Thank you for standing by for JD.com's first quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ruiyu Li. Thank you.
Thank you, operator, welcome to our first quarter 2018 earnings call. Joining me today on the call are Richard Liu, our CEO, and Sidney Huang, our CFO. For today's agenda, Mr. Huang will discuss highlights for the first quarter 2018. Following the 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 release, which apply to this call, as we will make forward-looking statements. Also, this call includes discussions for certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all the figures mentioned during this conference call are in RMB. I would like to turn the call over to Sidney.
Thank you, Ruiyu Li. Hello, everyone. Thank you for joining us today. We are pleased to report another quarter of solid top-line growth, strong core e-commerce profitability, and improving overall net margin. During the first quarter 2018, our net revenues grew 33.1%, ahead of our expectations. In particular, growth from net services revenues accelerated to 60% year-over-year, the highest growth rate in the past eight quarters, driven by advertising and supply chain management services. non-GAAP growth margin in the first quarter was 13.9%, compared to 14.1% in the same quarter last year. If we look at JD Mall, excluding new businesses, non-GAAP growth margin improved 40 basis points from the same quarter in 2017, demonstrating a very healthy margin trend for our core e-commerce business. I should point out that the growth margins I discussed here are for our own margin trend analysis only.
As we previously mentioned, our business model is a combination of first-party online retail and a platform service business. Since the two business models have shared a common infrastructure, our cost and expense classifications are not comparable to many industry peers that focus only on one or the other. Therefore, our growth margins are less relevant for industry comparison purposes. During the first quarter, we continued to invest heavily in logistics and R&D. We further added 29 warehouses during the quarter to a total of 515 nationwide, with 10.9 million sq m in total space by the end of Q1. The continued capacity expansion has affected the growth margin for the logistics business and our expense ratio for the e-commerce business, especially in a seasonally slow quarter. The fulfillment expense ratio increased 32 basis points from the same quarter last year.
The good news is over 20,000 merchants are now using our supply chain services, including over 60% of our top 200 merchants. The revenues from the third-party logistics services have been growing in triple digits in the past two quarters, and the number of third-party orders fulfilled by JD Logistics through our warehouse network has increased to approximately 20% of the total 3P physical orders, which in turn improved the customer experience on our platforms. Our R&D expenses totaled RMB 2.4 billion, or 2.4% of our net revenues during the quarter, up 70 basis points from the same quarter last year. We believe investments in technologies and R&D talent are critical to the continued innovation required for further improving our retail customer experience and empowering our business clients through our retail infrastructure service offerings.
The increase in merchants using our logistics network is a good example of how we are looking to commercialize our infrastructure as part of our Retail as a Service strategy. Our R&D investments in other areas, such as AI-driven advertising and data analytics, are also gaining momentum in revenue generation as business clients benefit from the technology and scale that we have built out. Another example is our recently developed WeChat store Mini Program, which has been adopted by thousands of our brand partners since its official launch a little over a month ago at the end of March. It is a turnkey solution that enables the brands to open a WeChat store with all the essential store functions, plus embedded JD infrastructure offerings such as logistics, advertising, and JD membership benefits. Brands can manage their own fans while still enjoying all the perks and tools from the JD platform.
As a result of our spending logistics and R&D, non-GAAP operating margin was 0.8% in the first quarter. Excluding new businesses, the non-GAAP operating margin for JD Mall was 2.1%, comparable to the same quarter last year, supported by higher growth margin and the lower marketing expense ratio, offset by the higher R&D spending. Our free cash flow was negative RMB 8.8 billion during the quarter, which was largely due to a RMB 5.3 billion decrease in advance from customers and payable to merchants related to a complex settlement process change we have been going through to settle the marketplace transactions directly through third-party payment companies as required by the regulators. The accumulated impact of this settlement process change from the second half of last year to the first half of 2018 will be over RMB 9 billion in total.
