Nov 16, 2015
Executives
Ruiyu Li - Director of Investor Relations Richard Qiangdong Liu - Founder, Chairman and Chief Executive Officer Sidney Huang - Chief Financial Officer Haoyu Shen - Chief Executive Officer of JD Mall
Analysts
Alicia Yap - Barclays Capital Eddie Leung - Merrill Lynch Alan Hellawell - Deutsche Bank Erica Poon Werkun - UBS Cynthia Meng - Jefferies Hong Kong Ltd. Tian Hou - TH Capital Research George Meng - Goldman Sachs Thomas Chong - Citigroup Global Markets Asia Ltd.
Sean Zhang - 86Research Ltd. Chi Tsang - HSBC Natalie Wu - CIBC Wendy Huang - Macquarie Capital Securities Ltd.
Robert Lin - Morgan Stanley Asia Ltd.
Operator
Hello and thank you for standing by for JD.com’s Third 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’d now like to turn the meeting over to your host for today’s conference, Ruiyu Li.
Ruiyu Li
Thank you, operator, and welcome to our third quarter 2015 earnings call. Joining me 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 third quarter 2015. Following the prepared remarks, Haoyu Shen, CEO of JD Mall will join Mr.
Liu and Mr. Huang for the Q&A session 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 including discussions of certain non-GAAP financial measures, please refer to our earnings release which contains our 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 in RMB. Now, I’d like to turn the call over to our Founder, Chairman, and CEO, Richard Liu.
Richard Qiangdong Liu
Thank you, Ruiyu, and welcome, everyone. We are pleased to announce another strong quarter of growth and progress.
JD.com has always been the leader in bringing Chinese consumers the best brand with the highest most convenient and viably shopping experience. And with our world-class network logistic coverage, I wanted to say that over the last two months nearly 90% of JD.com direct sales orders were delivered on the same path next day.
Under JD.com mobile shopping experience continues to be the array of the industry. On November 11, more than 70% of orders were placed through our mobile platforms.
And we hope you may have read very recently, we made a decision to close our C2C platform Paipai.com as of December 31. We have worked very hard to develop Paipai.com, but at the end of the day, we have found that it is impossible to control counterfeit building e-commerce platform in China.
The simple fact is that only a pure C2C event sales and a much sales platform can deliver a reliably high-quality customer experience that is up to JD.com standard some of the above starting in today. I’ll now turn the call over to Sydney.
Sidney Huang
Thank you, Richard, and hello, everyone. We’re very encouraged by our top line growth in the third quarter, despite of intensified competition in the industry.
Excluding Paipai.com, our year-over-year core GMV growth was 76%, a very strong showing in light of the relatively slow consumption growth during the third quarter. This quarter also represents a more apples-to-apples comparison than the previous quarter, as we launched our mobile access upon WeChat in late May of 2014 and our Mobile QQ in early August last year.
Our net revenue growth was 52% in Q3 above the midpoint of our guidance. As we cautioned on our last earnings call, the slowing macroeconomic condition could impact our business, although the extent of such impact has been relatively small in the third quarter.
We continue to be confident that with our differentiated value proposition and a better customer experience, JD.com is in a better position than our competition to weather any macro headwind. During the third quarter, our active customer accounts and average orders per customer have both seen healthy sequential growth over the seasonally strong second quarter.
Our GMV composition was largely consistent with the prior quarters. Since we’re discontinuing our Paipai.com C2C operations, going forward, we’ll focus our analysis on the core GMV, excluding Paipai numbers.
In the third quarter, our core GMV from general merchandise categories grew 98% and accounted for nearly 49% of total core GMV during the quarter. Apparel and footwear continued to be the largest general merchandise category with triple-digit year-over-year growth over a very strong prior quarter.
Other fast growing key categories included home furnishing, food and beverage, cosmetics, and sporting goods, all growing at triple-digit rates. Core GMV from our marketplace business grew 121% in Q3 and accounted for nearly 45% of our core GMV during the period.
Sequentially, it grew 13% over the seasonally strong second quarter. A couple of the highlights on our specialty business lines.
