PDD Holdings Inc.

Q3 2021 Earnings Conference Call

11/26/2021

spk08: Good day, ladies and gentlemen. Thank you for standing by and welcome to the Pinduoduo Third Quarter 2021 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's prepared remarks, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I will now turn the call over to your host for today's call, Mr. Changpeng. Please go ahead, sir.
spk00: Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Chen, and I will help host the earnings call today. Pinduoduo earnings release was distributed earlier and is available on our website at investor.pinduoduo.com, as well as through global newswire services. Before we begin, I would like to refer you to our safe harbor statement in earnings press release, which applies to this call, as we will make certain 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 GAAP measures. Joining us today on the call are Chen Lei, our Chairman and Chief Executive Officer, Tony Ma, our VP of Finance. Lei will make some general remarks on our performance for the past quarter and our strategic focus going forward. Tony will then elaborate further on specific strategic initiatives and take us through our financial results for the third quarter ended September 30, 2021. After that, we will open the floor to questions from analysts. During the Q&A session, they will answer questions in Chinese, and Preston will help translate. Please kindly note that all translations provided are for ease of reference only. In case of any discrepancy between the original remarks and translated version, statements in the original language should prevail. Now, it is my pleasure to introduce our Chairman and Chief Executive Officer, Chen Lei. Lei, please go ahead.
spk03: Thank you, Chen. Hello, everyone, and thank you for joining our result announcement for the third quarter of 2021. Our total revenue for this quarter Excluding revenue from merchandise sales was RMB 21.4 billion. This represents a year-on-year increase of 55%. Our annual active buyers reached 867.3 million for the 12 months ending on September 30th. Over the quarter, average MAU increased to 741.5 million. We are grateful for opportunities to serve our users, farmers, merchants, and everyone who has interacted with us in the past six years, and we hope to continue serving them. It has been over a year since I took over as a CEO, and half a year as chairman of the board. We have been busy working on a transition, which I'm happy to report has been gradual and on track. There are two major things to this transition that has been happening behind the scenes. The first is grooming younger talent and leaders, and the second is shifting to more focused investments in R&D from a previous focus on sales and marketing in the first five years. And now, let me elaborate. First, ongoing younger talent and leaders. Since the beginning of last year, we have witnessed many of our younger team members stepping up to take more responsibilities. These young men and women demonstrated their core value of commitment to our users. When COVID-19 first struck and disrupted our daily lives, many of our young team immediately took actions to source essential supplies and deliver to users in need. When heavy rains struck Henan in July, they sprang into action to source out-of-stock goods and coordinate in logistics so that our users would not run out of daily necessities. This unfortunate event has accelerated their maturity and sense of servanthood to our users and society. who have been encouraged to see more with potential to become future leaders of our business. They make practical business decisions exceeding our expectations. I'm proud to be able to work alongside with this young team. Despite their age, many of them have been with the company for a number of years and have matured on the job. They are shaping the future of this company. Young talent brings creativity and vigor and constantly innovates. You will see more of them taking on critical roles in the next 6 to 12 months as we continue to create opportunities for them to step up. And the second should tend to more focus and investment in research and development. We're already serving 867 million users. To leverage on our strength of having a management with years of engineering training, we have been increasing our research development investments. This is a significant shift in strategy from our first five years when we were focusing much more on sales and marketing. Agriculture has been a main theme and a backbone of our business since the very beginning. when we saw an opportunity to create value by bringing agriculture into a digital economy. Trained as engineers, my team and I have devoted ourselves to find technology solutions to implement across the agricultural supply chain. We have only scratched the surface after six years. There is still much more for us to do in agriculture, especially with technology. we plan to deepen our investment in tech-enabled agriculture solutions to address critical needs in this sector. This includes, first, bringing more agricultural products and agriculture communities into a digital economy, and second, further improving efficiency in agriculture supply chains to meet user demand and reduce waste. Over the past six years, Pinduoduo has provided consumers across China with a wider variety of agricultural produce at better prices, while helping farmers to increase their income. When we started six years ago, we were among the first to sell agricultural produce online, and now we are connecting 16 million farmers to 867.3 million consumers nationwide. during China's Golden Week in October. Agriculture-related orders in our platform surged 279% over the same period last year. We hope Pinduoduo will be the go-to platform for quality agricultural products for farmers and consumers. We