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JD.Com Inc
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Thank you, operator, and 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 Jianwen Liao, our CSO. For today's agenda, Mr. Huang will give the business highlights for the first quarter of 2019. Other management will join the call later.
Before we continue, I'll refer you to our safe harbor statement in the earnings press release which apply 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, other figures mentioned during this conference call are in RMB.
Now I'd like to turn the call over to our CFO, Sidney.
Thank you, Ruiyu, and welcome, everyone. Thank you for joining us today. We are 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 the 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 5 years ago. At times, this powerful underlying trend was overshadowed by the short-term accounting losses from the various new innovation efforts to expand our business model in order to drive our next growth curve. But 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 [ at ] 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 explains 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 the improved unit economics as a result of the [ third-party ] 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, a majority of our delivery staff are affected by the new incentive scheme for their monthly income increase in April, while their productivity also improved. As such, 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 a 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 in the 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 stable at 1.1% in the first quarter.
Now you can see why our non-GAAP operating income reached a record high of nearly RMB 2 billion during the first quarter this year. It has nothing to do with our annual reorganization that was apparently overinterpreted 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 31. In a nutshell, the record earnings is a natural result of ongoing JD Retail margin expansion and the JD Logistics margin recovery, driven by technology innovation, economies of scale and a 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 retail -- JD Retail margin trend is sustainable on an annual basis as we have demonstrated over the past 3 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 has 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 RMB 3.2 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 RMB 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 RMB 1.3 billion, driven by positive operating cash flow and a disposal of 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'm pleased to share 2 exciting developments. We are delighted to expand 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'm also pleased to highlight the funding of Series A financing for our JD Health business group, led by a group of well-respected financial and strategic investors. The deal values our health care business at a [ post-money ] evaluation of approximately USD 7 billion. JD Health operates the largest online retail pharmacy in China with a fast-growing online health care 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. But I'm going to say we would never ever stop investing for our long-term future. And we'll never stop for 4 fields. First, we would never ever stop investing for our customer experience. Second, we will never ever stop for investing for our new business. As you knew, we have our JD Digital business, JD Logistics, JD Health, and we will invest more for a new business model. And the third, we will keep investing for our technology because we're quite sure only the technology can improve our efficiency, reduce our cost and our customer experience.
And then last of all, this is the most [ being ] investment, that is talent investment. Actually, I'm sure the talent pool is the only face of our [ average ] advantage. So we will continue to improve our employees' net income. Actually, in the past 6 years, every year, our average employee net income improved. And 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.
[Operator Instructions] Your first question comes from the line of Mr. Ronald Keung from Goldman Sachs.
Congratulations on the strong results and very solid guidance as well. So my question is on logistics, and we see a significant reduction in logistics drag and over 90% growth in the line of logistics and others of this revenue. Could you share with us some of the key initiatives and maybe KPIs for the JD Logistics? And given that gross margins did improve, as, Sidney, you mentioned significantly in the first quarter, how should we think about that gross margin trajectory for the Retail business and potentially the fulfillment cost metric as well over this year and in the outlook?
[Foreign Language]
[Interpreted] I'm Mr. Wang Zhenhui, the CEO of JD Logistics.
[Foreign Language]
[Interpreted] Thank you very much for paying attention to our logistics business.
[Foreign Language]
[Interpreted] Our key core KPIs are still centered around the experience and efficiency.
[Foreign Language]
[Interpreted] As pointed out by Chairman, Richard Liu, just now, we will pay a lot of attention to have our customers comment on the experience.
[Foreign Language]
[Interpreted] And also, we are paying attention to how fast -- how well we send our products to -- goods to our customers.
[Foreign Language]
[Interpreted] In the past quarter, we have been making efforts on [ industry effects ].
[Foreign Language]
[Interpreted] One driver is technology. We have noticed a very good strong flight in the logistics technology.
[Foreign Language]
[Interpreted] Through our better customer experience, we can now secure more orders from our customers.
