Welcome to our first quarter 2019 earnings conference call. Joining me today on the call are JD.com Group CEO, Richard Liu, Mr. Xu Lei, CEO of JD Retail, Mr. Wang Zhenhui, CEO of JD Logistics, Sidney Huang, our CFO, and Sidney Huang, our CFO. For today's agenda, Mr. Huang will discuss business highlights for the first quarter of 2019. Other management will join the call later. Before we continue, I refer you to our safe harbor statements 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 the non-GAAP financial 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.
I'd like to turn the call over to our CFO, Sidney.
Thank you, Lei. Welcome everyone. Thank you for joining us today. We're pleased to report a strong set of financial results for the first quarter of 2019. We delivered solid revenue growth in a seasonally low quarter and set new records across all major earnings metrics. During the first quarter of 2019, our net revenues grew 20.9%, more than double Chinese national retail sales growth. Net service revenues grew by 44% year-over-year, driven by solid momentum from our marketplace and advertising service revenues, while logistics and other service revenues grew over 91%. Gross margin in the first quarter was 15%, up from 14.1% in the same period last year, consistent with our prior commitment to the continued margin improvement of JD Retail, formerly known as JD Mall, and JD Logistics' third-party business.
JD Retail gross margin increased 36 basis points, mainly driven by economies of scale from the 1P business, as well as technology-driven advertising revenue growth. In fact, this marks the 20th consecutive quarter of JD Retail gross margin expansion on a year-over-year basis. It demonstrates the long-term trajectory of retail scale economies, a concept that we have articulated persistently since our IPO five years ago. Every time when some of these short-term losses were reduced or eliminated through natural progression to success or even failure, the underlying economic trend of our core business will suddenly become too obvious, even though we did disclose such underlying trend of JD Retail every quarter.
Well, this is one of these quarters, as JD Logistics' third-party business achieved a significant gross margin improvement through better scale and capacity utilization that we promised a year ago, which explained the remainder of the group-level gross margin expansion and restored our normal margin trend. By the same token, our fulfillment expense ratio in the first quarter also improved 0.5% to 6.7%, down from 7.2% in the same quarter last year, driven by better utilization of our logistics infrastructure and improved unit economics as a result of the logistics service business. These improvements happened before the recently announced wage and benefit changes in our delivery unit in April. As we communicated internally and publicly, the new changes are designed to better incentivize our delivery staff in light of our expanding business lines and industry best practices.
In fact, the majority of our delivery staff affected by the new incentive scheme saw their monthly income increase in April, while their productivity also improved. We do not expect to realize any meaningful cost savings from these new changes. Any further fulfillment efficiency improvement will continue to come from better productivity of our staff and better utilization of our infrastructure through scale and technological innovation. Consistent with our ongoing focus on technology innovation, during the first quarter, our R&D spending was the only major expense line that increased faster than revenue growth, up 54% from the same quarter last year. Our R&D expense ratio was 3.1%, up from 2.4% in the same period last year. As we mentioned last quarter, however, following a period of significant investment to strengthen our R&D team, we expect our R&D expenses to stabilize in the remaining quarters of this year.
Our marketing expense ratio was 3.3% in the first quarter, down from 3.5% in the same quarter last year as we fine-tune our marketing strategies in light of the competitive dynamics. Our G&A expense ratio remained at 1.1% in the first quarter. You can see why our non-GAAP operating income reached a record high of nearly CNY 2 billion during the first quarter this year. It has nothing to do with our annual reorganization that was apparently over-interpreted by certain media outlets. There is no massive layoff. In fact, our total headcount increased during a seasonally slow quarter from 178,000 at last year-end, to 179,000 as of March 31st. In a nutshell, the record earnings is a natural result of ongoing JD Retail margin expansion and JD Logistics margin recovery, driven by technology innovation, economies of scale, and better capacity utilization.