look forward to leveraging our platform to help more farmers in order to improve their livelihood and benefit their communities. To this end, we will continue to focus our efforts in digital inclusion in agricultural industries. We will expand our course offering on DoDo Academy to upskill farmers on e-commerce and store operations. It helps them to control price, quantity, and in a way, their own destiny in their own hands as they can sell directly to consumers. In order to exercise agricultural digitization, we practice to maintain our zero commission policy on agricultural products. At the same time, we will continue to improve consumer awareness and appreciation of agricultural produce, geographical indications, and agricultural brands through technology innovation, such as live streaming, media marketing, et cetera. The more awareness consumers have, the more educated farmers are, the more value can be created to agriculture communities in China. We are also designing tech-enabled services to increase supply chain efficiency to the agriculture sector. One of them is to match local supply with local demand. At the same time, it helps reduce unnecessary transit to provide fresh options for consumers. to further cut down transportation time and reduce food loss and waste. We are developing proprietary technology solutions like route planning, algorithm design, analytics, and culture optimization. These solutions help to lay the foundation for an infrastructure that's more suitable for agriculture produce and more environmentally sustainable. Our efforts in applying agricultural technology go beyond matching supply and demand and extend into identifying upstream technology solutions to improve productivity, nutritional profiles, and environmental sustainability. By strengthening agri-tech applications, we also hope to make agriculture attractive to a tech-savvy younger generation. A good example of our efforts in this area is our smart agriculture competition. It has demonstrated that precision farming techniques can make real improvements to farm output. Some teams from our competition last year have started to commercialize their technology on strawberry cultivation, instruction them on startups and bring tangible productivity gains to farmers. This year, we have joined force with China Agricultural University and Zhejiang University, with technical guidance from the UN Food and Agricultural Organization and the Wuhan University of Research. In line with our priorities, we are expanding the challenge to accept not just yield, but the nutritional value, environmental sustainability, and commercial viability. Contestants have adopted a multidisciplinary approach, applying nutrition science, precision farming, and other relevant technologies to cultivate tomatoes. The final team comes from cross-disciplinary backgrounds, ranging from agricultural to computer sciences. Currently, they are remotely planting tomatoes in our smart greenhouse space in Yunnan. We are encouraged to see that 80% of the team members are in their 20s, bringing vitality and new ideas to a traditional agriculture sector. At the same time, we are partnering with world-class agriculture institutes to offer these young agri-tech talents tailored courses and trainings on topics such as greenhouse, horticulture, crop management, and monitoring. Agriculture is an industry with great potential for young people to see a future in technology and who aspire to make impact on society. As an agri-focused platform, we want to leverage our platform and technology to provide more opportunities for young talent to join the agriculture sector, working with them to apply technology to improve every link of agriculture supply chain. Investing in technology to improve agriculture sectors is an important yet challenging task. It requires our long-term commitment, and we will be patient and systematic. We hope that through our efforts, we can help build a smarter and more sustainable future for agriculture. Last quarter, we announced the launch of a $10 billion agriculture initiative. which seeks to address critical needs in the agriculture sector and rural areas. The initiative will not be driven by profit or commercial goals, but strive to facilitate the advancement of agri-tech, promote digital inclusion, and provide agri-talent with greater motivation and sense of achievement. Profits from the second quarter and any potential profits in the future quarters will go into this initiative until the final goal of $10 billion is met. The profits for the third quarter will also go into these initiatives. After receiving bulk endorsement, we held an EGM at the end of September, and the initiative was approved by our shareholders. Pinduoduo is closely connected to the community that we operate in. Their support has been crucial in our development, and we in turn want to support them to the best of our ability. Therefore, we are committed to take on more responsibility for society. In July, we struck into action after heavy rains struck Henan. We donated 100 million RMB to flood relief and launched a portal to support emergency relief distribution. The Duo Duo Grocery Network in Zhengzhou took stock of food and emergency supplies and worked with suppliers inside and outside Henan to secure and distribute necessities to our nearly 20,000 partners there. In October, we also contributed to the relief effort in Shanxi in response to the heavy rain there, donating 15 million 50 million RMB to the Science Charity Foundation to carry out emergency disaster relief and post-disaster reconstruction work. Looking forward, we pledge to do more to contribute to our society. We will continue to proactively leverage our platform and resources to serve our users, farmers, merchants, and their communities better. Thank you. And now, let me pass the time to Thomas.