Excluding the one-time effect, our operating cash flow would have been positive in the first quarter 2018. The remaining impact is mainly from the timing of supplier payments as accounts payable decreased as of March 31st, 2018, from the prior year-end. Our GAAP net income attributable to ordinary shareholders totaled RMB 1.5 billion in Q1 2018, which sets a new record. The net income benefits from the fair value gains on investments during the first quarter, in accordance with the new financial instruments accounting standard that took effect on January 1st, 2018. In addition, we also recorded an accumulated RMB 1.2 billion gain on investments as of December 31st, 2017, in the retained earnings upon this new adoption. As the market-to-market changes of these investments may not correlate to our core operational performance on a quarterly basis, we have excluded the fair value change in the non-GAAP earnings calculation.
Our non-GAAP net income in the first quarter 2018 was RMB 1 billion with a 1% net margin. While this margin is below the prior year level, it was generally in line with our internal Q1 operational plan. As our financial budget was established on an annual basis according to each year's unique operational priorities, which may not track the prior year's quarterly pattern. Our commitment to the full-year earnings remains unchanged. This leads us to our financial outlook. We expect 2018 net revenue growth to be between 29% and 33% on a year-over-year basis. We would also like to reiterate our non-GAAP net margin for full-year 2018 to be between 1% and 2%. This concludes my prepared remarks, and we can now move to the Q&A session.
Thank you. The question and answer session of this conference call will start in a moment. 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 have more than one question, please request to join the question queue again after your first question has been addressed. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Our first question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question.
Hi. Good evening. Thank you for taking my question. We understand that you guys have been investing in JD Logistics, not only to support your scale but also to serve third-party merchants. I'm just curious that, if we look at the increase in capacity of your logistics network, broadly speaking, not the detail, but just broadly speaking, how much you guys are preparing for your own business expansion? How much you guys are preparing for potentially third-party logistics demand? Thank you.
We expect in five years, the third-party logistics service volume will be more than our internal first-party fulfillment volume. The current capacity expansion is shared by both first-party and third-party logistics needs. We don't separate them at this point. As I mentioned on the last earnings call, that we have built out quite a bit of capacity in the second half of last year. It would take a few quarters to digest those capacities. Q1 was a seasonally slow quarter, that's why the impact will still last. We have seen that for our third-party logistics services, the margin has improved on a monthly basis in the first quarter this year.
能够为我们带来更多的物流仓储的建设。
We are also looking to establish a logistic real estate fund where we can leverage third-party capital to fund our logistics infrastructure, which I briefly mentioned in the past, and we hope to materialize in the later part of this year.
Thank you. Our next question comes from the line of Alicia Yap from Citi . Please ask your question.
Hi. Sorry, this is Alicia from Citi. Good evening, Richard, Sidney and Ruiyu Li. Thanks for taking my questions. My question is related to the logistic investment cycle. How long should we expect the step-up investment to last? Understand that it actually started fourth quarter last year, we already see some impact in this first quarter. How should we be thinking about the investment? Will 4Q this year, we started to see some normalized trend? On the longer term, what could be the optimal margin profile for your third-party logistics business? If you also have any revenue target for the third-party logistics business revenue addition. Thank you.
Richard just mentioned the third-party logistics revenue will exceed 50% in five years.
我们因为去年是京东物流第一次向第三方进行开放，所以大家看到我们四季度来自第三方的物流的收入快速增长。所以我们也有一室提前半年为去年四季度新建了大量的新的仓储。由此带来短时间的物流成本的这个费用，有些前置吧，但很快大概经过一个季度两个季度就会消化完。未来就是我们每年每个季度几乎都会在新建一些仓储。当然会保持它的新建仓和实际的使用保持一个平稳。也就是以后不会再出现像去年四季度这种集中性的短时间内有很大的费用波动的这个情况，比较罕见出现吧。
Right. We had anticipated a Q4 increase in volume for our third-party logistics services because we just announced the new initiative in the second half. That's why, as I also explained earlier, we had a fairly large volume of new or large space of new warehouse become available in Q4 last year. Richard was saying that after a few quarters that we digested those warehouse space, going forward, we'll manage the expansion on a more timely and really just-in-time basis so that there won't be any major overcapacity situation like we experienced in the past couple of quarters.