Our non-GAAP operating margin was 1.6%, up from 0.8% in the same quarter last year. If you ask me how sustainable this margin trend will be, I will reiterate that the improving JD Retail margin trend is sustainable on an annual basis, as we have demonstrated over the past three years, and will continue for many years ahead of us. It is driven by JD Retail's significantly lower operating expense ratio as compared to the offline retail format, which in turn will enable us to provide everyday low prices and superior services to our consumers and drive sustained growth above the market. This is the simplest yet most powerful retail economics that have supported essentially all of the most valuable retailers around the world.
Our non-GAAP net income attributable to ordinary shareholders in the first quarter 2019 also reached a record CNY 3.3 billion, with a record non-GAAP net margin of over 2.7%, up from 1% in the same quarter a year ago. Our GAAP net income also set a new record at CNY 7.3 billion in the first quarter, mainly attributable to the fair value change of investments during the quarter. Our free cash flow during the first quarter turned positive to CNY 1.3 billion, driven by positive operating cash flow and disposal proceeds from the available-for-sale projects, partially offset by reduced maintenance capital expenditures. On the Q2 financial outlook, we expect net revenue growth to be between 19% and 23% on a year-over-year basis, based on recent economic indicators and our April growth momentum. Lastly, I am pleased to share two exciting developments.
We are delighted to extend our strategic partnership agreement with Tencent, covering a broad spectrum of strategic and business collaboration initiatives. We continue to expect a winning relationship with mutual benefits to both corporations in the future. I am also pleased to highlight the signing of the Series A financing for our JD Health business group, led by a group of well-respected financial and strategic investors. The deal valued our healthcare business at a post-money valuation of approximately $7 billion. JD Health operates the largest online retail pharmacy in China, with a fast-growing online healthcare services platform. This concludes my prepared remarks. Now I will turn the call to Richard for a few words.
Hi, everyone. This is Richard Liu. I just want to share with you, as you know, this quarter, our net profit is a little bit high. I want to say, we would never, ever stop investing for our long-term future. We never stop for four fields. First, we would never, ever stop investing for our customer experience. Second, we would never, ever stop for investing for our new business. As you know, we have our JD Digits business, JD Logistics, JD Health, and we will invest more for our new business model. Third, we will keep investing for our technology, because we are quite sure only the technology can improve our efficiency, reduce our cost, and our customer experience. Last one, this is mostly investment. That is talent investment. Actually, I'm sure the talent pool is only base of our every advantage.
We will continue improve our employees' net income. Actually, in the past six years, every year, our average employee net income improved. We will keep invest and make sure every position in my company is strongly attractive, make sure we have the best talent. Thank you.
Operator, let's move to the Q&A section.
Ladies and gentlemen, we will now begin the question and answer session. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note there will be a short pause as the questions are being collated. We thank you for your patience. Your first question comes from the line of Mr. Ronald Keung from Goldman Sachs. Please ask your question.
Thank you. Congratulations on the strong results. Thank you, Richard, Xu Dong, Wang Dong, Sidney, Miao Dong, and Lei Yu. Very solid guidance as well. My question is on logistics, and we see a significant reduction in logistics drag and over 90% growth in the line of logistics and other services revenue. Could you share with us some of the key initiatives and maybe KPIs for the JD Logistics? Given that the gross margins did improve, as Sidney, you mentioned, significantly in the first quarter, how should we think about that gross margin trajectory for the 3PL business and potentially the fulfillment cost metric as well over this year and in the outlook? Thank you.
I'm Mr. Wang Zhenhui, CEO of JD Logistics. Thank you very much for paying attention to our logistics business. Our key core KPIs are still centered around experience and efficiency. As pointed out by Chairman Richard Liu just now, we will pay a lot of attention to how our customers comment on the experience. Also, we pay attention to how fast, how well we send our products to, or goods to our customers. In the past quarter, we've been making efforts in these two aspects. One driver is technology. We have lots of very good, strong supply chain and logistics technologies. Through better customer experience, we can secure more orders from our customers. Although first quarter actually is kind of a off-peak season for us, yet we've made a quite good performance.