[Foreign Language]
[Interpreted] Although, [ first of all ], actually, is coming from outbound [ seasons ] -- [ outspeak savings ] for us, yet we've made a quite good performance.
[Foreign Language]
[Interpreted] And also, our profit margin from 3P orders of business has been on the improvement during the past 2 quarters.
[Foreign Language]
[Interpreted] We see this trend will continue in the future.
[Foreign Language]
[Interpreted] 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.
Sidney, very strong beat on the net margin line compared to what you kind of guided for, for full year. How should we look at that? How should we look at the operating margin leverage as well as gross margin leverage as we kind of head into weaker seasonality for margins in 2Q and 4Q? And how should we see the cadence for margin expectations for the rest of the year? And is there a -- and do you still maintain the same margin guidance? Or do you expect that to kind of trend upwards going forward? Any kind of color on that, that'd be great.
Sure. So we are obviously very encouraged by very strong results in Q1, but it is still only Q1. As Richard mentioned, we'll continue to invest in our customer experience. We'll invest in new businesses. And also, as you can see, in China, the competitive dynamic changes very quickly and has always been very, very fierce [ ahead of the retirement ]. So 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. But again, I think we -- it's a great quarter that we, again, demonstrated the underlying earnings power of our business. And we will not -- clearly, we'll continue to deliver a steadily improving margin on an annual basis, making sure that we will generate solid shareholder returns. But 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.
Congrats on a strong quarter. I just want to dig into the logistic improving gross margin trend a little bit. So you guys mentioned the gross margin for the third-party logistics continued to improve in the past 2 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 logistic margin improvement and how sustainable these drivers are?
Yes, so let me take that. If you'll recall in Q1 last year and probably Q2 last year, we mentioned, when we first started expanding the external business for logistics, we were -- we didn't -- it's very difficult to predict how fast we can grow, especially -- the effort has started in Double Eleven promotion season in 2017. So we essentially built out very large capacity ahead of time to ensure the new customers can enjoy the best experience. And also, in conjunction with that new business expansion, we were also providing business customers with trial period preferential rates. So it was basically a capacity issue, plus a discounted rate.
Both affected the gross margin of our external business and also because the capacity is shared by both internal and external businesses. So our internal JD Retail fulfillment expense was also affected, because we spread out the cost between internal and external, right? So Q1 last year was negatively affected by those 2 factors. And essentially, those 2 factors were removed by the last 2 [ quarters ]. We mentioned the initial discounted period gradually phased out in the second half of last year. And then our capacity utilization has continuously improved throughout the year last year. So by now, we are in a very good shape in terms of capacity utilization, and we are back to 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.
I have 2 questions related to the revenue mix. We have seen electronics and home appliance growth slowing down. So I just wonder, will that affect our 1P gross margin improvement in the future, given perhaps a slower improvement in the economic scale to the suppliers? And then separately, also about the revenue mix going to general merchandise. As general merchandise is growing faster, could you talk about the trend of your basket size produce? And how would that affect the efficiency of your fulfillment pieces going forward, especially given the potential lower order size could demand a pretty -- a similar utilization of your logistic resources as well?
Okay. So I'll take the first one. Our electronics and home appliance business has actually seen pretty healthy growth in light of the overall macro slowdown. And we're definitely growing well above the industry. And so the growth rate, even though it's below the historical level, but we are continuing expanding at double-digit rates and taking market share at a very fast pace. So 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 #1, we may come up with more customized models where we can drive further customer value, meaning lower price without disrupting the offline pricing systems. And then for some other categories where we are not #1 yet, the simple growth in scale by itself will automatically generate additional gross margin by better procurement prices. And Xu Lei can answer the second question.
[Foreign Language]
[Interpreted] This is Mr. Xu Lei from -- CEO of JD Retail. Let me take the second question about the -- particularly the basket size of general merchandise.
[Foreign Language]
[Interpreted] The relationship we have mentioned about the size of the ticket price and fulfillment expenses, I think it's mainly about our direct sales business.
[Foreign Language]
[Interpreted] Actually, the per ticket price of our direct sales business in general merchandise is on a steady rise.