Thank you. Our next question comes from the line of Ronald Keung from Goldman Sachs. Please ask your question.
Hi, Richard, Sidney and Lei. Thank you for taking my question. I think while GMV is not the sort of key metric, I see revenue growth very strong, particularly for services. I just want to ask on the GMV sort of mix, how was apparel growth in the first quarter? If we exclude sort of apparel, is it comfortable to say that the overall category growth altogether was still faster than industry? I think, Richard, you mentioned overall, definitely our aim is to grow faster than the industry, and given that the overall online goods growth was 35%, I was just thinking how each of these categories are growing. If we exclude apparel, are we still on track to growing faster than the industry? Thank you.
Yeah. Good question. We had actually mentioned that for the apparel category, because of the competitive situation, we had experienced some merchant departure. Now, we have seen some of them coming back in the first quarter. The overall apparel category will take a few quarters to recover, as we mentioned late last year. In Q1, apparel category continues to be very weak. Our overall category is not growing. In some of the female apparel category, for example, is even declining slightly. Excluding the apparel category overall, all of our other categories are growing at a very healthy rate. We believe it's growing above industry level.
我们去年服装的品类增速，一季度我们的季度数应该92%，是非常高的。今年像刚才Sidney所说，我们整个服装这个类目增长已经停滞，个别像女装还是负增长。所以暂时二选一给我们造成的影响，短期的财务影响确实是存在的。但是我还是重申，二选一从来不可能说成为竞争的一个长期的竞争优势。我们管理层有绝对的能力和信心，在一定时间之内能够彻底解决二选一问题，这个问题当然会解决的。
Richard mentioned that, if he remembers correctly, in Q1 last year, our apparel business was growing at over 90%. Clearly, the impact from certain anti-competitive measures from our competitor has clearly created some short-term impact on our business. We believe, and we would like to reiterate, that the management is very confident that the impact will not be long-term. We have experienced similar practices in the past in other categories, and we are fully confident that we will regain this category back down the road. Other than apparel, all of our other categories are growing at a very healthy rate. For example, for mobile phone category, the industry saw a negative 26% growth in Q1, but our category for mobile devices has seen very healthy growth rate.
Really other than apparel, and to a lesser extent, some home products, all of our other categories are very healthy. I just wanted to add, apparel is a very profitable category as you know, without the apparel category, our core e-commerce JD Mall business continued to deliver a very healthy profit margin, which is also a validation of the strong resilience of our business model.
Thank you. Our next question comes from the line of Jerry Liu from UBS. Please ask your question.
Hi. Thank you. I want to talk about JD Mall margins. When we look at this quarter versus a year ago, what are some of the drivers for the margin to be just a little bit lower? If we look at the full year, do we still expect JD Mall margins to improve this year versus last year? Thank you.
Sure. As I mentioned earlier, the JD Mall gross margin improved 40 basis points from the same quarter last year. It's still the gross margin is driving the profitability. Gross margin came from two areas. One is the first-party product gross margin, which continued to expand because of our scale economies. Two is the advertising revenue growth also adding overall profitability. The margin gain has been offset by our investments in R&D and technologies. All in all, the operating margin remained relatively stable comparing to last year. On a full year basis, we are very confident that JD Mall margin will improve again this year.
Thank you. Our next question comes from the line of Gene Yoon from Mizuho. Please ask your question.
Hi, good evening guys. Vincent, by keeping full year net income margins intact, does that mean that net income seasonality may be upside down this year, where 1Q and 3Q could be weaker than expected, and 2Q and 4Q could be better than expected? In other words, if we saw significant capacity build in the last several quarters with lower volumes in 1Q and 3Q, we see stresses in margins due to overcapacity. Couldn't that reverse in 2Q and 4Q as volumes ramp up eating into that capacity? How should we look at that discrepancy? Thanks.
