Hello and thank you for standing by for the JD.com’s Fourth Quarter and Full-Year 2016 Earnings Conference Call. At time 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 fourth quarter and full-year 2016 earnings conference call. Joining me on the call today are Richard Liu, CEO of JD.com; and Sidney Huang, our CFO. For today’s agenda, Mr. Huang will discuss highlights for the fourth quarter and full-year 2016. Following their prepared remarks, Mr. Liu and Mr. Huang will answer your questions. Before we continue, I refer you to our Safe Harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most direct comparable GAAP measures. Finally, please note that unless otherwise stated, all the figures mentioned during this conference call are in RMB. Now, I would like to turn the call over to our CFO, Sidney.

Thank you, Ruiyu, and hello, everyone. We are delighted to report another outstanding quarter of accelerating revenue growth and the record non-GAAP net profit. Our net revenue grew 47% in Q4 2016. Thanks to our highly successful shopping events in November and the December holiday seasons. Our direct sales revenues grew 46% in the fourth quarter, the highest since Q4 2015, led by home furnishing, food and beverage, home appliance, and baby products. Revenues from services and others increased 58% year-over-year, supported by higher advertising revenue, as well as income from financial services, which after eliminating inter-segment revenue surpassed 1% of our total quarterly net revenues for the first time in Q4 2016. Our GMV, excluding virtual items grew 50% year-over-year in the fourth quarter. GMV from general merchandise categories, excluding virtual items grew 59% during the quarter. Food and beverage, home furnishing, cosmetics and the baby products were the fastest growing general merchandise categories, with apparel and footwear remained the largest category with a solid growth momentum. As a percent of the total, general merchandise GMV contributed 52.4%, another record high level for JD Mall. GMV from electronics and home appliance products grew 42% during the quarter, led by the home appliance category. The non-GAAP gross profit increased by 58% in the fourth quarter, further demonstrating the healthy monetization of both our 1P and 3P businesses. Non-GAAP gross margin improved to 15%, up from 14% a year ago, reflecting continued gross margin expansion in our first-party business, due to increased economies of scale across all key categories. Gross margin on direct sales revenue again improved over 100 basis points on a year-over-year basis in Q4 2016. Non-GAAP fulfillment expense ratio was 7.5% in Q4 compared to 8.2% in the same quarter last year. The lower fulfillment expense ratio was…

Thank you. 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 of Merrill Lynch. Please ask your questions.

Good evening. Thank you for taking my questions and congratulations on a very solid quarter. Just real two quick questions. The first one is about your marketing business. Could you give us an update on the progress of your marketing business about your marketplace? Are we seeing the propositioned to your marketplace and others revenues going up from this business model? And then secondly, just some clarification on some recent news about expansion into offline stores in the rural areas. Anymore collar would be helpful? Thank you.

Okay. Eddie, I assume you’re asking about adverting business on the other revenues. So we have definitely seen our advertising business growing at a faster pace than our overall revenue growth. However, we have also refrained from aggressively monetizing at the expense – of the user experience. So our growth in our advertising program with merchant and suppliers is definitely moving ahead at a faster speed, but at the same time at a very – it’s quite a measured pace. So for the second question on offline stores, I assume, you’re asking about our franchised stores that we just recently announced. It will be an extension of our real program. It’s not really for JD to setting up physical stores, but we will work with local businesses to set up a franchise small stores. It’s a one level actually below our Jingdong Mall business model, which is at the county level. And the 10,000 stores that we mentioned is really working with villages at one level below the county level. So we can reach to broader consumers in the rural area. But it’s actually a asset-light business model.

Your next question comes from the line of Alicia Yap from Citigroup. Please ask your questions.

Hi, thank you. Good evening, Richard, Sidney, and Ruiyu. Thanks for taking my questions and congrats on the strong results. My question is related to your gross margins. So as you’re seeing there are some – despite a year-over-year is an increase, but on the sequential base, it’s actually a decline. And it also seems like on the 1P margins itself sequentially seems to be about 70 basis points decline. So is that mainly because of the FMCG categories being bigger, or is it related to the seasonal aggressive promotional discount. And related to that is that how much are we targeting to spend on the sales and marketing to promote Yihaodian and also the FMCG category, and when will this category to achieve a break-even target? Thank you.