[Foreign Language]
[Interpreted] This was mainly due to the [ sector trial ]. We've we made some efforts in the second category segment tier and third tier categories in marketing. As a result, we'll see there'll be an improved -- the ticket connection commission rate.
[Foreign Language]
[Interpreted] And also, we tried once last year. We reduced the freight fee from a higher price to RMB 99.
[Foreign Language]
[Interpreted] As a result, actually [ from voucher ] this measure didn't affect the stickiness of our users or customers in general merchandise. And it helps us to control our fulfillment expenditure.
[Foreign Language]
[Interpreted] And also, starting in end of March and also the beginning of April, we've been trying or experimenting with a new measure where [ first-time ] buyers can enjoy free freight service. And we've found, actually, it's very effective in acquiring new users.
[Foreign Language]
[Interpreted] This test will go on for a while and [ Jianwen ] will roll this out, because the free freight expenditure will be counted as new user acquisition costs.
Your next question comes from the line of Alicia Yap from Citigroup.
Also congrats on the strong set of results. I have a questions, Sidney, on the second quarter guidance. Can you elaborate the drivers that contribute to the reaccelerated growth for the second quarter net revenue guidance that you provide? Has that guidance baked into any potential uncertainty on this ongoing trade war [indiscernible] or are you not expecting an issue from this overhang? And should we also think about this reacceleration potentially is driven by, given Richard mentioned to reinvest, the strong 1Q margin? Is that such a thing that you're going to invest into very aggressive sales and marketing promotions to drive your June 18 sale? Is that baked into your guidance as well?
Yes. It's really driven by a combination of factors. One is that we actually have a pretty strong April sales result. So 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. And also on a year-over-year basis, if you recall, June 18 last year was a long holiday weekend. And there was also World Cup around the same time. So there's also some difference in terms of sales seasonality or sales season timeframe. And then also, the third factor will be that given that we do have a strong Q1, we do have better resources to reinvest. Now having said that, any investment will be also very measured. We will make sure that any investment will generate good ROI and also improve our customer experience. So the reinvestment is not just simple -- just a simple promotion. There will be various innovative marketing campaigns that are being planned. But 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.
Richard, my question goes back to your comment earlier about reinvesting. Certainly, I understand, given the very strong results in the first quarter, we should expect some of that to be reinvested. But 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?
Yes, so Richard just stepped away, so let me try to answer this question. We did have an internal discussion on this. As we communicated in the past, we have been committing to steadily improving margins year-over-year. Now last year was the exception, where we invested heavily in technologies and also a few new initiatives such as JD Logistics. And we tried to made clear that, one, JD Retail will continue to improve in margins, as we did. And 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. So we are taking the revenue trend very seriously, and we have also guided on [indiscernible] this year. Clearly, the intention from Richard is to ensure that margin will steadily improve while we will invest at the same time. So it is really a balance and we hope we will master better this balance going forward.
Your next question comes from the line of Natalie Wu from CICC.
Congratulations on very robust results. My question is regarding the new app interface. I noticed that you launched A/B testing for a new app interface that emphasize on the recommendation feed and personalization. I'm just wondering, can we get some color on the effect of this new app interface on your CR, conversion rate, based on the recent A/B testing? And how should we think about the growth for your advertising business this year?
[Foreign Language]
[Interpreted] This is Mr. Xu Lei, CEO of JD Retail. He will take this question.
[Foreign Language]
[Interpreted] We've already rolled out the new version of our app, 8.0. And by the end of this month [indiscernible] we will roll it out to all users. Of course, our users will have to download a new version of the app, so it may take some people longer time. So as time goes on, our coverage will increase.
[Foreign Language]
[Interpreted] 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. So we've been doing very well in this aspect. But at the same time, we also see a trend, especially among younger users, they don't necessarily want to save time by shopping. They want to kill time by shopping online. [ That's why we ] started on this project last year August or September last year.