I think, for the logistics business, your assessment could be very much true that in Q2 and Q4, given the higher volume, our capacity utilization should improve. There will be also other dynamics, for example, promotions in Q2 and Q4. As I mentioned earlier, we plan our business operational plan for the entire year. We don't necessarily track prior year's quarterly pattern. We do have our commitment for the full year performance. This year, you are right. The external logistics business could perform in somewhat of a different quarterly pattern than the last year.
Thank you. Our next question comes from the line of Natalie Wu from CICC. Please ask your question.
Hi, management. Thanks for taking my question. I just want to get a sense about the current GMV split between your 1P and 3P business. Also for the second quarter guidance of 29%-33% year-on-year growth, what does it imply if we separate out the 1P sales versus service and others business? Should we expect their growth separately? Thank you.
If we exclude apparel category, actually the remaining categories, whether it is on 1P or 3P basis, they are all growing at very healthy rate, and closely should be quite comparable. Including the apparel, our first-party business in Q1 obviously growing faster than the 3P business.
Thank you. Our next question comes from the line of Thomas Chung from Credit Suisse. Please ask your question.
Hi. Thanks, management, for taking my questions. I have two questions. The first question is about the synergies with Vipshop. Can management comment about how's the trend so far? My second question is about 7Fresh. Can management comment about the latest development so far, and what's the goal for this year? Thank you.
For Vipshop, we just completed the system integration, and the store has been up and running, and we are pleased to see the weekly sequential growth has been very healthy week after week. However, it will require more time for us to accumulate the fans and the customer momentum for the VIP offering. We're very pleased with the current progress. The overall collaboration is within our planned schedule. For 7Fresh, right now we have two stores. The sales per square meters has been doubling the traditional offline stores. We're planning to open another two in May and three in June. In the second half, there will be more rolling out to a total of over 20 stores by the end of this year.
Once we prove the store model, we can roll out in our seven regions across the country through our own operations or through franchise model. We plan to expand to over 500 stores in five years.
Thank you. Our next question comes from the line of Wendy Huang from Macquarie. Please ask your question.
Thanks, management. My question is still about your warehouse and also the margin impact. With you adding only 29 warehouses versus 81 in the fourth quarter, should we expect this de-leveraging effect to ease a little bit in the second quarter? In other words, should we expect the second quarter non-GAAP net margin to be slightly better than the Q1? Also related to that, I noticed that in your CapEx breakdown, you mentioned that you incurred RMB 1.3 billion for the land and construction versus RMB 2.5 billion for other CapEx. Can you provide some color on the RMB 2.5 billion? Is that mainly for the equipment and also automation? Thank you.
Sure. Yeah. To your first question, your suggestion was right. We are seeing better utilization in Q1 and also within Q1 we see improvement on a monthly basis. We do have other additional warehouses becoming available in the second quarter. Overall, we do expect the utilization and the capacity expansion will be more in line with our business growth. The margin trend for our external logistic business will improve on a quarterly basis and clearly should be on a positive growth margin level by the end of this year. In terms of CapEx, we did purchase quite a number of other equipments, including servers and also our JD X program. Yes, a number of other automation and unmanned warehouse equipment, all of that. It was a pretty concentrated quarter of those purchases.
Thank you. Our next question comes from the line of Tian Hou from TH Capital. Please ask your question.
Hi, Richard, Rui, and Xinming. I have a much micro question. As cellphone become more mature in terms of adoption, also in terms of hardware, standard in each cell phone is so really smart. The cellphone replacement cycle has become longer. Cellphone market as a whole, the replacement or purchase new phone, those kind of needs is slowing down. I wonder how JD is going to deal with such a longer-term issue. Also in the apparel sector, what's JD's strategy to grow in this sector? Between two, you choose one platform is kind of harsh. Is there any other strategy to really move this sector forward? Thank you.