First, our flash sales business, launched in early 2014 saw its GMV growing over 300% on a year-over-year basis, and contributed more than 1% of our total GMV in the third quarter. Apparel, cosmetics and accessories contributed the bulk of the business.
Second, our cross-border business launched in Q1 this year also saw significant momentum with a sequential growth rate of over 100% compared to the seasonally strong second quarter. Key categories included baby products, packaged food, and cosmetics.
Our direct sales revenues grew 48.5% year-over-year, led by food and beverage, cosmetics, mobile and home appliance categories. Services and other revenues grew 111% year-over-year, an acceleration from the second quarter growth.
This triple-digit growth rate demonstrated the strong momentum of our marketplace business, and healthy monetization of the platform. Our non-GAAP gross margin improved to 13.4%, up from 12.2% a year ago.
As a result of higher GMV contribution from the marketplace, non-GAAP gross margin on direct sales revenue declined slightly on a year-over-year basis, mainly due to short-term brand-driven competition in the mobile device industry, where several brands are selling their products as near cost prices, which in turn temporarily affected the retail margin in the third quarter. We believe such a brand-driven competition is short-term in nature.
And we expect the mobile device gross margin to stay low in the fourth quarter, but will recover in 2016. Non-GAAP fulfillment expense ratio was 7.7% in Q3, compared to 7.2% in the same quarter last year.
The higher fulfillment expense ratio was mainly driven by our investment in the O2O initiatives and the lower average order value, as a result of higher revenue contribution from general merchandise categories. The non-GAAP marketing expense ratio was 3% in Q3, compared to 3.6% in Q2 and 1.9% in the same quarter last year.
The year-over-year increase was mainly driven by increased spending for the new business initiatives in Internet Finance and O2O. Our non-GAAP R&D and G&A expense ratios increased 22 basis points and 15 basis points respectively, compared to the prior levels, reflecting incremental investments in our new business lines.
Altogether, our non-GAAP net margin was 0.1% in the third quarter, compared to 1.3% in the same quarter last year. However, if we look at our core JD Mall business, the non-GAAP operating margin was similar to the prior level.
So the decline in group level operating margin was mainly driven by the investments in various new business initiatives. Now, let’s discuss our cash flow.
Our Q3 adjusted free cash flow was slightly negative. This is largely due to timing difference in our payables schedule and higher CapEx during the quarter.
The accounts payable balances stayed relatively flat as of September 30, as compared to June 30. In the call, we had a very large cash inflow in Q2, partly driven by a higher payable balance versus the previous quarter end.
As the turnover days are calculated using the simple averages of the beginning and ending balances in the quarter, there is a delayed effect of the higher Q2 ending balance. As a result, the accounts payable turnover increased to 52 days in Q3 even though the actual payable balance was flat.
To minimize the impact of these operational timing differences, we could look at the cash flow for the last 12 months, which would have less volatility. We continue to expect our LTM free cash flow to be positive, excluding impact from Internet Finance.
As disclosed in our free cash flow calculation, our Internet Finance business continued to grow during the third quarter. Cash outflow totaled approximately RMB3.6 billion, including RMB1.6 billion to consumer financing and RMB2 billion to suppliers and merchants.
As mentioned on our last call, given the increasing cash outflow from this business, we started securitizing the loan portfolios. In October and in November, we have completed two tranches of the consumer credit asset securitization, totaling over RMB2.1 billion in proceeds.
Our first supplier credit securitization is also underway and expected to close in the near future. Looking into 2016, we expect the Internet Finance business to be self-funded without any further cash outflow from the group.
Now, let’s discuss our financial outlook. We expect our Q4 net revenue growth between 47% and 51% on a year-over-year basis.
This guidance reflects the solid growth momentum in our e-commerce core business, while incorporating some level of conservatism, given the competitive dynamic in uncertain macroeconomic condition. For the non-GAAP bottom line, we maintain our previous guidance of between break-even to negative 0.5% for the full-year 2015.
This concludes my prepared remarks, and we can now move to the Q&A session. Operator?
Operator
The question-and-answer session of this conference call will start in a moment. [Operator Instructions] Your first question comes from Alicia Yap from Barclays.