Sure, Alicia. So on the gross margin, you’re right that normally in Q2 and Q4, we will – during those major promotion events, gross margin tend to be slightly lower than the first quarter and the third quarter. So that’s the reason. So that’s why we always look at the gross margin trend on a year-over-year basis, which is more apples-to-apples. For the Yihaodian business, we continued to invest as part of our broader FMCG effort. And we have encouragingly see that from our own business. That is – the margin has been moving in the right direction, despite of the massive active – promotional activities that we are running during the fourth quarter, which is seeing a very, very encouraging results. The reason for that is really because of the scale of economies, as I mentioned earlier. The gross margin have seen meaningful improvement. And at the same time, we’re also optimizing our fulfillment infrastructure and also on the order economics driven by, for example, minimal order size required for free delivery. So we have seen – beginning to see a very meaningful improvement in both growth and order economics for the consumer product category.

Your next question comes from the line of Alex Yao from JPMorgan. Please ask your question.

Hi, good morning. Sorry, good morning and good evening, everyone. Thank you for taking the question and congrats on the solid quarter. Two quick ones. One is regarding the strong top line growth momentum, particularly for Q1, which is a usually assume the weak quarter for you guys. Can you talk about what’s driving our revenue momentum there? And then secondly, just want to clarify that your 2017 net margin guidance is between 0% to 1% that included data loss pickup, which is about RMB1.4 billion this quarter. So assuming annualized RMB6 billion loss, you still expect it to be profitable next year, I’m sorry, this year?

Right. So on the first quarter revenue guidance, we do see the seasonal slowdown in growth rate. I guess, you’re comparing our growth rate to perhaps other industry players. From our perspective, we always strive to grow much faster than the industry average. So the current growth rate in our mind is, we hope it will be even stronger. So to us, this is only – we hope the – at a comfortable base and we can – we saw internal effort. We can outperform. For the 2017 net margin guidance, I know don’t know how you get to the RMB1.5 billion new data loss. The – as I mentioned in the past, you should assume about RMB100 million monthly run rate in losses – in loss pickup from new data. So that would be to round it, I’m referring to.

[Operator Instructions] Your next question comes from the line of Mr. Alan Hellawell from Deutsche Bank. Please ask your question.

Great. Thank you very much. Just quickly, now that we have moved through a near calendar year of anti-brushing and decline in the sale of virtual items. Given that it’s now really a mirror [ph]. I was wondering if you could quantify how much of a tailwind this translates in 2017 for us? And also would just love a little more color around the free cash flow turning negative, increase in inventory that is in the fourth quarter, and what we might take on Board, as it relates to 2017? Thank you.

So, Alan, so for our GMV growth in 2017 by the second quarter basically will have the enhanced anti-brushing efforts that we announced last year. So all else being equal, you will see a more normalized growth rate. I can’t promise you for an acceleration, but at least by that time, it will be more apples-to-apples. We continue to work very hard to improve the quality of the products we list through our marketplace. So that ongoing effort we hope will pay off and both our customers and the quality merchants will benefit. On the free cash flow, as I mentioned Yihaodian my previous earnings call that there were some seasonal timing effect in Q3. So by Q4, we effectively those burst that timing difference. And again, when – for cash flow, because you could easily make some impact at quarter-end. So anything go quarter, cash flow will not reflect your ongoing cash flow momentum. So that’s why we always like to use the trailing 12 months as a better metric to measure free cash flow.

Your next question comes from the line of Chi Tsang of HSBC. Please ask your question.

Hi, good evening. Thank you very much for taking my question, and congrats on the nice set of results. I was just wondering if you can give us an update on sort of how Yihaodian is going both from a sort of a 1P and a 3P perspective? Thank you.

Right. So, as we mentioned in the last quarter actually beginning November 1, we took over the first-party business, while still utilizing the Yihaodian entity and its key to run the procurement for us. So it – the business has been very healthy. We see healthy growth on a year-over-year basis and it also contributed roughly RMB1.8 billion in the third – in the fourth quarter during those two months. So it’s a very healthy business and we look to further innovate utilizing this separate e-commerce platform. And we will, by the time the plan is finalized, we will announce to the market. So we will have a new position – positioning for Yihaodian to better serve the local communities. But in terms of category focus, it will continue to be focused on the FMCG and food and beverage categories.

[Operator Instructions] The next question comes from the line of Jin Yoon of Mizuho Securities. Please ask your question.