spk05: Thank you Lei. Hello everyone. Let me begin by sharing highlights of some of our agriculture initiatives in the past quarter. Then I will discuss our financials for the quarter. First, as part of our efforts for the digital inclusion of farmers, we initiated and supported a series of agricultural promotion activities to strengthen the direct connection between farmers and the consumers. Autumn is a harvest season, and this September, we were a main platform of the Farmers' Harvest Festival and its golden autumn consumption season. We launched a door-to-door harvest hall and designed a series of initiatives to help farmers to sell better, including live streaming, merchant training, traffic support, et cetera. Over 280,000 agri-merchants participated in our event this year. nearly doubled the number last year. In September, we joined the Ministry of Agriculture and Rural Affairs, Farmers Daily, and the China Green Food Development Center to kick off the 2021 campaign of China's GI Agricultural Products Tour. The campaign helps to promote the agricultural products and their regional heritage, helping to recognize quality agricultural products across China. To support the campaign, we provided the technical and platform support. We offered online and offline training, including marketing and branding techniques tailored to GI products. During China's Golden Week in October, a time when families typically reunite and enjoy meals together, we rolled out various initiatives to make more agriculture produced across the nation easily accessible through our platforms. These initiatives helped to increase agriculture-related orders, which surged 279 percent over the same period last year. Second, we are setting up efforts to raise consumer awareness, appreciation, and demand for quality agricultural produce in the producing regions. In October, we launched our Apple Golden Week. We worked with farmers in six major apple-producing regions. Shanxi, Shaanxi, Shandong, Gansu, Sichuan, and Xinjiang to develop a grading and a direct distribution framework. This framework helps to provide consumers with delicious and high-quality apples and build awareness of the places where these apples were cultivated. As part of this initiative, our fruit selection team stationed in these regions for months to study local markets. and help train high-quality apple merchants with strong supply chain capabilities. Alongside these drives, we are also working with research institutes to implement industry standards for agricultural products. We partnered with the Jiangsu Freshwater Fishery Research Institute on industry standards for Chinese meat and crabs. These standards cover quality, size, packaging, and transport. which will provide consumers with a clear basis to make an informed decision on their purchases. We hope to help farmers to promote their product, better meet the demand and the expectations of the consumers for quality goods and services, and build a sustainable business on our platform. Therefore, we will continue to maintain our zero commission policy for agricultural products. Now let me walk through our third quarter results. Our annual active buyers for the last 12 months, ending September 30, 2021, increased to $867.3 million, up $17.4 million from the prior quarter. Our MAU in Q3 reached $741.5 million. This is up 15% compared to the same quarter in 2020. Given our current scale, our user growth will inevitably be more moderate going forward. At the same time, as we serve a larger user base, we also face more diversified and even evolving user needs. Our task has become increasingly difficult. We hope that our younger team leaders could embrace the challenges and continue to serve users' needs innovatively. In terms of P&L, our total revenues in the quarter end, September 30th, 2021, were RMB 21.5 billion, up 51%. from RMB 14.2 billion in the same quarter last year. Excluding revenues from our 1P trials, our total revenue grew by 55% to RMB 21.4 billion in Q3 2021. And the key driver was online marketing services. Online marketing services revenue was RMB 17.9 billion this quarter, up 44% compared to the same period last year. primarily due to the increase in merchant activities. Our transaction service revenues this quarter amounted to RMB 3.5 billion, which is up 161% compared with the same period last year. The increase in our transaction service revenues was due to two primary factors. Number one, the increase in transaction processing fees. Number two, the service revenues that we recognized in connection with Dodo Grocery. for which we provided fulfillment and other related services. Revenue from the merchandise sales from our 1P trials was RMB 80.1 million in Q3 2021, as compared to RMB 2 billion in the preceding quarter. Our 1P business was a temporary solution to meet the demand of our users on products which our merchant could not fulfill. As we see more products offering from our merchants we expect contribution from 1P trials to be insignificant. Now moving on to costs and expenses. Our total cost of revenues increased from RMB 3.3 billion in Q3 2020 to RMB 6.6 billion this quarter. The increase was primarily due to higher cost of payment processing fees, cloud services fees, and delivery and storage fees. Total operating expenses this quarter were RMB 12.8 billion as compared to RMB 12.2 billion in the same quarter of 2020. Our total non-GAAP basis operating expenses were RMB 11.7 billion as compared to RMB 11.3 billion in the same quarter a year ago. Our non-GAAP sales and marketing expenses this quarter is RMB 9.7 billion decreased decreasing 1% compared to the same quarter of 2020. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 45%, as compared to 89% and 69% for the same quarter in 2019 and in 2020. The continued reduction in sales and marketing expenses as a percentage of revenue reflects our efforts to proactively reduce sales and marketing expenses as we gravitate towards more investment on R&D. On a non-GAAP basis, our general and administrative expenses was RMB 178.1 million compared to RMB 132.6 million in the same quarter of 2020. Our non-GAAP research and development expenses were RMB 1.9 billion, an increase of 30%, from R&D 1.4 billion in the same quarter of 2020. This increase in R&D was primarily due to an increase in headcount and the recruitment of more experienced R&D personnel. As we continue to strengthen our technical bench to lay the foundation for future sustainable growth and continue improving our services to meet evolving user demand, we are committed to expand our investments in R&D and expect a continued increase in R&D expenses. To sum up, operating profits for the quarter was RMB 2.1 billion on a GAAP basis, compared with operating loss of RMB 1.3 billion in the same quarter of 2020. Non-GAAP operating profits was RMB 3.3 billion, compared with operating loss of RMB 339.8 million in the same quarter of 2020. Our non-GAAP operating profits as a percentage of our revenue improved from minus 2.4% in Q3 2020 to 15.2% in Q3 2021. Net income attributable to ordinary shareholders was RMB 1.6 billion as compared to net loss of RMB 784.7 million in the same quarter last year. Basic earnings per ADS was RMB 1.31, and the diluted earnings per ADS was RMB 1.15, compared with basic and diluted net loss per ADS of RMB 0.66 in the same quarter of 2020. Non-GAAP net income attributable to ordinary shareholders was RMB 3.2 billion, compared with net income of RMB 466.4 million in the same quarter last year. Non-GAAP diluted earning per ADS was RMB 2.18 compared with non-GAAP diluted net earning per ADS of RMB 0.33 in the same quarter of 2020. In August, we announced the launch of 10 billion agriculture initiative, which aims to address the critical needs in the agricultural sector and the rural areas. The initiative would not be driven by profits or commercial goals, but strive to facilitate the advancement of agri-tech, promote digital inclusion, and provide agri-tech talent with greater motivation and a sense of achievement. The initiative received shareholders' approval at the EGM hold at the end of September. Profits from the third quarter will also go into this initiative. We expected the initiative to have a near-term impact on earnings per share for shareholders. That completes the profit and loss statement for the third quarter. Net cash flow provided by operating activities was RMB 8.7 billion, compared with RMB 8.3 billion in the same quarter of 2020. As of September 30th, 2021, the company had RMB 97.9 billion in cash, cash equivalents, and short-term investments. With that, I conclude my prepared remarks.
spk00: Thank you, Tony. For today's Q&A session, we have Lei, our Chairman and Chief Executive Officer, and Tony, our VP of Finance on the line. Preston will help translate Lei's remarks in Chinese to English for ease of reference. Operator, we may now take questions from the first analyst on the line.
spk08: Certainly. If you wish to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Once again, if you wish to ask a question, please press star and the number one on your telephone keypad. Your first question comes from the line of Natalie Wu of Haitong International. Please ask your question.
spk06: Hi, good evening. Thanks for taking my question. I have two questions here. First of all, it seems that your self-marketing expenses is tapering off. Just wondering, are you changing your ROI for self-marketing spending? How should investors understand your future self-marketing strategies? This is also the second consecutive quarter that your company is showing both non-GAAP and GAAP profit. Just wondering, are you prioritizing probability over growth going forward? And should the investors expect four-year probability for 2021 and going onward as well? And my second question is regarding the agriculture initiatives. I'm just wondering, Lei-Zhong, can you provide an update on the $10 billion initiative you started last quarter? Has any investment been reflected in the latest financial results, which financial line items has been affected. Thank you.