Your line is open. Please go ahead.
Alicia Yap
Hi. Good morning and good evening, Rich and Sidney, and thanks for taking my questions.
I have quick questions regarding, I think, JD recently signed a number of agreements with the foreign brands and launched our various country more or so on the marketplace. So can you give us some colors on the progress of these, any meaningful contributions to GMV in the future that you would expect?
And then related to that is that, I wanted to get a sense on El Nino, the weather has any impact to JD merchandise sales in general and then particularly the apparels got impacted? Thank you.
Haoyu Shen
Hi, Alicia, this is Haoyu. As far as the JD worldwide, I think so far we’ve opened seven country malls JD worldwide, and we’re seeing pretty good growth momentum.
As Sidney just mentioned in his prepared remarks if you look at Q3 versus Q2, we’re seeing 100% growth, albeit on a small scale. It’s not a very material part of our GMV until we expect to grow into bigger portion of the business.
As far as weather, we haven’t seen any meaningful impact on our apparel sales. But talked to our team recently, we’ve just had a pretty successful that we had in the sales event, and the apparel category grew very healthy.
So far we can’t tell any meaningful impact of the weather.
Sidney Huang
And just add a comment on just overall global branch growth rate, we actually looked at during November 11 shopping promotion, during the 12-day period, out of the top 300 branch, the international branch actually grew faster than the domestic branch. So it’s – we have seen very, very encouraging results from our global brand expansion.
Operator
Your next question comes from Eddie Leung from Merrill Lynch. Your line is open.
Please go ahead.
Eddie Leung
Hi, good evening. Thank you for taking my question.
My question was more about your logistic services. I remember last quarter, you mentioned that, because the demand for cash on delivery started to reduce, so that affected the proportion of merchants using your logistic services.
So, wondering, if you could give us an update on that front. And just a follow-up question, could you also give us an update on your logistic average in the rural areas, I want to get a sense of the progress?
Thank you.
Sidney Huang
Well, the percentage of cash on delivery is still declining in a sense it’s a very good news for our business, because that will reduce our cost and also increase the improved efficiency of our loss in our delivery employees. But it does impact the percentage of parcel – third-party parcel handled by us, so that continues to be the case.
And we’re still working with our merchants of different categories to prove to them that our logistic services not only helped them to improve efficiency to reduce costs, but also helped them to improve revenue to drive more sales on JD, but this continues to be a long-term effort. And second question is coverage of rural, right?
Yes coverage, yes. We continued to penetrate lower tier cities.
Now, the latest number shows we are already with our own employees we’re already covering over 2,200 districts and counties in China. And we now cover now 90, I think 90% of parcels delivered by us are actually delivered on the same day, or next day.
And we have few other programs going on. One is to penetrate lower tier cities major appliances category, because that’s a pretty special category that needs special handling, and we have a partnership program called Jingdong Mall, it’s already in over, I think 1,200 counties that’s where we have the exact partnership programs, and it’s driving a lot of our major price to sales.
And Richard mentioned in previous calls that we have the [indiscernible] program, where we hire these agents, representatives in villages to help us drive sales. And we passed the 100,000 mark as of Q3 a second, and they’re helping us – it’s still in early stages, we’re still training them, they’re still learning how to promote JD with their neighbors and villagers.
But it’s – we’re still putting a lot of effort behind penetration to those we see.
Operator
Your next question comes from Erica Poon Werkun from UBS. Your line is open.
Please go ahead. I do apologize, your next question comes from Alan Hellawell from Deutsche Bank.
Your line is open. Please go ahead.
Alan Hellawell
Great. Thank you very much.
First of all, I was hoping you could give us maybe some more explicit update on JD Daojia, maybe you can talk to us about scale and what the impact of margins might be this year and going forward? And then secondly, I’m not sure if I’m – our calculations are correct.
But have we sensed a pretty significant increase in return rates on the business in the third quarter? And if so, could you give us a little color?
Thank you.
Richard Qiangdong Liu
[Foreign Language] [Interpreted] So we started our Daojia business this April. We have a dedicated team working on this.