Hi, good evening. On the US$2.1 billion that you’re going to receive, is that going to come in stages, or should we expect that one payment – one lump sum payment? And second of all with that, is there a spending horizon for that cash flow you’re going to see, any CapEx cycle that we may see going forward? Thanks.

So, the RMB14.3 billion – oh, yes, you mean, US$2.1 billion, yes, we will receive that in a lump sum payment upon closing. So, we should expect to receive that in the middle of 2017. We have not have any specific use of the proceeds. But part of our ongoing investment, there will be CapEx requirement this year. I did mention last time that CapEx for 2016 was artificially low. Some of the projects were delayed due to the local land readiness. So you will see higher CapEx in 2017. But it will be covered by our operating cash flow in any event. Now the additional cash proceeds that we got from this transaction, obviously, we can also use it for strategic investments in our ecosystem and other general corporate purpose that we deemed appropriate.

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

Thank you for taking my questions, and thank you Sidney. Just a question on the supermarket initiatives. Do you have any further cooperations or strategic plans with Walmart and Yonghui many across supply chain sourcing and O2O this year? Thank you.

Sure. Yes, so we have developed – we have a very healthy relationship with those two strategic partners, in particular, our new data entity is forming a closer partnership with those two companies. We disclosed that number first that are linked to our new data – Jingdong data platform. And in particular, increasingly, we have established separate picking centers in those stores. So that when a customer place an order, the items can be very quickly packaged and delivered. So, at – for JD [indiscernible] program, the current commitment is delivering within two hours. But if you look at the actual – in most of the stores, the delivery time is actually now down to about one hour. So the customer service level has been continuously improving with the closer partnership with those two supermarket partners. They are also potential – other potential collaborations, which is yet to be announced.

Your next question comes from the line of Ming Zhao of 86Research. Please ask your question. Your line is now open. Ming Zhao from 86Research. Please ask your question.

Yes. So my question is, the JD Finance is spun-off from the company. But JD is generating a lot of cash, so for a lot of retail companies, the free cash flow is plenty and they use that to do investment and generate returns. So if JD Finance is spun-off, what can JD do to generate returns from those cash flows you generated? What’s a business model for that free cash flow generation? Thank you.

Right. So that’s an interesting question. In fact, even before we spin-off JD Finance, we had committed to the market that JD Finance starting 2016 would be self-funded. So we actually get in use JD.com’s free cash flow to fund JD Finance. We disclosed in the cash flow section of our earnings release the total cash inflow and cash outflow for JD Finance business and you can see that inflow actually was higher than outflow during the year. So that has been out philosophy that the Finance business should be independently run. JD.com has not either subsidized or deployed our capital to support the business beyond the initial investment. I actually mentioned about RMB2.1 billion that was the capital that we invested. On top of that, we did have a line of credit to JD Finance. That’s capped at around RMB10 billion. And that line of credit is still available. But as you can see in last year, that line of credit did not move up. And so that’s basically our separation of risk between JD.com and JD finance. So as far as the free cash flow, we do have actually many investment opportunities for the e-commerce ecosystem. So this – we’ve been very active in discussing strategic partnership with many of the potential partners either retail or on the product side. And we expect more of those investment opportunities to come up.

[Operator Instructions] Your next question comes from the line of Evan Zhou of Credit Suisse. Please ask your questions.

Hi, good evening, Sidney. Thank you for taking my questions. Congrats on a very strong quarter. The question is regarding our FMCG category growth. I think couple of days ago we kind of announced that we have roughly like RMB100 billion of GMV in the quality finance for an FMCG category for this year. Is that a number that we can kind of reference our expectation on what is here? And also in terms of the contribution from the loss or in terms of the margin drag from the FMCG segment or JD supermarket, could you kind of provide some color to quantify that for this year? Thank you.

Sure, yes, I think the RMB100 billion is a three-year target, not for this year, okay. Yes, so this is obviously announced by our business unit. And it should be a number that’s pretty comfortably achievable. On the margin profile it is, as I mentioned earlier, we do see a trend of improving operating margin and narrowing operating loss for that business which is driven by both expanding gross margin due to the economies of scale. And also improving order economics through higher ticket size and a more efficient fulfillment. So it is definitely improving, but at the same time this remains the last major category that’s money losing. And we do believe because the characteristics of this unique category, it is worthwhile for us to continue to invest in this category at least in the next two years. And there will be obviously profitability potential for this business. Again, both from further improvement in the gross margin and also on order economics.