[Foreign Language]
[Interpreted] So this new version will be more catered -- this new version is more catered to the tastes and preferences of young people. It's more [ sections ], and also there would 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 the home page and also on product detail page. So far, it has been doing very well in terms of [ TV/ UV ] increase.
[Foreign Language]
[Interpreted] So far, we find that this new version has improved our customers stickiness and also return rate. And as you know, this new model of the news feed has already been used by some of our industry peers. And the result is that their research -- 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 maintained our competitive edge at the same time we have improved the kill time part of the story.
[Foreign Language]
[Interpreted] Besides the improvement in [ TV and UV ] on the product detail page, we found that this new version has also helped us attracting more [ TVs and UVs ] into the stores and also the content page.
[Foreign Language]
[Interpreted] At the same time, the personalized user interface and user feed also helped us to increase our advertising inventory and, of course, the results will be reflected in the following quarters.
[Foreign Language]
[Interpreted] And lastly, I want to emphasize one point. This new user interface is a long-term effort, it's a long-term endeavor. It means we have to make a continuous effort to optimize our algorithm, so that's a point to make. Thank you.
Your next question comes from the line of John Choi from Daiwa.
I had a question -- a couple questions here. First, on the 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? And secondly, if you look at your active customer accounts, it has been pretty much flattish for the past few quarters. So going forward, what kind of user acquisition strategy the management has to further accelerate the user growth?
This is Jon Liao. Let me answer those first questions. Of course, the past 5 years, JD has a very strong relation with Tencent and the relation has been extremely successful. Now an extension of our relationship with Tencent for the next 3 years, that obviously will continue, and we'll deepen our relationships in 3 major areas. One is level 1 and level 2 gateway access. Number two, in terms of advertisement. Number three, in terms our membership in Tencent Video and [ Cue the ] Music. Now in terms of user acquisition, I will turn over to Mr. Xu Lei to provide more explanations.
[Foreign Language]
[Interpreted] This is Xu Lei, CEO of JD Retail. Let me add onto the first question.
[Foreign Language]
[Interpreted] So in the past 5 years, the cooperation with Tencent, we have built a strong client base and also brand awareness and also our business size in the Weixin WeChat market.
[Foreign Language]
[Interpreted] At the same time, with the trading in the past 5 years, Richard has been involved in a lot in terms of the number of users and also what they do in WeChat, especially in the area of retail or e-commerce becoming more interactive.
[Foreign Language]
[Interpreted] For example, [ we have seen at the first of the year basically a cut ] for 5 years. But still [ we forget ], more than 50% of the visits are new visits -- visitors.
[Foreign Language]
[Interpreted] That means there is still ample room for growth, so we determine that this cooperation with Tencent will do more innovation and also differentiated measures in terms of leveraging this partnership.
[Foreign Language]
[Interpreted] Then I'll answer your second question. Let me say something about users in other aspects.
[Foreign Language]
[Interpreted] As I said last time, we've been making a lot of effort in terms of acquiring new customers. In terms of organization, we've put together [ a unified organization ] and set up a specialized team in charge of new user acquisition. As a result, our new users have been increasing tremendously without incurring a lot of cost.
[Foreign Language]
[Interpreted] Also we've been doing 2 pilot projects in terms of creating new scenarios -- new engagement scenarios to acquire new customers. In second quarter, we'll step up efforts in this aspect.
[Foreign Language]
[Interpreted] Another thing in the past quarter is that we've made efforts in welcoming or reactivating customers who haven't bought anything from us in the past 12 months.
[Foreign Language]
[Interpreted] As we all know, the current active client base is composed of 2 parts: one is new user acquisition; and the other one is awakening of our existing users that haven't been activated in a certain period of time.
[Foreign Language]
[Interpreted] In the first quarter, we put more resources in this aspect, and also we've utilized new technologies [ and we found some innovative ] operations. As a result, the so-called awakened or reactivated users [ by this effort ] has been very promising.
Your next question comes from the line of Grace Chen from Morgan Stanley.