We acknowledge the mobile phone industry may see longer replacement cycles. We have also anticipated that for quite a couple of years. We have not only continued to grow the business online, but we also opened JD Home, an offline franchised store model to really use omni-channel approach to further expand our market share. Regardless of the industry growth, we are confident that we can continue to gain market share because we have been a leader. You recall we have also mentioned in the past when a retailer become a category leader, it can normally actually grow even faster than the rest of the industry because of the consumer mind share and because of its economies of scale providing advantages both in procurement and in the retail coverage. We have clearly demonstrated this pattern in the categories where we have enjoyed a market leadership.
Back to apparel. Richard has mentioned that historically we had encountered this kind of competitive tactics. The key is if we have customer experience, the customers are with you, then there's always breakthrough. In addition, as we mentioned in the past, these kind of practices are hugely unpopular with merchants and brands. With our past experience, the impact should be short-term, but it will take a few quarters to recover. Right now, if you look at the brands, many of them have already working with us either directly or indirectly, through multiple channels. We can revisit that in the following quarters. Right. We have seen brands coming back every quarter, but it will take a couple more quarters to recover. As long as we have good customer experience, good traffic, good reputation, we can win back these consumers.
Once again, because it's hugely unpopular with the brands, and we have seen in the past when any single channel taking brands as hostage, there will be very different consequences down the road that in the end will not be in the best interest of everyone, including the platform itself.
大家其实仔细看看，现在整个中国这些服装品牌，目前被绑架的所有中国服装品牌，其实都在拼命地去寻找新的平台。比如在微信小程序，几乎所有的服装品牌都在大量资源投入微信小程序。同时还有一些新的电商平台出现，这些服装品牌也在拼命地跟这些新的电商平台合作。我建议，等一个平台的话语权掌控力到了一个点的时候，也正是可以说京东的服装重新加速的时候。
You can see that many Chinese local brands that are taken hostage by the large platform are taking actions to seek other alternative channels. One example is the WeChat Mini Program. We can see all of those brands are very eager to open their WeChat presence and expand their channel diversity. By the time when the power of the platform with the rest reach a certain inflection point, we believe it will be the time for us and other channels to regain the brands and regain our consumers.
这个二选一其实也是让无数这种品牌清醒得很快。因为过去这些品牌可能长期在平台经营，没有感觉到什么威胁。但这次虽然他们屈从了，但其实他们醒了，所以都在想办法。那么在这种情况下，我们可以说从长期来看，更加充满信心。
We believe this is a wake-up call for the brands. Recognizing that overly relying on one platform is very dangerous to their own long-term growth and the health of the business. Through our interaction with the brands, we are even more confident that the current situation will be temporary, and that will be reversed in the longer term.
Thank you. Our next question comes from the line of Jiarong Xu from Nomura Securities. Please ask your question.
Richard, Sidney, 瑞昱。晚上好，我先中文说一下我问题，然后我自己再翻译一下。我其实主要是有两个问题。第一个问题是想问一下管理层怎么看拼多多这样一个团购电商的这样一个模式？因为我们看到京东最近也上了一个类似于团购的这样一个频道。不知道管理层怎么样看团购电商它的这个潜力究竟有多大。第二个就是我们也看到拼多多它其实从微信这边获取了很大一部分的用户，还有GMV，我们在微信里面也有一个自己的入口。所以想问一下，拼多多在微信的这样一个增长，有没有对我们京东在微信里面的入口造成任何的影响？第二个就是关于唯品会。我记得我们在和唯品会签这个投资协议的时候，其中有提到说京东会帮助唯品会能够达到一定的年度的GMV的目标。所以想问一下这个年度的GMV的target大概是多少？按照现在唯品会的这样一个入口的一个表现，您觉得这样一个目标能不能够达到？然后我自己翻译一下。I would like to ask management view about the e-commerce startup, Pinduoduo.