spk03: 谢谢Nathalie 我想回答一下有关 sales and marketing的问题。 我觉得从我们前面的几个一次以来, 我们是对营销方面的投放, 我们的ROIs是有很高的标准, 而且一直没有改变过。 Thank you, Natalie for the question.
spk04: And to answer your question, our high standards for sales and marketing investments ROI have not changed. But as our user base expands and our user needs diversify, we are also constantly applying micro-adjustment to our ROI model. And the goal is actually to better serve our users' diversified demands.
spk03: From the first day, we hope that through our own technology, we can provide services to the largest group of users and do a general meeting. In the past, when the number of users was relatively small, our goal was to attract more users to understand our platform, participate in our platform activities, and enjoy our services. But now, We have a large number of users and consumers who are willing to start using Pintuoduo and continue to use it. How can we make them try out new products and get new experiences? How can we satisfy their expectations of continuous growth for Pintuoduo, in order to increase the trust of our users and improve their confidence?
spk04: So when we were just starting, we were hoping that with the application of technology, we can serve the wider consumer pool per our principle of benefit all. So when our user base was relatively small, the investment goal was actually to attract more users to get to know about us, try different features, and also try out our platform. Now, as our user base is much larger, with more and more users starting to use Pinduoduo, our new challenges now is how can we constantly encourage them to try out new categories, to explore new experiences, and how can we actually meet their changing and much higher expectations of us so that we can improve our trust and build longer-term user mindshare.
spk03: We think that with the eyes of this technology, to be able to continuously meet the needs of users is actually a very challenging thing for a platform. This is also said to be a task of our new generation management. We have been searching, exploring and adjusting, but I think in terms of marketing, we have a point that we will donate, that is to say, we will continue to follow
spk04: It is a challenging task to constantly satisfy users, especially given that we have such a large and diversified base of users. It is also the challenge for our new generation of leaders. We are also learning and adjusting through iterations. One thing that is not changing is that we will continue to hold ourselves to high ROI standards in terms of sales and marketing and spend our sales and marketing dollars in a highly disciplined manner.
spk03: At the same time, we have been investing in the long-term development of our company. You may have noticed that we have been investing in the development of our company. At the same time, we are also stepping up our investment and investing patiently for long-term development of our company.
spk04: You may have noticed that we are increasing our R&D investments, which is a key area for our future investments. And in your question, you also touched upon profitability, so let me ask Tony to help address that.
spk05: Tony Guidao- Natalie, coming back to your question regarding the, you know, concept of being profitable for the past two quarters, the main contribution of our probability in the past two quarters is the leverage efforts from sales and marketing expenses as showing a declining percentage of revenue. But for us, the probability is not any team's KPI internally. We are more focused on long-term investment to address users' fundamental needs. As we have been communicating with the market, to us, investment into sales and marketing is similar in nature to capital expenditure. which crystallize as user mind share, a long-term asset for us. So this is a strategy that we have been digitally executing for the first five years and an area where we will continue to practice financial prudence. It is worth highlighting that we are shifting our focus and investments towards R&D and expect to step up our investment there to lay the foundation for the solid long-term growth. As a result, we will expect R&D expenses to increase going forward. Coming to your second question, I think Lei will address that question, but let me just point out one comment on that. I think you mentioned about the financial impact in the third quarter for the $10 billion program. Since this program has only got the EGM approval at the end of September, so in the Q3 financial results, there's nothing has been booked or reflected yet. Pastor Flo, back to you.
spk03: I would like to add one more thing. Indeed, after Q2, we announced the special effect of Baiying Farm, I'd like to add one more point here. So after we announced our 10 billion agri initiative last quarter,
spk04: We have received many quality product proposals and advices from various stakeholders in the industry. So together with my team, I'm also diligently studying various proposals. And so that will conclude the answer for this.
spk06: Got it. Very clear. Thank you, Lato and Tony.
spk01: Thank you.
spk08: Your next question comes from the line of Thomas Chong of Jefferies. Please ask your question.