Our profit margin from 3P orders or business has been on the improvement during the past two quarters. We say this trend will continue in the future. Of course, we will not sacrifice our customer experience for that. Thank you.
Your next question comes from the line of Jin Yoon from New Street Research. Please ask your question.
Hi. Good evening. Thanks for taking my question. Sidney, very strong beat to the net margin line, compared to what you kind of guided for for full year. How should we look at the operating margin leverage as well as gross margin leverage as we head into weaker seasonality from margins in 2Q and 4Q? How should we see the cadence for margin expectations for the rest of the year? Do you still maintain the same margin guidance, or do you expect that to trend upwards going forward? Any kind of color on that? That'd be great. Thanks.
Sure. We're obviously very encouraged by very strong results in Q1. It is still only Q1. As Richard mentioned, we'll continue to invest in our customer experience. We'll invest in new businesses. As you can see in China, the competitive dynamic changes very quickly and has always been very, very fierce competitive environment. It is because only after the first quarter, we have not adjusted the margin guidance. We will revisit the margin guidance next quarter for sure. Now, with a very strong Q1, we are also prepared to reinvest part of that gain back to our consumers through our second quarter promotion season. Very similar to what we did in 2017. Again, I think it's a great quarter that we again demonstrated the underlying earnings power of our business.
We will continue to deliver a steadily improving margin on an annual basis, making sure that we will generate solid returns. At the same time, only when we continue to reinvest, we can expect sustained growth for our business in a very long-term basis.
Your next question comes from the line of Alex Yao from JPMorgan. Please ask your question.
Hi. Good evening, everyone. Thank you for taking my question, and congrats on a strong quarter. I just want to dig into the logistics improving gross margin trend a little bit. You guys mentioned that the gross margin for the third-party logistics continued to improve in the past two quarters. Is it because you increased the pricing for your product, or you optimized the cost structure such that the fixed portion of the allocation can be more easily scaled down by improving order volume? Can you just help us understand what exactly is driving the logistics margin improvement and how sustainable these drivers are? Thank you.
Yeah. Let me take that. If you recall, in Q1 last year and probably Q2 last year, we mentioned when we first started expanding the external business for logistics, it's very difficult to predict how fast we can grow, especially the effort started in Double 11 promotion season in 2017. We essentially build out very large capacities ahead of time to ensure the new customers can enjoy the best experience. Also in conjunction with that new business expansion, we were also providing business customers with trial period preferential rates. It was basically a capacity issue plus a discounted rates, both affected the gross margin of our external business. Also because the capacity is shared by both internal and external businesses, our internal JD Retail fulfillment expense was also affected because we spread out the cost between internal and external.
Q1 last year was negatively affected by those two factors. Essentially those two factors were removed by the last two quarters. We mentioned the initial discounted period gradually phased out in the second half of last year. Our capacity utilization has continuously improved throughout the year last year. By now we are in a very good shape in terms of capacity utilization. We're back to a more normalized rates that are paid by our happy customers. I don't know if that answers your question.
Your next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please ask your question.
Good evening. Thank you for taking my questions. I have two questions related to your revenue mix. We have seen electronics and home appliance growth slowing down. Just wonder, will that affect our 1P gross margin improvement in future, given perhaps slower improvement in economic scale to your suppliers? Separately, also about the revenue mix going to general merchandise. General merchandise is growing faster, could you talk about the trend of your basket size per user? How would that affect the efficiency of your fulfillment business going forward, especially given the potential lower order size could demand pretty similar utilization of your logistic resources as well? Thank you.
Okay. I'll take the first one. Our Electronics and home appliance business has actually seen healthy growth in light of the overall macro slowdown. We're definitely growing well above the industry. The growth rate, even though it's below the historical level, we are continuing expanding at double-digit rates and taking market share at a very fast pace. As we take market share, you continue to be able to work with your suppliers and brands to come up with more innovative products and offerings to our consumers. We mentioned in the past, for certain categories where we're already number one, we may come up with more customized models where we can drive further customer value, meaning lower price without disrupting the offline pricing systems.