And up to now, we have over 10,000 source on our platform, and we already have over 300,000 registered cloud sourcing every employees, not employees, every personnel. And on Double 11, they delivered over 500,000 parcels for JD, and we’re growing the business by over 30% month by month.
It’s still a – in terms of GMV, it’s still small compared with JD Mall. We’re still operating at loss as all the players – all tier players in China still, but the loss is at a manageable level and lower than the industry level.
Sidney Huang
And then let me answer on the return rates. The return rate has been fairly consistent with prior quarters.
And if you are asking about the difference between GMV and revenue and on a year-over-year basis still it was a decline as we explained before. But on a sequential [Technical Difficulty]so the year-over-year decline was partly due to the mobile expansion and partly due to payment success rate.
But I think both have seen improvement on a sequential basis over the last couple of quarters.
Operator
Your next question comes from Erica Poon Werkun from UBS. Your line is open.
Please go ahead.
Erica Poon Werkun
Great. Thank you.
Can you share some additional color on Singles Day, such as categories and basket and how much traffic was coming from WeChat et cetera? And what’s that implication of your Q4 gross margin of the mix shift between 1P and 3P, and also be a part of mix?
And also wanted to check whether you have seen any meaningful changes in the competitive landscape for long-term appliances? Thank you.
Sidney Huang
We have disclosed a lot of information post-November 11. We mentioned a few categories, such as 3C category, home appliance, both growing at triple-digit on a year-over-year basis, and also for food and beverage growing at an even faster growth rate.
So overall, we saw growth rate across all categories very, very exciting for the period. So – but on the other hand, it’s a short period of time out of the Q3, Q4 overall volume.
So it doesn’t really – it’s not necessarily indicative of the full quarter performance.
Haoyu Shen
Just to add some qualitative color, basket size tend to be bigger on Double 11 or June sales, because all the sales were actually – has a certain amount, certain amount would give you some cash back. So basket size tends to be higher.
And I think we – in our press release, we did talk about just the half of the new customers – new buying customers on that day actually came from WeChat and the Mobile QQ. So it’s increasingly becoming a major source of new customer position for us.
And also in Q2 – in Q4, because it’s a big piece of carol, so you tend to see faster growth of third-party versus first-party in Q4. And you also mentioned major appliances, I think, we’ve mentioned that major appliances also have tremendous growth during the 11-day still to that.
And I think we – our leadership position in e-commerce in this kind of major appliance category is probably unviable at this point.
Richard Qiangdong Liu
[Foreign language] [Interpreted] So, Richard want to talk more about our parcel, the…
Richard Qiangdong Liu
[Foreign Language] [Interpreted]
Haoyu Shen
So, JD has aligned up its leadership position in electronics category overall. And we also are now very strong in general merchandise, especially after the stronger sales – our sales in general merchandise tonight is probably one of the biggest in China among the – all the offline and online retailers.
And apparel is probably is one of the last categories we will establish leadership position eventually. And although competitors has its [indiscernible] strategy versus brand to merchant, what I can tell you is very few maybe handful of brands didn’t participate in our sales event this Double 11.
The handful of merchants they told us that they will stay on our platform after Double 11 now. So the management is fully confident that we will be a leader in apparel category.
Sidney Huang
Yes, in fact, the same apparel brand, I mentioned that post November 11, they will come back with more resources on our platform. So it’s a great validation that JD.com is providing great value to these brands.
Operator
Your next question comes from Cynthia Meng from Jefferies. Your line is open.
Please go ahead.
Cynthia Meng
Thank you, management. My question is in the logistics advantage you have.
We see that and basically last year, I remember, Richard and Shen, you talked about using 3C as the category to attract traffic, and JD also has the advantage of delivering to end users with the last-mile access. Now, in November 11, particularly in the 3C consumer electronics and the home appliance category, Alibaba also advertises their alliance with Suning in delivering.
So just wondering if a management can give us your perspective on what do you see as the advantage in logistics? Will this be high enough until barrier, or do you see your competitive edge being – having new competitor from Suning and Alibaba, so that your competitive hedge is being threatened?
Thank you.
Sidney Huang
Yes, there are a lot of numbers flowing around and regarding the logistics network. So – but I think one key data point that Richard mentioned in his remarks, I think, that’s really the key.