The next question comes from the line of Natalie Wu from CICC. Please ask your question.

Hi, good evening Sydney, thanks for taking my question and congratulations on a very solid quarter. So my question is regarding – actually the average order size, it seems to be like stabilizing in fourth quarter? Also the fulfillment cost per order stabilizing as well. So just wondering if it’s mainly due to a seasonality phenomenon or should we expect the change to carry on in this year?

It’s actually both, so for normally in [Audio Gap] we see somewhat higher average order size because of the promotional events. But also for certain category, as I mentioned about FMCG, some of the new policies will actually tie the consumers to the ticket size gradually. So that trend will continue, we hope. But on the other hand, because the low ticket sized categories like FMCG and apparel and home furnishing are growing faster than the electronics and home appliance categories. So on a blended basis, you may not see average ticket size improving every quarter. So there is these two forces in getting to a blended average.

Hello everyone, this is Richard speaking. I will try my best to speak English, but it will come out maybe really will be happy to offline later, calculate on my English to you all. I know a lot of the investors care about our FMCG category and also a lot of competitors gave a lot of rumors on the market. They said, look at me, I made so much money if I only return a little bit of my money and I take Jingdong to be our price war, say, would never ever been possible, we will buy sooner or later. If that’s wrong, I can give you two points. First one is, Yamato, our supplier, we have margin protection items, instead Jingdong will remain the lowest priced. If any competitor reduces the price, we have our rights to reduce our price on the same time, on the same level, but we’re a supplier, we’ll give out the same gross margin. So we’re not losing any money. To be honest sometime it starts to impact our gross margin a little bit because on the same time we’re not only reducing our price, we also give a huge coupon. We’ll give a lot of coupon to our customers, it’s our money, but not a significant impaction, just only a little bit. And second, actually a price war is very good of our company. I can give you two examples, first one is about books in 2009. We got into a price war with Jingdong in books category. And so after six years later I can tell you, last year, the books category has been profitable by quarterly. And in 2012 we also launched a price war with SUI [ph] about the larger home appliance. One day they lost a huge money because at that time we had no margin protection item at that time with our money. One day we lost RMB100 million and I’m sure every investor was quite on that night. But five years later, we’re currently number one, the largest today in China, both online and offline. And it has been profitable for some years. Today we’re also in our price war on FMCG category. But always the price war is the best news for us. I will recommend my shareholder any time like we had some price war with Jingdong, you should open a La curate brand of Champagne for that. Because it means sooner or later we will be number one and it will be profitable, it can make a lot of money for our shareholders. So let’s make it simple, no loss no wins, no profit and no worry. Thank you.

Your next question from the line of Wendy Huang of Macquarie, please ask your question.

Thank you. So you mentioned that if you – once you convert the profit sharing 40% to equity ownership, there are some regulatory approval you need to go through. So can you give some detail on what kind of the government approval that you need to obtain in order to achieve that? Also you mentioned that you will get the profit sharing only after the company actually will achieve the cumulative profit. So what is the cumulative loss as of now? Thank you.

So if we keep in mind that the spin-off, in the first place, is done to facilitate JD Finance to, one, to apply for certain licenses for them for the securities license that will require strict domestic shareholder base. And second, the methods of shareholding structure will facilitate a future domestic listing. So for those two areas as of now the regulation will not permit us to convert the 40% profit sharing right back into equity. However, in the future, should the regulations become and offset – regulations change in those two areas for example, then clearly we would have the option to convert back into equity. We have – on your second question, we have not disclosed our cumulative losses. We will, however, disclose more segment information in our annual report, where you will see, at least, the operating losses for our new business lines, which will give you a fairly good idea on the JD Finance profile. It is a private company, so we are not disclosing the exact loss amount at this point.

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

Good evening and good morning and thanks for taking my question and congratulations on a great set of results. I have a couple questions here. Sidney, I was wondering if you could kind of clarify or give more color on the strategic reinvestment that you mentioned that you said, given that JD Finance is now being officially spun-off and it’s taking investment return products et cetera. I was wondering what kind of areas and how big kind of investments, because I’m thinking of and how we should think over the longer term? And the second question is in your fulfillment area. I mean, if you look at the fulfillment, we are seeing nice operating leverage, but as you can see recently, a lot of the third-party logistics providers have been coming to the market with IPO. We’ve heard a lot of aggressive investment plans from them. So is JD required to a further step-up in investment and you know in order to compete or maintain its competitive advantage versus these players and should we thinking about additional CapEx related to this? Thank you.