For some other categories where we are not number one yet, the simple growth in scale by itself will automatically generate additional growth margin by better procurement prices. Xu Lei can answer the second question.
This is Mr. Xu Lei, CEO of JD Retail. Let me take the second question about the particular or best size of general merchandise. The relationship you've mentioned about the size of the ticket price and fulfillment expenses, I think it's mainly about our direct sell business. Actually, the ticket price of our direct sell business in general merchandise is steadily rising. This is mainly due to the fact that we've made some efforts in the 2nd category, segment tier and 3rd tier categories in marketing. As a result, we've improved the ticket commissioning rate. Also, we tried once last year, we reduced the freight fee from a higher price to CNY 99. As a result, actually, we found out this measure didn't affect the thickness of our users, our customers in general merchandise, and it helps us to control our fulfillment expenditure.
Starting in the end of March and also beginning of April, we've been trying or experimenting with a new measure where first buyers can enjoy free freight service. We found actually, it's very effective in acquiring new users. This test will go on for a while, we will roll this out. Of course, the free freight expenditure will be counted as a new user acquisition cost. Thank you.
Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.
Hi. Thank you. Good evening, management. Thanks for taking my questions. Also, congrats on the strong sets of results. I have a question sitting on the second quarter guidance. Can you elaborate the drivers that contribute to re-accelerate the growth for the second quarter net revenue guidance that you provide? Has that guidance baked into any potential uncertainty on this ongoing trade war impact? Are you not expecting any issue from this overhang? Should we also think about this re-acceleration potentially is driven by, given Richard mentioned to reinvest the strong 1Q margin, is that suggesting you are going to reinvest into very aggressive sales and marketing promotions to drive your June 18 sales that bake into your guidance as well? Thank you.
Sure. Yeah. It's really driven by a combination of factors. One is that we actually have a pretty strong April sales results. That was very encouraging. We believe it's driven by our customer experience and also better technologies. In particular, our user interface through the personalized technologies that we believe are generating better conversion. On a year-over-year basis, if you recall, June 18th last year was a long holiday weekend. There was also a World Cup around the same time. There's also some difference in terms of sales seasonality or sales season time frame. The third factor will be that, given we do have a strong Q1, we do have better resources to reinvest. Now, having said that, any investments will be also very measured.
We will make sure that any investment will generate good ROI, and also improve our customer experience. The reinvestment is not just a simple promotion. There will be various innovative marketing campaigns that are being planned. Yes, clearly, the price benefit will also be part of it. That's how we return to our consumers.
Your next question comes from the line of Jerry Liu from UBS. Please ask your question.
Hi. Thank you. Richard, my question goes back to your comments earlier about reinvesting. Certainly understand given the very strong results in the first quarter, we should expect some of that to be reinvested. I want to understand maybe your longer-term view. When you look at the last few years, JD net margins have had some years of increase and some years of decrease. Given the bigger scale of the business now, do you think we could enter a period where margins steadily increase year by year? Thank you.
Yeah, Richard just stepped away. Let me try to answer this question. We did have internal discussion on this. As we communicated in the past, we have been committing to steadily improving margins year-over-year. Last year was the exception, where we invested heavily in technologies and also a few new initiatives, such as JD Logistics. We tried to make clear that, one, JD Retail will continue to improve in margins as we did. Two is that, we accelerated our monetization effort on the logistics properties business so that we can, in some way, make up the profit shortfall last year, which also has been materialized, as we mentioned in the Q1 earnings release, through our first core fund established with GIC. We are taking the revenue trend very seriously, and we have also guided our intention this year.
Clearly, the intention from Richard is to ensure that margin will steadily improve while we will reinvest at the same time. It is really a balance. We hope we will master better this balance going forward.
Your next question comes from the line of Natalie Wu from CICC. Please ask your question.
Hi. Good evening. Thanks for taking my question, and congratulations on very robust results. My question is regarding the new app interface. I noticed that you've launched the A/B testing for a new app interface that emphasizes on the recommendation feed and personalization. I was just wondering, can we get some color on the effect of this new app interface on your CTR conversion rate based on the recent A/B testing? How should we think about the growth for your advertising business this year? Thank you.