We look at over the past two months nearly 90% of all of our direct sales orders are being delivered within the same day or next day. I think that’s a figure, if you ask any competition, it will be luckily half of that, if not less.
So that – I think, that’s one very important data point for investors to keep in mind, because sometimes competition will refer to the areas they cover, but it doesn’t really tell you whether all the customers in that city, for example, getting deliveries within the same day, do our sale to not we cover so many cities with one day delivery, but the actual coverage is far less, just on average, it just says that, maybe somebody in that particular region will get same-day delivery. So I think that’s a very, very important distinction.
Clearly, if you also – if you used to do any consumer survey through a third-party independent research firms, the result will also speak for themselves.
Richard Qiangdong Liu
[Foreign Language] [Interpreted] Yes. So one thing that Richard encouraged you all to do is to purchase few orders with us, includes the few orders with our competitors to see what kind of delivery speeds you will get.
And we’ve been working on this network in the past eight years, and Richard, believes that we are probably, at least, five years ahead of anybody.
Operator
Your next question comes from Tian Hou from TH Capital. Your line is open.
Please go ahead.
Tian Hou
Yes. Good evening, management.
I had a question related to your warehouse. And in the press release you’ve mentioned you’ve newly added two Asian No.1 warehouses in Wuhan and Guangzhou.
So along with the previous one, so you have three now. So I wonder what kind of capacity does this increasing pulling you up to?
And how far has this capacity relative to your needs, and are you contribute that more in the near future, that’s the warehouse issue?
Haoyu Shen
Yes. So the one in Wuhan and one in Guangzhou officially went on last quarter.
And I think in the Double 11 press release, we mentioned that the Asia No.1 in Guangzhou fulfilled 500,000 orders on that day. The design capacity is not that high actually you can get that much capacity.
And these more modern warehouses do help us to increase fulfillment capacity especially in large cities, where the land is scarce. So we’re continuing to – we have a – in all of our top cities and plus a few more essential cities, we are going to build Asia No.1 and we’ll have more come online in the next year or two.
Operator
Your next question comes from George Meng from Goldman Sachs. Your line is open.
Please go ahead.
George Meng
Hey, good evening, management. Thank you very much for taking my question.
My question is on your marketplace. This has become increasingly more important, I mean, in the marketplace business.
Do you have plans to better help your brand partners to do more like omnichannel. Since many brands already have offline presence, do you – how do you think about this?
How do you help them not only achieve success on your platform, but also do well in the overall omnichannel distribution, or you don’t really have plans to do that and just focus more on a platform, because from their standpoint a lot of them are – if you worry about the conflict between different channels, in particular, online and offline channels? Thank you very much.
Sidney Huang
We do have some efforts going on already helping some of our merchants increase their sales of their offline stores. For example, we’re working with couple of apparel brands who have extensive offline store fronts.
And we’re helping them to share inventory between their fiscal stores and their warehouses for their online sales. So a customer – if a customer place order online, if the ecommerce warehouse didn’t have the inventory, but a nearby store has that particular SKU that order can be fulfilled by that store.
Customer can either pickup, that is a merchandise in a store or that the store can – that the store can use courier to send that is the merchandise to the customer. So we’re definitely aligned with our merchant, as well as driving their online sales and offline sales.
Operator
We’ll now move to our next question from Sean Zhang from 86Research. Your line is open.
Please go ahead. Sorry, your next question comes from Thomas Chong from Citigroup.
Your line is open. Please go ahead.
Thomas Chong
Hi, thanks, management, for taking my questions. I have three questions.
The first question is the flash sales. Can management talk a bit about your expectation in terms of the GMV contribution going down the row?
And how many brands are you cooperating right now? And my second question is about the head count.
Given the head counts right now is already over 90,000. What’s the head count expansion impact in 2016?
And my last question is about the pricing of the app store. Can management also talk about the trend in the fourth quarter and going forward?
Thanks.
Haoyu Shen
The first question is on flash sales. Sidney mentioned in his prepared remarks that we’ve had tremendous growth in Q2 and enough accounts for more than 1% for GMV.