So for investment, we always maintained that all of our investments will be strategic and we are very focused to invest in the ecosystem around our e-commerce business and also on the new technologies. So, as we also mentioned in our earnings release that we had actually laid out next obvious strategic plan to invest further into the technologies, in particular, in artificial intelligence and Big Data for example, so some of the investments will potentially be invested in these technology areas. So – but they will all be very much related to our core business. On your second question, we addressed this before that and our logistic network is actually quite different from certainly that, which is purely a delivery company. So for us, we – it’s an integrated warehousing network and last mile delivery, which is very unique for an e-commerce model. And in fact the speed of delivery is determined by the warehouse network, not by the last mine itself. And also the quality is very, very different. Custodies have delivery man, for those of you who live in China, you will know that because of our chaining and our corporate culture, JD did remain essentially a customer representative, we are very, very committed to be very thoughtful and provide service beyond just simple delivery. So it is a very different model in terms of both the speed determined by the warehouse network and the personal touch by our well trained delivery staff, so which we believe is still – will remain very, very differentiated with the third-party network utilizing the delivery companies.

The next question comes from the line of Ella Ji of China Renaissance. Please ask your questions.

Thank you. For your current customer base, I wonder if you can share a breakdown between the male and the female? And for the new customers that you added, I wonder what are the categories that are attracting and these new customers coming to you for the first time? And also just regarding your advertising, I understand you won’t go aggressive in terms of adding more ad inventories, but can you talk about like what’s your efforts in the advertising targeting? So for example, to improve the clicks rate is better, can you just share us with some updates on that? Thank you.

Sure. So, for the male-female customer base, we’ve done analysis internally, because we don’t require customers to identify the agenda when they register, so we currently get a profit. So, definitely female customers have been increasing in proportion based on different analysis, they’re at least very close, but we believe the mail customers are still slightly higher in our overall customer base. So this is actually one of the key areas of new customer acquisition that we will be – this year is one of our key strategic focus is to attract female customers, for both our existing FMCG effort and also our enhanced apparel category effort. One of the initiatives in fact is to break out the apparel business from our existing apparel and home business unit. So we’ll form a separate apparel business group led by a new leader and we’ll implement a number of measures to enhance the platform to attract – attract the new female users. So – your second question is actually related, right. So it’s how – for example, the FMCG category is one of those we believe can attract many new customers, specifically senior customers. And obviously the existing business activities, our superior service level, our channel penetration into the lower tier cities, all of these efforts will help attract new customers to our platform. On your last question, I think it is actually somewhat related to our efforts to invest in technologies and artificial intelligence. So, we have been investing in this area to better target our customers and also provide more personalized documentations to – our products to consumers. Honestly we are still poised [ph] on reaching a satisfactory stage for this area. So, it’s – on the other hand, it is actually a great opportunity. If we can improve in customer targeting and advertising effectiveness, for example, and also just organic traffic utilization, we actually can see a much better conversion rate, for example, down the road. So it is one area for us for further improvement.

Your next question comes from the line of Jialong Shi of Nomura. Please ask your questions.

Hi, good evening, Richard, Sidney, Ruiyu Li, thanks for taking my questions. I just wonder how do you think of your relationship with Walmart. We know Walmart has kept buying your shares in the open market in the past few months. So I just wonder if Walmart tries to seek a Board Directorship in the future, will you object to this move? Or you would welcome Walmart to become your new Board Director? And also, how much operating loss you booked for FMCG category into Q4 and how much you expect to invest in FMCG in this year? Thank you.

So, on the Walmart ownership, we actually disclosed in the last quarter, on the last earnings call that Walmart had reached 10% stake in JD.com and has a Board observer seat. In fact that is no further development from a share perspective. However, at the same time, the two companies have developed closer ties. During the past quarter our friendship – Sam’s Club flagship store on JD.com has seen very, very encouraging results. During the quarter, we’re also collaborating other new initiatives, which is yet to be announced. I mentioned about the data collaboration, we already in a very short period of time, so dozens of Walmart stores have been connected and slowed the data program to our JD data program. So many exciting initiatives we discussed and implemented.

Your next question comes from the line of Eric Glen from Blue Lotus. Please ask your question.