Mr. Xu Lei, CEO of JD Retail will take this question.
We've already rolled out the new versions of our app 8.0. By the end of this month, actually, we will roll it out to all users. Of course, our users have to download a new version of the app, so it may take some people a longer time. As time goes on, our coverage will increase.
因为京东整个平台的定位给消费者更多的是更快速、精准地找到商品，完成购物，也就是我们所说的是save time。所以说，在这方面，我们是符合用户的预期。但是我们也看到现在越来越多的年轻用户希望在他任何的平台上面可以逛起来，也就是可以kill time。在这个时候，我们从去年的八、九月份开始做了这一版，70版的APP，开始相应的一些迭代工作。
As you know, our platform has been performing very well in terms of providing the right products to the right people at a faster speed, and also very precise, so to speak, save time for our customers. We've been doing very well in this aspect. At the same time, we also see the trend, especially among younger users. They not necessarily want to save time by shopping, they want to kill time by shopping around. The time we started this project last year, August or September last year.
整个的改版除了在UI界面上更年轻时尚以外，我们增加了很多的用户的互动。我们主要的考核是希望提升用户的体验。刚才您提到的包括转化率，包括首页流量的分发效率，包括商城的UV和PV的到达，这些都是我们重要的衡量指标。
This new version will be more catered. Actually, this new version is more catered to the tastes and preferences for young people. It's more fashion and also there will be more interactive opportunities. For us, the metrics we use to evaluate our new version is, again, customer experience and also the conversion rate, as you mentioned, and also the efficiency in traffic distribution on homepage and also on product detail page. So far it has been doing very well in terms of PV, UV increase.
目前可以看到的是，在测试过程中，整个用户的粘性跟回访率是向好的。同时在这种信息流的改版过程中，我们知道一些同业的公司在这过程中的时候，搜索的这种UV的访问会进行下降。但是我们在这次改版过程中，我们会看到用户使用搜索功能，占整个首页用户的比例并没有改变，实际上也就有了更好的这种加强搜索以及让用户逛起来的同时具备的现象。
So far, we find out that this new version has improved our customer stickiness and also return rate. As you know, this new model for newsfeed has already been used by some of our industry peers. The result is that their search rate actually has been hurt. However, this hasn't happened in our story. UV from search as a percentage of total UV has remained constant. That means we've maintained our competitive edge. At the same time, we've improved the kill time part of the story, so to speak.
除了刚才提到的商场PV以外，我们发现这次改版对店铺和内容的流量的引入都有明显的提升。
Besides the improvement in PV and the UV on the product detail page, we found that this new version has also helped us in attracting more PVs, UVs into the stores and also the content page.
同时，因为千人千面和信息流的大幅增加，让我们的广告变现的库存在增加，也产生了可能。但是这部分影响需要在后面的几个季度才能看出来。
At the same time, the personalized user interface and newsfeed also helped us to increase our advertising inventory. Of course, the results will be kicked in in the following quarters.
最后我再强调一点，就是整个的改版配合千人千面，实际上是一个长期的过程，中间需要很多算法的不断的迭代和优化。
At last, I want to emphasize one point. This new user interface, it's a long-term effort. It's a long-term endeavor. It means that we have to make continuous efforts to optimize our algorithm. That's a point to make.
谢谢。
Thank you.
Your next question comes from the line of John Choi from Daiwa. Please ask your question.
Good evening and good morning. Thank you for taking my question. I have a couple questions here. First on collaboration with Tencent. Has there been any further discussion about in the e-commerce space with Tencent and how you guys will further collaborate and cooperate with Tencent? Secondly, if you look in your active customer accounts, it has been pretty much flattish for the past few quarters. Going forward, what kind of user acquisition strategy the management has to further accelerate the user growth? Thank you.