It’s mostly apparel, cosmetics, and accessories, and I don’t have the exact accounts of how many brands we work with. But we work with a lot of brands on their overstock inventory and also we work a lot – we work with lot of same brands for their in-season merchandise in our apparel business.
So we’ve got the full range of solutions for these brands and we also offer logistic services. And we do have critical programs in handling logistics for this business – for flat sales business.
Richard Qiangdong Liu
[Foreign Language] [interpreted] Yes. We’ve had this business for about two years over one year now.
And we’ve – I think we’ve established a meaningful market position in this category. And going forward, our fulfillment capability provided by dozens of warehouses all over China will ensure the customer experience of flash sales will be superior to what customer can get from some other platform.
Yes. We’re gaining the confidence from many brands, many merchants, and they were very comfortable – we’re very agnostic that in the next few years, this business will continue to grow very rapidly.
Haoyu Shen
Yes, from apparel brands in particular. And then address – let me quickly address your second question on head counts.
We did actually announce that our plan for the next years, we expect to reach 150,000 people by the end of next year.
Richard Qiangdong Liu
[Foreign language]
Haoyu Shen
Okay, sorry. So let me refresh that.
So it’s – we announced that we were at this 40,000 head count. There was the third question, I didn’t get that.
Operator
Your next question comes from Sean Zhang from 86Research. Your line is open.
Please go ahead.
Sean Zhang
Thank you, management. Congratulation on the healthy quarter.
My question is in light with the – your core user growth above 60% and in light of the increasing mobile migration, how do you view your partnership with Tencent? Would you share with us some color on that, my – present you my traffic, present you GMV, Weixin, and Mobile QQ, and also very interesting in your Jingdong, Daojia the turns on JD plan.
Would you share with us so far how many through this plan, how many brands have done advertisement on Weixin and QQ? And what kind of like new ad formats we would see in the future apart from the daily movement as we’re seeing right now?
Thank you.
Haoyu Shen
We’ve had a partnership with Tencent there as much and that partnership as well tariff to JD. So we – the entry point on WeChat has been around for year-and-a-half and the entry point on Mobile QQ has been around for over a year now.
And in the past year-and-a-half, just about a year-and-a-half, we are seeing steady growth of number of orders and GMV in absolute numbers and also in percentage terms. And we’re happy to see that growth.
And I think one reason is the growth – the MAU growth or DAU growth of these two apps but also, I think, that’s attachment to the effort of the team to work closely – working closely with Tencent team, and we’re exploring the e-commerce in a social contact. And as I mentioned earlier, November 11, over half of the first-time customers are actually from Mobile QQ and WeChat.
And as far as the Jingdong Daojia, for the 11 – for the November campaign, I think we had about 50 brands working with us and Weixin to spend money on low month at. And I think the integration of social data and our transaction data actually enabled the brand to do marketing, do branding with Tencent and eventually lead transaction and sales to JD’s shopping entry points on WeChat and QQ, so far proved to be very effective.
And we’ll continue to work together and to give the merchant better ROI and give the customers better experience.
Richard Qiangdong Liu
[Foreign language] [Interpreted] So, additionally, there are two types of advertising, one is branding – brand oriented and the other is performance based, and there they would never integrate it. And Jingdong Daojia is the first time that Tencent and JD gave the brands, the merchants opportunity to integrate their brand-oriented advertising and the performance advertising together, meaning they did the branding on Tencent and joint transaction on JD.
So they very much like it and we’ll keep it fully on.
Operator
.
Unidentified Analyst
Hey, good evening, guys. Are you guys actively pursuing sales campaigns for Black Friday and Double 12, if so what so – do you have a sense of what percentage of GMV these three sales days represent in the quarter?
Thanks, guys.
Richard Qiangdong Liu
[Foreign Language]
Sidney Huang
So, Black Friday, yes, especially from the KDY [ph] standpoint, we are going to have campaigns then. And December 12, yes, we’ll have some campaign around that and we’re still thinking about what category we’ll be focusing on.
But we can’t predict how much GMV thus going to generate.
Operator
Your next question comes from Chi Tsang from HSBC. Your line is open.