spk02: Hi, good evening. Thanks, management, for taking my questions. I have two questions. The first question is about the competitive landscape in online shopping, as well as the impact to our site due to the increasing popularity in live streaming online shopping. And my second question is about our support measures. Can management highlight about the support measures and how should we expect the growth rate between GMV and advertising due to the support measures? Thank you.
spk03: We have noticed that in the past, the trend has been that with the continuous development of mobile technology, the infrastructure related to the industry is also constantly improving, and the entire demand of consumers is actually in constant evolution. In such a big dynamic environment, more and more platforms or platform-based enterprises are participating in the e-commerce industry,
spk04: Thank you, Thomas, for your question. Let me address this question. So in my view, e-commerce in China is a huge industry full of vibrancy and potential. As we see mobile technologies continue to develop and the relevant infrastructure continues to mature, and also at the same time, consumer demand is also constantly evolving. with all these moving pieces and these changes. Commercially, we do expect more and more platforms entering this space, and this would make commercial sense.
spk03: The latest series of monitoring measures, I think, is also pushing the entire e-commerce industry to develop in the direction of positive competition. We believe that more competition
spk04: At the same time, we also notice that the recent issued rules and regulatory measures are promoting healthy competition and the orderly development of the entire e-commerce sector. In our view, we think that more competition always good in terms of promoting positive benefits and providing benefits to users, the industries, and all the companies involved.
spk03: For example, we have seen platform companies including the video platforms entering the e-commerce sector.
spk04: To us, it is not surprising to see these companies with such huge user base and high user frequency, such as the short video platforms, to enter this space. At the same time, we are also seeing more and more platforms with sizeable user base and engagement level entering this space.
spk03: I think that what is being discussed in depth may be more external things. But I think it is an urgent development. The core is still to go back to yourself to understand the value and purpose of its existence. So, Pinduoduo starts from this farm products. We have satisfied more of the basic needs of daily users. We hope to be able to provide users with this kind of service such as rice, oil, salt, and tea. So, I think this year is suitable for other
spk04: So just now I've discussed the external factors, but I think it's always important to come back and zoom in into ourselves and see what kind of value are we providing. So Pinduoduo actually started off from selling agricultural produce. We always aim to help address users' daily necessity and basic needs. So in my view, this sets us apart from the other e-commerce players and potential new entrants.
spk03: For us, how to serve our customers in 8.7 is our main job. So we have been constantly asking How can we continue to serve consumers by increasing daily service? At the same time, in the process, do we create more value for the whole society? Does it make our environment greener and more sustainable? For us, the belief in the value of social creation as a company, So for us, how to serve our nearly 870 million users better and remain user-centric is our benten as a company.
spk04: And so the question that we constantly ask ourselves are, how could we continuously iterate to serve our users better? At the same time, are we creating value for the society? Are we promoting a greener environment and sustainability? So for us, our key strategy as a company has always been to gain user trust and to create value for society, which we believe will also become our long-term asset.
spk02: My next question is about how should we think about the support measures to merchants and the growth rate between GMV and advertising as a result of the support measures? Thank you.
spk05: Thank you, Thomas. Let me try to address your question. I think your question is pretty much linked to the outlook of monetization. Let me share some of our views. Our strategy has always been serving our users well, as Lei just mentioned in his response. We believe the revenue growth and monetization are a natural result of that. Our merchants' ROI is already reflected in our revenues. As you can see, our revenue performance this quarter shows the healthy ROI merchants are seeing. when they sell more on our platform. We do not focus on the monetization on a quarterly basis. It is a result of user satisfaction and merchants' allies. And our merchant monetization rate has been fluctuated in the past, and it will be the case going forward. We're also raising the bar on the quality of merchants and the products to meet our users' needs. to help promote agricultural produce to users and strengthen PDD as a go-to platform for agricultural products. Therefore, we are committed to keeping a zero commission policy for agriculture and fresh produce.
spk02: Got it. Thank you.
spk05: Thank you, Thomas.
spk08: Your next question comes from the line of Eddie Wang of Morgan Stanley. Please ask your question.
