled during the quarter and you generated about RMB2.1 million and it was a positive change in working capital in this quarter. Now I understand that coming off inventory buildup in Q4, we always have a positive cash flow in Q1, but can I get your comment on how scalable this cash flow, in fact, is in the future Q1s and if there's any one-time effect in this quarter's result?

There is little one time effect through the quarter in Q4 we mentioned a few reasons for negative operating cash flow one of the reasons was we had some prepayments to start up for the Chinese New Year holiday season. So that obviously in Q1 will be diverse. But I think even longer term on a sustainable basis, there is very good potential to sustain a positive operating cash flow. I did mention in my earlier remarks about our working capital, our accounts payable base, outstanding was only 40 days this quarter which is probably the lowest in the industry. So we at some point this payable cycle will gradually increase which will certainly add a lot of cash flow to our business. So we haven’t really pulled trigger but the change should be moving up in the next three to five years. If you look at payable situations at other offline retailers of the similar size they tend to have much longer payable days sometimes around 100 days we only have about 40 days and this shows our strong support to our suppliers. Having said that, it also indicates that we have lot of potential to further improve our cash situation and we’re not going to increase our payable days abruptly but I think over the next few years we do have potential to increase that by some days every year.

Your next question comes from the line of Tian Hou from TH Capital. Your line is open. Please go ahead.

Question related to your expansion. In the tier 1 cities like what really in Beijing, we saw JD deliver everywhere and from morning to the night and very active. So as company's expansion strategy, you are going to lower tier cities. And that will relate it to the lower tier cities, warehousing, delivering and labors, so I wonder what's the fulfillment cost is going to look like comparing in the tier 1, tier 2 city merchants or purchase. That's the number one question. So the second one is really related to your overseas direct haitao program. Haitao is such a big new thing, new trend and, however, it's very complicated. It is product sourcing from all over the world. How do you resolve this very complex product sourcing issue? That's two questions.

On the first as you know since last year we started expanding into the lower tier cities by really building up get away stations in third to 6 tier cities. So it will be inefficiency at the beginning but as to order density improves throughout the year we do see improvement on efficiency. So we do select the areas where we saw very good population density and if you look at the latest coverage we now cover about 1961 countries and districts out of 2800 nationwide. So these are still highly populated areas we do see good potential to have highly efficient last mile operations in those areas. So in terms of the delivery service we do not target also in those smaller areas we don’t target same dated of rate for example our objective is to have as many of these areas covered upon next day delivery services and we're seeing great improvement over the past 12 months.

Add to Sidney said about fulfillment in two lower tier cities. So with over the past years we've been through that process many times and we were only in first tier sees in the early the years when we go to second tier cities we always had six months or a year when it's very uneconomical when we do deliveries or so. But having people in JD uniform on the ground and delivering possibly to our customers is the most powerful marketing tool for us and very quickly we see order going up, order density going up and the cost border will take care of itself. So now we're going to first tier, fifth tier and even six tier cities and we are confident that as order event goes up we will benefit tremendously. And your second question about Haitao it is very complicated business a lot of SKUs, so the few things we're doing as we Richard mentioned earlier that we've been one thing we do is we to these different countries we work with the government, we do these conferences to recruit sellers on to our platforms. We also work with different models we work directly with those brands we work with distributors a lot at this point as well and also we are talking to retailers multi-brand retailers in different countries as well. So we are trying few different approaches. For the brand that really need Chinese consumers needs right now we are probably working with distributors important to China but over time we once more directly with the brands to get their authorization to become their authorized reseller in China during through a first part of business.

Your next question comes from the line of John Choi from Daiwa. Your line is open. Please go ahead. Q - John Choi I have a very brief question on your flash sales initiatives. Could management share any progress and more color to share with us, and also any idea on the contribution to the GMV.

It's part of I would say about half of the business meeting in more than half is apparel and shoes. We don’t disclosed exact numbers but it still if we look at the Q1 numbers it's still growing very fast sequentially and also year-over-year. And a significant portion of that business now uses all ware houses and delivery. But if you look at overall it's still a small number that growing fast.

We're now approaching the end of the conference. I will now turn the call over to JD.com's Ruiyu Li for closing remarks.

Once again thank you for joining us today. Please feel free to contact us if you have any further questions. Thank you for your continuous support, and we look forward to talking with you in the future.

Thank you for your participating in today's conference. This concludes the presentation. You may now disconnect.