Please go ahead.
Chi Tsang
Great. Thank you very much for taking my question.
I was wondering if you could give us some commentary regarding how the economic slowdown is impacting your business in the Tier 1, Two 2 cities versus some of the lower tier cities. And secondly, I’m wondering, if you’re seeing any signs of stability, or maybe improvement in the overall sort of consumption environment?
Thanks so much.
Sidney Huang
Yes, as I mentioned earlier, we suspect the macroeconomic headwind may have some impact on our business. But at this point, the extent of this impact, if any should be very small, because clearly, we have not seen much an impact given the growth we had in Q3 and our expected growth in Q4.
So the impact on Tier 1, Tier 2 and tier cities would probably have a similar response to that. If you look at our Q3 lower tier city growth rate is clearly growing faster than the Tier 1, Tier 2 cities.
But the Tier 1, Tier 2 remain very healthy in its – their own growth rates. So, yes, we still see very robust growth rate.
The – in fact, if you look at October consumption growth released by the government, it actually improved and reached a 11%, which was the highest in this year on a monthly basis. So it is good reason to believe that the overall consumption rate is not much affected by the slowing macro.
Richard Qiangdong Liu
[Foreign Language] [Interpreted] So, Richard, just had a few words of his opinion on an overall economy. He believes that when an economy is not doing well it’s actually a great opportunity for the competitive players to do well to consolidate the industry.
Yes, as I actually mentioned in the past, top 20 brands in the U.S. contributed over 40% of the overall retail volume, while in China top 20 contributed only about 13% last year.
So any economic slowdown would actually facilitate or accelerate industry consolidation. And JD is one of the most competitive player and also already the largest retailer in the industry should actually enjoy the benefit of this extent accelerated industry consolidation.
So, in addition to paying attention to our year-over-year growth rate, we encourage investors also look at a relative growth rate compared to the industry competition, both online and offline. And we continue to be confident that we’ll gain market share in the future.
Operator
Your next question comes from Natalie Wu from CIBC. Your line is open.
Please go ahead.
Natalie Wu
Hi, thank you for taking my question. I have two quick questions.
The first one is related to, I’m just wondering how – have you noticed any difference on retention rates and maybe cohort data between new users adjusted through WeCaht, Mobile QQ, and your own JD app? And the second question is, can you update us your supplier finance balance this quarter?
And how much does it contribute to your online direct sales to GMV [ph] currently? Thank you.
Sidney Huang
The overall retention rate across different categories have been pretty stable, and what is on WeChat or on Mobile apps and PC. So it’s been pretty stable and generally in upward trend.
Relatively speaking the retention rate on WeChat and Mobile QQ would be a little lower than our mobile app. This is fairly natural given that some of the returning customers would probably download JD app and become app user.
So that’s a little reason. But otherwise we see pretty stable retention rates.
On Internet Finance, we mentioned – I think you were asking about the contribution to GMV, so that must be consumer credit. The amount we disclosed in earnings release actually the ending balance of RMB5.3 billion, the transaction volume in the third quarter contributed above 6% of our overall GMV.
So it’s a – it did have a healthy growth, but it’s still a very small portion of our overall GMV volume.
Operator
Your next question comes from Wendy Huang from Macquarie. Your line is open.
Please go ahead.
Wendy Huang
Thanks, management, and congratulations on solid results. I have some housekeeping questions.
First, you mentioned your head count target by the end of next year. I know, I understand it’s probably a little bit early to talk about next year’s margin outlook, but it seems that you already provided color on head count.
Can you may be also comment on the marketing expenditure, fulfillment cost as such or which actually may affect the margin next year? And then secondly, the take rate actually declined in the third quarter.
Could you provide some color as to the reasons behind the decline in Q3 and whether we should actually expect further decline going forward and the reason behind that? Lastly, I think, you have done some very good investment recently such as investment in Yonghui.
Can you comment on your recent integration with Yonghui? And also is there anymore like MAU, I know, especially given recent alliance between Alibaba and Suning, where you consider to invest in Gome why or why not?
Thank you.