spk01: Thank you for taking my question. I also have two questions. The first one is regarding our effort to attract more brands and branded products merchants on our platform. We noticed that the merchandise sales actually declined significantly on a quarter-to-quarter basis. Should we suppose that this is a very ideal progress for us in the last quarter, actually attract more branded brands in our platform? That's question number one. The second question is about the relatively weak consumption environment in China since the third quarter. As we see that some of the competitor platforms, it actually has been affected by this weak consumption significantly, but some seem to be very resilient. I just want to hear your view on how this weak consumption has been affected on PDD, especially given that we have high exposure to the agriculture products and the, for example, value for money. Does that mean that our GMV growth or revenue growth actually is more resilient under this environment? Thank you.
spk03: Let me answer your first question, which is about the brand. I think as the number of users in B2B is increasing, we can see that the needs of our users are becoming more and more diverse. Indeed, users need more and more products, more of a brand level. But in general, it takes some time for a brand to develop on this platform. Recently, we have seen a series of anti-corruption policies. These policies have indeed produced some results in promoting brand enrollment. So let me answer your question.
spk04: I believe your first question is on brand. So as our user base increase, we are noticing that our users need and demand also becoming more and more diversified. At the same time, we are observing that our users need, they do require more, and they also require more abundant supply of product offering and brand. So from our view, we do think that in terms of getting more brands, this process will do take some time. At the same time, the recent MT2 Choose One measures have had some initial impact, whereby we have noticed that a number of brands finally dare to come to the platform and start to operate. However, stock opening is a gradual process, which requires both the platform and the brands to put in resources, energy, and time to build trust. and foster successful partnership. So, we do expect this to take some time, and the process to be more gradual.
spk03: So, the process requires a lot of resources, energy, and time. In the long-term process, we build trust and promote cooperation. This process requires a lot of time to complete. Please hold and the conference will resume shortly. Thank you for your patience. Thank you for standing by. We're now back on.
spk08: If you wish to ask a question, please press star 1 on your telephone. Your next question comes from the line of Joyce Ju of Bank of America. Please ask your question. Once again, for the line of Joyce Ju, your line is on. You may ask your question.
spk07: Thanks, management, for giving me the chance to take in my questions. I have two questions. My first question is related to the regulatory environment. Could management give us an update on the recent regulatory environment? Specifically, does Tanzan Baba opening affect our operations? May you also share some colors on if there are any regulatory measures that affect your operations? And second, my question is, we have seen our 1P business continue to decline in the third quarter. Does this mean that you have winded down this business? Any comment on the future 1P business contribution? Thanks a lot.
spk04: So we think the recent series of regulatory measures would help to promote the high-quality growth of the platform economy and the entire industry. So we have always been fully embracing and supporting the regulatory measures and will continue to firmly and thoroughly implement all relevant guidance and measures.
spk03: We can see that the changes in the industry have led to a lot of enterprises in the industry starting to take action, actively pursuing changes, and constantly optimizing. We are also one of them. Our company is actively taking action, actively and actively helping the company to further refine.
spk04: We saw that many companies are taking action and continuing to optimize under the backdrop of these changes brought forth by regulations in the industry. We are one of these companies. Our company as a whole is proactively taking these as an opportunity to improve ourselves and also to further enhance compliance with regulations.
spk03: In the short term, you may notice the impact from these changes.
spk04: But in the medium to longer term, though, we believe that these changes would be very beneficial to users, the industry, and the companies involved in this industry.
spk03: Okay. Joyce, let me... We are very concerned about the cooperation and progress of related enterprises. We think this has a learning and learning meaning for the entire industry and PTI companies. We are also observing specific and detailed cooperation details to see how it goes.
spk04: We are also following up the development of opening up, as you mentioned, as we believe that such measure would set a great example for platform companies and the entire sector. So we believe such measures would eventually be very beneficial for the users and the healthy development of the sector in the long run.
spk05: Joyce, let me come to address your question regarding the 1P business. As we mentioned at the outset, when we started this 1P business, we already stated very clearly our 1P trial is a temporary measure to offer products that our consumers want, but our merchants cannot offer at that time. So 1P is not a strategic priority for us. As we see more product offering from merchants on our platform, we do not expect a significant revenue contribution from 1P going forward.
spk00: Thank you, Tony. Thank you, Erwan. Thank you, Erwan, for joining us on the conference call today. If we have any further questions, please refer to our team's email address. Thank you, and have a great day.
spk08: This concludes today's conference call. Thank you for participating. You may now disconnect.
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