How do you think of the potential and the sustainability of this group buying e-commerce model? We know Pinduoduo has been able to leverage WeChat social graph to grow its users and the GMV. I just wonder if you guys saw any impact from Pinduoduo on your WeChat entry. My second question is a follow-up on Vipshop partnership. In the investment agreement JD signed with Vipshop, I think the agreement says JD will assist Vipshop to achieve certain annual GMV target. I just wonder what this GMV target is and whether you think this target is still achievable based on the latest performance of Vipshop's entry. Thank you.
拼多多其实大家可以仔细看一下，比如它Top 10、Top 20、Top 100的这种最常用的SKU，其实仔细看看就知道了。哪些产品跟比如说京东的我们的主流用户，包括我们的主流商品，几乎冲突的重合得很少。所以拼多多目前对整个京东的影响可以说是非常少。
If you look at Pinduoduo's top 10, top 100 SKUs, you'll see there's very limited overlap to JD's product offerings. At this point, we can tell you that there's very limited, if any, impact on JD. If you look at the product characteristics of Pinduoduo, you can see most products are really selling at rock bottom prices with varying qualities. For JD, we pursue high-quality products at a good price. Very different product characteristics and very different customer base. We do have our own similar group buying model on the WeChat platform. The product selection is also very different. Our product selection is tailored to quality and the middle-class consumers. Regarding Vipshop, as we mentioned earlier, we are very pleased with the initial progress and everything's on track.
We did not disclose the GMV target, and it's also quite early to project whether we will achieve such a GMV target or not.
Thank you. Our next question comes from the line of John Choi from Daiwa. Please ask your question.
Thank you for taking my question. I have two questions. First of all, I'd like to ask your thoughts on the advertising revenue. We do understand it's been growing very nicely. Over the longer term, let's say, three to five years down the road, how big do you think advertising could be? If you look at your global peers, it seems like advertising has been one of the fastest-growing part within the overall revenue. I'd like to know your thoughts on this. My second question is on just a follow-up on the WeChat Mini Programs. You mentioned, Sidney, on the prepared remarks, it's already adopted by thousands of merchants and brands. In terms of for JD, how would we really benefit from this in terms of GMV or the economics? Thank you.
As I mentioned on the last earnings call, even though our overall GMV is around one third to one quarter of our competitor, but advertising revenue is probably only one tenth or even less. We have huge potential to grow our advertising business. In particular, when we regain our apparel category, which is ad heavy category, we can also expect additional boost to our advertising revenue. At this point, without this category, we're already seeing very robust ad growth driven by our AI technologies and also very extensive user data and brand data. We are very optimistic on the ad business. On the Mini Program, we actually officially launched only a little over a month ago. Right now it's still in the quite early stage. Some of those Mini Program adopters are our existing merchants.
They will sell the products very much like they are selling on our JD platform. They will continue to enjoy all the support and tools from JD, such as logistics, advertising, yet they can also manage their own user and their own customers. There are other merchants that are not currently on JD platform, but they can also use the JD Mini Program to open shops on WeChat. We have a different collaboration model with them, including, again, some of the infrastructure offerings, some of the membership and also user for that particular brand. We have some early experiment, but this is still quite early in this overall initiative. We will update you more in the following quarters.
Thank you. Our next question comes from the line of Grace Chen from Morgan Stanley. Please ask your question.
Hi. Thank you for taking my question. My first question is about the 3PL logistic business. I'm interested to understand the margin. How would the strong ramp-up in the 3PL logistic business change your cost structure and margin profile? What's your target margin for the 3PL logistic business in the longer term? My second question is about the contributions from the 7Fresh stores. What's the revenue contribution from these offline stores this year and maybe next year after strong ramp? Also similarly, I'm interested to understand how do you think about the target margin profile for these offline stores, particularly in the longer term, and how would that impact the overall margins? Thank you very much.
On 3PL logistics, we believe because we are offering end-to-end supply chain management services, which is beyond traditional express delivery companies, we believe in the longer term, the margin should be somewhat better than existing top logistic delivery companies in the world. You can look at that which basically will point to mid to high single-digit operating margin. For 7Fresh, honestly, it's quite early. Right now, it has very little contribution to our overall revenue. We are also still debating on the future expansion, whether it's through partnering with our offline retail partners or opening our own stores. Really, it's still a work in progress. It's still too early to project the margin profile and revenue contribution for this business. JD Logistics is the only player at this point in China that can cover the entire spectrum of logistics services.