Sidney Huang
So, okay. So for next year, I think the only guidance we could give is for the core margin on JD Mall business.
We believe the margin will trend up next year comparing to this year. However, as – at group level, because we are committed to investing in new innovative areas to secure growth over the medium to long-term, so we will also reserves the flexibility to invest in these new initiatives.
So we will give more definitive guidance at the beginning of next year for full-year 2016. But I think that – what’s clear is our JD Mall business should be more profitable next year.
And on the take rate, there’s a slight – if you look at the service revenue versus core GMV on marketplace, there’s a slight decrease. The reason was we looked at – it’s really on the blended commission.
So because we have for some of our businesses with lower margin – the sales business we did move some of the long-tail items to marketplace. So, because these categories are having lower margins in general, so the take rates on those categories are also relatively lower.
So it’s a really a mix – a slight mix shift. But as far as the take rate on the same category, it’s being quite stable, and Richard will come on the last point.
Richard Qiangdong Liu
[Foreign Language] [Interpreted] JD over time has established supply chain management expertise on many categories. The fresh produce supply chain is a special and we invested in Yonghui to complement our lack of capability in supply chain of this category.
Yonghui is well recognized as the leader in fresh produce supply chain management. Yes, it’s an important partnership for us and from both sides we have dedicated team working on it.
And our – you’ll see some actions at the beginning of the December. So one more comment about Daojia in the annual conference of retailers, which was just held a few weeks ago.
The CEO of Sanjiang Supermarket in Ningbo had a conversation, or had a speech about his experience working with Jingdong Daojia, fairly one of his fiscal stores are now working with Jingdong Daojia. And the sales of these 31 stores increased by 20% since he started working with Jingdong Daojia.
Yes, we believe that next year we officially start working with Yonghui in fresh produce e-commerce, it will bring a lot of value to those companies.
Operator
Your next question comes from Robert Lin from Morgan Stanley. Your line is open.
Please go ahead.
Robert Lin
Thanks for taking the questions. So, I guess, I have a few questions.
So the flash sales, I think, Sydney you mentioned it’s about 1% of GMV. On an absolute basis that’s quite a meaningful number, it’s about RMB1.2 billion, that’s almost 212% of VIP shop.
Can you kind of comment on percentage of your buyers that are actually buying these flash sales events products, do you see impulse purchase slowing, because of the slowing macro? And may be few years out, what do you think this last event business should contribute to your overall GMV?
So that’s one. Second question is your – essentially your Tencent cooperation on the data sharing and brand advertising.
Will there be changes in the economics, I see that you guys have data sharing, but we only get 25% of the advertising cut. But this is a very valuable data we are sharing here.
Do you think that we should get bigger cut of the overall advertising that we are providing to Tencent? And third is about Suning, essentially the lumpy gross margin.
If Suning were to be very aggressive on pricing in the next couple of quarters, will we follow, or should we be more rationale? So those are my questions?
Richard Qiangdong Liu
[Foreign Language] [Interpreted] So, Richard, for the third question about Suning, he said that we’ve been [indiscernible] with Suning for over three years now and you all have seen the results. And I have no further comments.
So first two question…
Richard Qiangdong Liu
[Foreign Language] [Interpreted] So flash sales just had a 300% growth, so it’s very, very fast. It’s almost the growth rate that JD Mall overall had in the first seven years.
But we should be able to maintain a 100% year-over-year growth over 100% in the next two years….
Sidney Huang
Two, three years, yes.
Haoyu Shen
Two, three years. All right.
The second question is about the partnership with Tencent. I think the both companies are focusing on delivering value for our mutual.
We see these customers or merchant brands as our mutual customers. And it’s very hard to quantify who delivers what percentage of value to our customers.
So as part of the deal, we get 20% cut of the enterprise dollar and I think those parties have the above.
Operator
We are now approaching the end of the conference call. I will now turn the call over to JD.com’s Ruiyu Li for her closing remarks.
Ruiyu Li
Thank you, operator. Once again thank you for joining us today.
Thank you for your continued support and we look forward to talking with you in the coming months.
Operator
Thank you for your participation in today’s conference. This concludes the presentation.
You may now disconnect. Good day.