I will answer the first question. Of course, the past five years, JD has a very strong relationship with Tencent, and the relationship has been extremely successful. The extension of our relationship with Tencent for the next three years, obviously will continue, and we are deepening our relationships in three major areas. One is level 1 and level 2 gateway access. Number 2 in terms of advertisement. Number 3 in terms of membership in Tencent Video and QQ Music. In terms of user acquisition, I will turn over to Mr. Xu Lei to provide more explanations.
Hi, this is Xu Lei, CEO of JD Retail. Let me add to the first question.
During the past five years of cooperation with Tencent, we have built up a strong client base and also brand awareness and also our business size in the Weixin, WeChat Market.
At the same time, we said during the past five years, WeChat has been evolving a lot in terms of the number of users and also what they do using WeChat, especially in the area of retail or e-commerce, that's been becoming more and more active.
For example, we've been at the first-tier gateway port for five years, still we found actually more than 50% of the visits are new visitors.
That means there's still ample room for growth. We're determined to deepen our cooperation with Tencent, we'll do more innovation and also differentiated competitive measures in terms of leveraging this partnership. That answers your second question. Let me say something about users in other aspects. As I said last time, we've been making a lot of efforts in terms of acquiring new customers. In terms of organization, we've put together all the resources or unified all the resources in this aspect. We've set up a specialized team to be in charge of new user acquisition. As a result, our new users have been increasing tremendously without incurring a lot of costs. Also, we've been doing two pilot projects in terms of creating new engagement scenarios to acquire new customers.
In the second quarter, we'll step up efforts in this aspect. Another thing we've done in the past quarter is that we've made efforts in awakening or reactivating customers that haven't bought anything from us in the past 12 months. As we all know, the current active client base is composed of two parts. One is new users acquisition. The other one is awakening of old or existing users who haven't been activated for a certain period of time. In the first quarter, we've put in more resources in this aspect, also we've utilized the new technologies, we've done some innovative operations. As a result, the so-called awakened or reactivated user base has been very promising. Okay. Thank you.
Your next question comes from the line of Grace Chen from Morgan Stanley. Please ask your question.
Hi. Thank you. Congratulations for the strong results of the first quarter. My question is about the operating margin. We see the JD Retail, JD Mall operating margin has been increasing on a year-over-year basis. Last year was 1.6%, and we also see encouraging improvements in the first quarter. It'd be great if the management can share with us the long-term margin target for JD Retail. Given that scale is the key driver of the margin expansion, I'm wondering on what kind of GMV target can we achieve this OP margin target. Thank you.
Sure. Yeah, Grace. We have discussed in the past in China, the retail market is almost as large as the U.S. market, while the top retailers still contribute a small fraction of the overall retail pie. While the top, for example, top 20 retailers in the U.S. already contributed 50% of the overall retail volume. In China, even though JD is the largest retailer, we are still quite small comparing to very large market size. The growth outlook, and in terms of when we can get to the right scale, if you just think about taking Walmart of U.S. as an example, by 2018 revenue size, even just with U.S. revenue size of Walmart, we are still only about one-sixth of its size.
The growth potential is tremendous, and that is why we're willing to reinvest part of the profitability back to the business to drive growth because as you continue to grow, your scale economies will naturally kick in. The faster we grow, the earlier we can get there. In terms of long-term margin trajectory, we had mentioned in the past, even at IPO, our first-party business longer term, because we have a much better operating structure, our expense ratio when comparing to the top five offline retailers, for example, our JD Retail expense ratio was 5% percentage point lower. That is tremendous advantage for us to reinvest part of the gross margin, and we can afford to reinvest the gross margin to drive growth.
Longer term, when we get to the steady state, this better operating margin or expense ratio will enable us to actually earn a higher margin than offline retailers. We have maintained that we should be able to earn 2 to 3 percentage point higher margin than offline retailer just for our 1P business. Then the 3P business has a much higher accounting margin. If you layer that on top of the 1P business, it will give you somewhere in high single digit, at least, for our long-term JD Retail margin profile.
Your next question comes from the line of Tian Hou from TH Capital. Please ask your question.