Our competition generally only cover one of those areas, whether it's logistics or warehousing services. JD covers an integrated full supply chain logistics. We can handle the large parcels, small, medium parcels, cold chain, O2O last mile. We are the only comprehensive service providers for logistics services in China. We can say that at this point, there is no head-to-head competitor in this business in the real sense. In addition to our third-party platform merchants who are adopting our services, there are also increasingly other business partners outside of JD's current business are increasingly using JD Logistics services.
Thank you. Our next question comes from the line of Billy Leung from Haitong International. Please ask your question.
Hi management, thanks for taking my question. It's just touching back on a few things we discussed. Just on the warehouse again, can we just get an idea of the utilization rate, I guess, for the past two quarters so that we can sort of gauge what efficiency we should expect in the next few quarters? The second question is just touching on the quarter two revenue guidance. We are seeing a slowdown in growth. I was just wondering if, in terms of categories, is there any specific categories which is causing the slowdown? Is it the apparel or is it something that we don't know? Thank you.
Yeah, I think our revenue guidance is generally in line with our prior growth pattern. Q2 last year was a very seasonally high quarter, the base was very high. As we continue to grow with a higher and higher base, growth rate could be slightly lower than the previous quarter. The current guidance, we believe, are still very healthy and very strong, and we clearly hope we can over-deliver as we have been. On the logistics, the questions about warehouse facility utilization again, I think we have discussed and explained this. We do expect even better utilization in the second quarter, given it's a seasonally high quarter. We will, at the same time, continue to expand the facilities because this is still in the investing phase for this business.
We are not in immediate pursuit of full utilization like we did in the past when we operate only our internal businesses, which is a lot more predictable. You will see a few quarters of somewhat extra capacities that are really prepared for business expansion. As I said, the extent of this overcapacity has been managed down every quarter. You will see improvement throughout this year.
Thank you. Our next question comes from the line of Xiao Yan Wang from 86Research Ltd. Please ask your question.
Thank you for taking my question. My question will be on advertising. Recently we noticed that you launched a new version of mobile app with personalization on your homepage. Just wondering, how do you expect this personalization would impact your, for example, the customer acquisition time spent or eventually the conversion and the GMV? Particularly for the upcoming June 18 sales, do you expect this personalization could contribute to this big promotion day? Thank you.
The personalization will be an iterating process. There will be multiple versions. Right now what you see is only the very first new version. We do expect more upgrades before June 18th shopping season. It will take at least a few quarters through multiple iterations to get to a very, very good state where consumers can really experience very differentiated recommendations. It will take time. I can tell you initial results are positive, but it is really too early to claim victory at this point.
Thank you. Our last question comes from the line of Gregory Zhao from Barclays. Please ask your question.
Hi, management. Thanks for taking my question. Recently, I think during an interview, Richard mentioned that in the long run, JD will adopt more robots and AI technology to improve the company's overall automation. Just want to understand for the short term and the long term, what's the margin, the implication from such a process? I have a quick follow-up question on our traffic. Just want to understand what the % of your current user traffic or new user acquisition from the third-party apps. Specifically like WeChat and Baidu. Thank you.
On the automation investments, yes, there will be short-term investments, as you can see in our R&D spending in Q1 increasing 70 basis points. We believe this will reduce our long-term costs and improve operating efficiency as these robotic technologies will help our warehouse efficiency and also delivery efficiency. It is investment that we believe are worthwhile for our long-term cost advantage.
We will throw it back.
Thank you. We are now approaching the end of the conference call. I will now turn the call over to JD.com's Rui for closing remarks.
Thank you, operator, and thank you for joining us today on the call. Looking forward to talking with you in the future. Thank you.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.