May 10, 2019
Ruiyu Li
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 discuss business highlights of the first quarter of 2019.
Other management will join the call later. Before we continue, I 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 measures to the most directly comparable GAAP measures.
Finally, please note unless otherwise stated, all the figures mentioned during this conference call are in RMB. Now, I'd like to turn the call to our CFO Sidney.
Sidney Huang
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 five 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, the majority of our delivery staff affected by the new incentive scheme, so their monthly income increased 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 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 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 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 every day 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 two 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-term evaluation of approximately US$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.
Richard Liu
Hi, everyone. This is Richard Liu.
I just want to share with you -- as you knew, 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 four 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 only a face of our average advantage. So we will continue to improve our employees' net income.
Actually in the past six years, every year our average employee net income improved. And we will keep to invest and make sure every position in my company is strongly attractive make sure we have the best talent.
Thank you.
Ruiyu Li
Operator, let's move to the Q&A section.
Operator
[Operator Instructions] Your first question comes from the line of Mr. Ronald Keung from Goldman Sachs.
Please ask your question.
Ronald Keung
Thank you and congratulations on a strong results. Thank you, Richard, Xu, Wang and Sidney, Jianwen 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 other service 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? Thank you.
Wang Zhenhui
[Foreign Language] 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 the experience and efficiency.
As pointed out by Chairman, Richard Liu just now, we will pay a lot of attention to have our customers comment on the experience. And also we are paying attention to how fast -- how well we send our products to -- goods to our customers.
In the past quarter, we have been making efforts on industry FX. One driver is technology.
We have noticed a very good strong flight in the logistics technology. To better our customer experience, so we can now secure more orders from our customers.
Although first of all actually is coming from outbound seasons. They all speak savings for us yet we've made a quite good performance.
And also our profit margin from 3P orders of business has been on the improvement during the past two quarters, we see this trend will continue in the future. And personally we will not sacrifice our customer on experience for that.
Thank you.
Operator
Your next question comes from the line of Jin Yoon from New Street Research. Please ask your question.
Jin Yoon
Hi, good evening. Thanks for taking my question.
Sidney, very strong win for the net margin line compared to what you kind of guided 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 from margins in 2Q and 4Q? And how should we see the cadence for margin expectations for the rest of the year?
And is there -- and 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.
Sidney Huang
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 head of the department. 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.
Operator
Your next question comes from the line of Alex Yao from JPMorgan. Please ask your question.
Alex Yao
Hi. Good evening, everyone.
Thank you for taking my question and congrats on 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 continue 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 -- fix the portion of the allocation can be more 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? Thank you.
Sidney Huang
Yeah. 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 11 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 two factors.
And 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.
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 a more normalized rates that are paid by our happy customers.
I don't know if that answers your question?
Operator
Your next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please ask your question.
Eddie Leung
Thank you for taking my question. I have two 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 producer?
And 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? Thank you.
Sidney Huang
Okay. So I'll take the first one.
Our electronics and home appliance business has actually seen healthy growth in light of the overall macro slowdown and we're definitely growing well above the industry, so the growth rate even though it's below the historical level, but we are continuing to expanding at double-digit rates and taking market share at a very fast pace. So as we take market share, we 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. And then for some other categories where we are not number one yet the simple growth in scale by itself will automatically generate additional gross margin by better procurement prices.
And Lei can answer the second question.
Xu Lei
[Foreign Language] Hi. This is Mr.
Xu Lei from CEO of JD Retail. Let me take the second question about the – particularly the size of general merchandise.
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. Actually, the ticket price of our direct to sales businesses in general merchandise is on a steady rise.
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 an improved – the ticket connection commission rate. And also we tried once last year.
We reduced the freight fee from a higher price to RMB99. As a result actually found out this measure didn't affect the thickness of our users or customers in general merchandise, and it helps us to control our fulfillment expenditure.
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 business.
This test will go on for a while and then we will roll this out the free freight expenditure will be counted as new user acquisition costs. Thank you.
Operator
Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.
Alicia Yap
Hi. Thank you.
Good evening, management. And thanks for taking my question.
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 internally or are you not expecting any 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 2018 sales that baked into your guidance as well?
Thank you.
Sidney Huang
Sure, 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 generating better convergence.
And also on a year-over-year basis, if you recall, June 2018 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 or given that 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. So the reinvestment is not just simple.
It’s just a simple promotion. There will be various innovative marketing campaign that are being planned.
But yes, clearly the price benefit will also be part of it. That's how we return to our consumers.
Operator
Your next question comes from the line of Jerry Liu from UBS. Please ask your question.
Jerry Liu
Hi. Thank you.
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? Thank you.
Sidney Huang
So, yeah, Richard just stepped away, so 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. 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 pension this year. Clearly the intention from the chart is to ensure that margin will steadily improve while we won't invest at the same time.
So it is really a balance and we hope we will master better this balance going forward.
Operator
Your next question comes from the line of Natalie Wu from CICC. Please ask your question.
Natalie Wu
Hi. Good evening.
Thanks for taking my question and congratulations on very robust results. My question is regarding the new ad interface.
I noticed that you launched AV testing for a new ad 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 AV testing.
And how should we think about the growth for your advertising business this year? Thank you.