Thanks management for taking my questions. I’m asking on behalf of Eric Glen. Please allow me to ask in Chinese first and then I’ll translate it into English. [Foreign Language] I’d like to ask two questions. First compared to Alibaba’s new retail, how much GMV do have a new China business you wish to achieve in 2017? And second, what’s the difference between Alibaba’s [indiscernible] and other new China business unit? Thank you.

Yes, sure. First of all, I don’t think that the two models are comparable. In fact, we believe we have explored the third quarter new retail model far ahead of our competition. In fact, the Oppo model at the JD home model which online to offline initiative that leverage the offline chain with online customer reach. So we have seen very, very encouraging results in our JD home business and especially after the merger into the new data. The average ticket size, the service level to our customers have seen significant improvement over the past six, seven months. So from our perspective, we do see tremendous opportunities in the integrated model between online and offline. For the [indiscernible] it’s actually a completely a separate business, that’s aiming to support the mom-and-pop shops in the cities and also rural areas. So it’s actually a quite different model that we’re still in a fairly early development stage. But given that JD.com has this highly sophisticated surprising capabilities and also our home last-mile delivery network, we believe our model is superior to any competition.

The next question comes from the line of Mr. Thomas Chong from BOCI. Please ask your question.

Hi, thanks management for taking my question. I have a quick question about the synergies we have $0.10. Can management provide some color about the percentage of new customers for Mobile QQ and leasing? Thanks.

Right. Yes, the collaboration has been very, very fruitful. We – if you look at the number of new customers accounted in the fourth quarter, it remain above 25%, so it’s a very solid new customer acquisition channel. So we also in addition to those two channels and the new customer acquisitions, we also have a number of other collaborations, including [indiscernible], which is a joint marketing and head of piping program working with key brands that we mentioned in the past. So we also have seen very encouraging results out of that program.

Your next question comes from the line of [indiscernible] of Barclays. Please ask your question.

Sidney, Richard, and Ruiyu, good evening. So the question is related to your gross margin. So as you’re expanding in your FMCG business and apparel business, so the ticket value compared with home appliance and so you see can be smaller. So the ticket, the size, each ticket, each deliver that you can not [indiscernible] can be worse than before. So how do you manage the gross margin growth going forward?

Right. Well, first of all, the gross margin is actually less affected by the ticker size itself, but operating margin will. For gross margin, as Richard mentioned earlier, that on the customer side, we will always maintain everyday low price plus very aggressive promotions and coupons. The gross margin were purely coming from our enhanced scale of economies. So, for example, for FMCG, we are today – even – we’re actually now the largest FMCG retailer yet in China. So as we continue to growing scale, we – it is fairly natural to see more and more scale of economies slow better purchasing price and more volume-based rebate. And that will continue to drive expanding gross margin result compromising our everyday low price and the promotions. But I think your question is more on the operating side. There is – there are always for sure to enhance the order economics. So one example – one simple example is through, as I mentioned earlier, requiring higher ticker size for free delivery, for example, right. And there are other methodologies to encourage customer to buy more through a certain promotional initiatives. So over time, the order economics will be improved through a higher ticket size. And you’re right that it will probably never get to the electronics and home appliance categories. But on the other hand, both apparel and consumer products do tend to carry higher gross margin than electronics category.

The next question comes from the line of Robin Hall of SunTrust. Please ask your question.

Yes, good evening. Thank you for taking my question. I wondered if you could discuss the logistics monetization as you move forward, I was trying to monetize some of your logistics network for your 3P providers, if you could provide any update sort of the traction there to-date and maybe what we should think about for the coming year in 2017? Thank you.

Sure. Yes, so we are actually aggressively expanding our service to our merchants. In the fourth quarter, for example, the merchants – the number of merchants adopting our service has increased quite meaningfully. And in terms of number of orders that were served by our warehouse network is not moving into high single-digit, which is a quite meaningful improvement. So, we have mentioned in the past that warehouse and delivery, the integrated service involving both will be – will differentiate the customer experience because of the speed and also the personal touch of the JD delivery staff. So but at – for many smaller merchants, it’s not necessary and easy addition. So it will be a natural progression that increasingly starting from more sellable merchants and then to mid-sized merchants. But we are seeing definitely very encouraging trend in our key merchants adopting the service.

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

Thanks, operator. Once again, thank you for joining us today. Please feel free to contact us if you have any further questions. We look forward to talking with you in the coming months.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.