Congratulations on the good results. My question is much more broad, related to the China underlying e-commerce development. Recently, we saw so many e-commerce company IPOs. If we categorize those e-commerce, we can say you guys and your peers are much more centralized, the leaders in the e-commerce front. The other guys, like Yunji, Youzan, such as Ruhnn, are much more decentralized e-commerce. For those kind of decentralized e-comm vendors, we can actually see millions of them, big and small. Do you see any future impact from those mushroom type of a growth of those decentralized e-comm vendors? Are they going to eat into your market shares in your major categories? And how are you going to prevent them from getting into your space? That's my question. Thank you.
Yeah, this is John. I know. I'll answer this question briefly. Remember, I believe last year, we were talking about a strategy called Retail as a Service, which means JD will be either retailers, but more importantly, we are retail infrastructure service providers. You are absolutely right. I think the retail space will become more fragmented and more decentralized than concentration. Which means we'll continue to observe an increased number of players moving from social space, content, so on and so forth. The trend will continue. At the same time, it is inconceivable those retailers will be able to build those sophisticated network-based retail infrastructure. In this case, there's a reason why JD is moving away from a vertical integrated model to become an older model. In this case, we opened up our retail infrastructure to connect, to enable and empower more retail innovation.
In other words, on one hand, JD for sure will continue to participate in those retail innovation. At the same time, we will become a retail service providers to build the retail ecosystem. Those retail innovations will utilize our retail infrastructure, like logistics and the other service as well.
Yeah. Sidney has brought up this very interesting value proposition that we started mentioning last year, Retail as a Service, and which is really part of our second growth curve, which we have seen very good progress so far. But I just also want to just come back to the basics. What you mentioned on the various decentralized retail formats. You can also draw comparison to the various innovative boutique shops in the offline world. I think at different times, you always have different new innovative retail format. But in the end, the retail economies of scale driven by large procurement, and also operating efficiency will remain intact. I think even with all these new online or e-commerce formats, JD remains the only and clearly the largest and only 1P retailer with significant scale, while others are mainly operating on the 3P operation.
I think on that particular unique advantage, most investors and analysts have somewhat overlooked. This is a long-term game, but when you build such a scale, it is actually very difficult to be disrupted. I just want to mention this point again. Thank you.
Your next question comes from the line of Ella Ji from China Renaissance. Please ask your question.
Thank you for taking my question, congratulations on your strong results. I just have a quick question regarding the investment cycle of JD Logistics. Understand that you now are achieving a higher utilization rate of your facilities. Could you share with us what's the utilization level for now? How long or when do you think it's time for you to start with the next round of investments as you continue to expand your business? Thank you.
This is Wang Zhenhui, CEO of JD Logistics.
In terms of logistics infrastructure, since last year, we've been making very significant strategic investments into warehousing and transportation and terminals and technologies.
正如前面我们所表述的，其实从物流的使用效率上，或者说这个基础设施使用效率上，我们觉得还是有一些提升空间的。
As we've mentioned, actually, there's still room for improvement in infrastructure utilization.
一方面，它可以通过规模来能够提升，另一方面，还会通过我们比较核心的物流技术来提升。
We can benefit by economies of scale, and also we can benefit by improving our technologies.
今年及未来，我们还会在仓储和物流技术上持续进行投入。
This year and also years into the future, we will continue to make more investments.
当然包括我们也比较擅长的终端的能力，也会是我们重要投入的一部分。
Of course, terminals, where we are very strong, will continue to be an area to receive our investment.
物流是一个注重体验和规模及效率的一个业务，所以我们也特别相信通过物流的技术的不断地完善，一定也会很好地提升它的运营效率和运营的体验。谢谢。
We are sure through technologies, we can improve our customer experience and also size and also efficiency, which are very important to success of logistics company. Thank you everyone for joining us today on the call. Thank you, operator, and thank you everyone for joining our call. Please feel free to contact us if you have further questions. We look forward to helping you. Thank you.
Ladies and gentlemen, that is going to conclude the conference for today. Thank you for participating. You may all disconnect.