[Foreign Language]
Ruiyu Li
This is Mr. Lei Xu Leader of the JD talent.
He will take this question. We've already rolled-out the new version of our app version 8.0.
And by the end of this month, 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.
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.
Actually we started this project last year August or September last year. So, this new version will be more catered -- this new version is more catered to the tastes -- preferences of young people.
Its 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 [Indiscernible] increase.
So far we find that this new version has improved our customers' stickiness and also return rate. And as you know this new model new of the news feed has already been used by some of our investor 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. The improvement in [Indiscernible] on the product detail page, we found that this new version has also helped us attracting more TV [indiscernible] in the stores and also the content page.
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. And lastly I want to emphasize one point.
This new user interface it’s a long-term effort, it's a long-term endeavor. It means we have to make a continuous effort to optimize our algorithm to increase point.
Thank you.
Operator
Your next question comes from the line of John Choi from Daewoo. Please ask your question.
John Choi
Good evening and good morning. Thank you for taking my question.
I have a question -- couple of 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?
And secondly, if you look at your active customer account 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?
Thank you.
Jianwen Liao
This is Jianwen Liao. Let me answer first questions.
Of course the past five years JD's has a very strong relation with Tencent and the relation has been extremely successful. Now, the extension of our relationship with Tencent was for the next three years that obviously will continue and will deepen our relationships in three major areas.
One is level one and level two gateway access. Number two in terms of advertisement.
Number three in terms our membership in Tencent Video and iQIYI Music. Now in terms of user acquisition, I will turn over to Mr.
Xu Lei to provide more explanations.
Xu Lei
[Foreign Language] This is Xu Lei, CEO of JD Retail. Let me answer your first question.
During the past five years the cooperation with Tencent, we have built a strong client base and also brand awareness and also our business side in the Weixin, WeChat market. At the same time, this trading in the past five years retail has been involved in a lot in terms of the number of users and also what they do with WeChat especially in the area of retail or e-commerce becoming more interactive.
For example, we have seen at the first of the year basically a cut for five years, but still we saw that create more than 50% of the visits are new visits. 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.
Then I'll answer your second question. Let me say something about users in other aspects.
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 all the associates or unified organization in this aspect, which set up a specialized team the in-charge of user acquisition.
As a result our new users have been increasing tremendously without incurring a lot of cost. Also we've been doing two pilot projects in terms of creating new scenarios -- new engagement scenarios to acquire new customers.
The second quarter will step up efforts in this aspect. Another thing is 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.
As we all know the current active client base is composed of two parts; one is, new user acquisition; and the other one is awakening of our existing users that haven't been activate in a certain period of time. In the first quarter we put more resources in this aspect and also we've utilized the new technologies and we have some innovative operation.
As a result the so-called awakened or reactivated users has been very promising.
Operator
Your next question comes from the line of Grace Chen from Morgan Stanley. Please ask your question.
Grace Chen
Hi, thank you. 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 what kind of JD target can we achieve this key margin target? Thank you.
A –Sidney Huang
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 revenues even with just 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 five offline retailers for example our JD Retail expense ratio was five 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 expense ratio will enable us to actually earn a higher margin than off-line retailers.
We have maintained that we should be able to earn two to three 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 profiles.
Operator
Your next question comes from the line of Tian Hou from T.H. Capital.
Please ask your question.
Tian Hou
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. 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 Wuhan [ph] are 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 each 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.
Jianwen Liao
Yes, this is Jianwen. I'll answer this question briefly.
Remember I believe last year, we talked about our strategy called Retail as a Service which means that JD will be ease in retailers, but more importantly, we are a retail infrastructure service providers. You're absolutely right.
I think the retail space would become more fragmented and more decentralized when it comes to main 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. At the same time, it is inconceivable low single retailers won't be able to build sophisticated network-based retail structure.
So in this case that's a reason why JD is moving away from a vertically integrated model to become an older model. So in this case, we opened up a retail infrastructure to connect to enable and empower more retail innovation.
So in other words, on one hand JD will show we will continue to participate in those retail innovation, but at the same time, we will become a retail service providers to the overall retail ecosystem. So those retail innovations will utilize our retail infrastructure like logistics and the other service as well.
Sidney Huang
So yes, as 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 off-line 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.
Operator
Your next question comes from Ella Ji from China Renaissance. Please ask your question.
Ella Ji
Thank you for taking my question and 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? Thank you.
Jianwen Liao
[Foreign Language] So this is Jianwen CEO of retail. In terms of the logistics infrastructure, since last year, we've seen making very significant strategic investment into warehousing and transportation and terminals technology.
As Sidney has mentioned, we are looking for improvements in infrastructure utilization. We can demonstrate by economies of scale and also we can benefit by improving our technology.
This year and also years into the future, we will continue to make more investments. Because the terminals where we are very strong, we continue to be an area we see our investment.
Eventually, the technologies we can improve our customer experience and also efficiency which are very important to set out for Logistics Company.
Ruiyu Li
Thank you, operator. Thank you, everyone, for joining the call.
[Technical difficulty]
Operator
Ladies and gentlemen, that does conclude the conference for today. Thank you for participating.
You may all disconnect.