Congratulations on the strong results in the first quarter. My question is about the operating margin. So 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. So it will be great if the management can share with us the long term margin target for JD Retail. And given that scale is the key driver of the margin expansion, so I'm wondering on what kind of GMV target can we achieve this OP margin target.
Sure, yes. So Grace, we have discussed in the past in China that 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. So in China, even though JD is the largest retailer, we are still quite small comparing to very large marketplace. So the growth outlook, and in terms of when we can get to the right scale, if you just think about -- take 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 1/6 of its size. So the growth potential is tremendous. And that is why we're willing to reinvest a part of the profitability back to the business to drive growth, because as you continue to grow, your scale economies will naturally kick in. So -- and the faster we grow, the earlier we can get there.
So 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 5 offline retailers, for example, our JD Retail expense ratio was 5 percentage points lower. And that is tremendous advantage for us to reinvest part of the gross margin, and we can afford to invest the gross margin to drive growth. But longer term, when we get to the steady-state, this better operating margin or op 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 points higher margin than offline retailer just for our 1P business. And then the 3P business has a much higher accounting margin. So 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 T.H. Capital.
Congratulations on the good results. My question is much more broad and related to the China underlying e-commerce development. Recently, we saw so many e-commerce company IPO-ed. So if we categorize those e-commerce, we can say you guys and your peers are much more centralized, the leaders in e-commerce front. But the other guys like [ EG, Weixin ], et cetera, et cetera, Wuhan, are actually more decentralized e-commerce. And for those kind of decentralized e-commerce vendors, we can actually see millions of them, big and small. Do you see any future impact from those mushroom type of growth of those decentralized e-com 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.
Yes, this is Jon Liao. I'll answer this question briefly. Remember, I believe, last year, we talked about our strategy for Retail as a Service, which means that JD will be a [ retailer ], but more importantly, we are retail infrastructure service providers. You're absolutely right. I think the retail space will become more fragmented and more decentralized than -- in concentration. So which means we'll continue to observe an increased number of players moving from social space, content, so on and so forth. But the trend will continue. But at the same time, it is inconceivable those retailers will be able to build those sophisticated network-based retail infrastructure.
So in this case, that's a reason why JD is moving away from a vertically integrated model to become an open model. So in this case, we opened up our retail infrastructure to connect, to enable and empower more retail innovation. So in other words, on one hand, JD for sure will continue to participate in those retail innovation, but at the same time, we will become a retail service provider to [ the overall ] retail ecosystem. So those retail innovations will utilize our retail infrastructure like logistics and the other service as well.
Yes, so Jon has brought up this very interesting value proposition that we started mentioning last year, Retail as a Service, 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 boutiques shops in the offline world. I think in every -- at the different times, you always have different new innovative retail formats. 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 [indiscernible] while others are mainly operating [on a platform basis]. So I think on that particular unique advantage, most investors and analysts have somewhat overlooked. And this is a long-term gain, 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 Ella Ji from China Renaissance.
Congratulations on your strong results. I just have a quick question regarding the investment cycle of JD Logistics. I understand that you're now achieving a higher utilization rate of your facilities. Could you share with us what's the utilization level for now? And 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?
[Foreign Language]
[Interpreted] This is Wang Zhenhui, CEO of JD Logistics.
[Foreign Language]
[Interpreted] In terms of the logistics infrastructure, since last year, we've been making very significant strategic investments into warehousing and transportation and terminals and [ price ] technology.
[Foreign Language]
[Interpreted] As we have mentioned, I believe there is still room for improvements in infrastructure utilization.
[Foreign Language]
[Interpreted] We can benefit by economies of scale and also we can benefit by improving our technology.
[Foreign Language]
[Interpreted] This year, and also years into the future, we will continue to make more investments.
[Foreign Language]
[Interpreted] Because terminals, where we are very strong, will continue to be an area to receive our investment.
[Foreign Language]
[Interpreted] We are sure, through technologies, we can improve our customer experience and also size and also efficiency, which are very important [indiscernible] for logistics company.
Thank you, operator. Thank you, everyone, for joining the call. [indiscernible] We look forward to...
Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.