PDD Holdings Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Pink Door Draw's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you need to press star 11 on your telephone. I must advise you that this conference is being recorded today. I'd now like to hand the conference over to your host today, Mr. Chen Peng. Sir, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Chen, and I will help host the earnings call. Pinduoduo earnings release was distributed earlier and is available on the AI 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 the earnings press release, which applies to this call, as we will make certain forward-looking statements. This call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. Joining us today on the call are Chen Lei, our Chairman and Chief Executive Officer, Liu Jun, our VP of Finance. Lei will make some general remarks on our performance for the past quarter and our strategic focus. Jun will then take us through our financial results for the second quarter and the June 30, 2022. During the Q&A session, Lei will answer questions in Chinese, and I will help translate. Please kindly note that all translations provided are for reference purpose only. In case of any discrepancy between the original remarks and the translated version, statements in the original remarks should prevail. Now, it is my pleasure to introduce our Chairman and Chief Executive Officer, Chen Lei. Lei, please go ahead.

Thank you, Chen, and hello, everyone. Thank you for joining our earliest call for the second quarter of 2022. Let me start by giving a brief overview of our second quarter results. Our total revenue for this quarter was RMB 31.4 billion. This represents a year-on-year increase of 36%. We witnessed the resilience of China's consumption during the second quarter. After being temporarily affected in early part of the quarter, Pent-up demand was released as things returned to normal, and consumer sentiment gradually recovered in the second half of Q2. Since mid-May, we launched several campaigns and distributed coupons to bolster consumer confidence. Such recovery in consumer confidence was also reflected in a positive reception for this year's June 18 shopping festival. During the June 18 shopping festival, we continue to focus on bringing our customers more savings and more fun. We are encouraged to see consumers buying from a wide range of categories. For example, categories such as agriculture produce, FMCG, household electronics, and cosmetics all experience solid consumer demand during the festival. Also, more and more brands are partnering with us, and many of them use our platform to launch their new products. These are signs that consumers and merchants are finding value in our platform. Having said that, we still have a long way to go before fully meeting our consumers' evolving needs. Our business activities and investments were affected during the last quarter, especially in the first half. Short-term external factors such as remote working and the travel restrictions caused delays of certain projects, including promotional events and agri-tech initiatives. Even though this might make the quarterly financials look better, the long-term prospects of our platform may be affected. especially considering the current industry dynamics. Therefore, it has become more important than ever to step up our investment and build up our core capabilities. We must make every possible improvement and create value for our consumers, business partners, and the society. For consumers, We are constantly on the lookout for new unmet needs and iterating our services to address those needs. For example, during April, we saw a spike in consumer demand for fresh food, groceries, and the daily necessities in Shanghai. To meet this demand, we set up a special section in the Pinduoduo app for residents to buy fresh food and essential items and have been delivered within 48 hours. From the initial 25 items, we quickly expanded the selection to around 300 products, from essentials like rice and cooking oil to diapers and hygiene products. Given the surge in demand and limited logistical capability capacity, we also offered more delivery flexibility through the pooling of orders by housing community. Here, we would like to take a moment to express our gratitude to our colleagues who work hard to ensure the operation of our platform in the past quarter. Their hard work served many consumers in their time of need. and we are deeply thankful and proud of their contribution. As things gradually return to normal, we also launched various events to promote seasonal agricultural produce. For instance, in late May, in response to consumer demand, we launched a campaign to help consumers discover and enjoy seasonal fruits from across the country. This event was well received by consumers. Sales of lychee surged 158% compared with a year ago, while orders increased significantly for other foods, such as watermelon, coconut, and grapes. Seeing consumer feedback, we wrote out a year-old fresh produce of China initiative, together with daily newspaper. This initiative will introduce the unique characteristics of different agricultural specialties across the country to our consumers and contribute to better income for local farmers. For merchants, we work closely with them to ensure stable supply, especially at the start of a quarter when the supply chain was affected. For example, we proactively provided traffic updates to help our merchants better plan and adjust their logistics. We also launched special campaigns and measures to help the small and medium-sized businesses and agricultural merchants on our platform. For example, Our doodle grocery operations quickly contacted local suppliers where we learned that farmers in certain regions were unable to sell their vegetables due to traffic disruption. Within a short period of time, they managed to sell hundreds of tons of vegetables through our platform, directly helping the farmers to avoid financial losses. To support our farmer merchants, we will continue to waive the sales commission of agricultural producers. As a technology company with its roots in agriculture, we firmly believe that technology can serve as a force for good. We see rural communities benefiting from agricultural e-commerce by new jobs and higher incomes. Young people now have the opportunity to start their own online businesses in their hometowns and be close to their families. These benefits are both economic and social, tangible and intangible. We mentioned before that we have trained hundreds of thousands of new farmers, supporting them to set up online businesses and helping their local communities to sell their produce. In addition to farming, we hope to further unleash the vitality of the rural economy by starting a new craftsman program. As with agriculture, we aim to help local artisans and craftsmen promote traditional crafts, build their brands, and widen their access to market. We also expanded our DoDo Reading Month campaign to promote the love of reading among young students in rural areas. As of today, we have donated over 250,000 carefully selected books. We hope that through such efforts, we can do our part in contributing to a better future for these youth. To conclude, as we deal with change from quarter to quarter, we remain focused on building long-term intrinsic value and investing for the future. We will speak closely to our core principles of benefit all, people first, and more open. and stay committed to be the platform that serves as a force for good. Thank you. With that, I will hand over to Jun.

Thank you, Lei. Hello, everyone. I will go through our performance in the quarter ended June 30th, 2022. In terms of P&L, Our total revenue in the quarter was RMB 31.4 billion, up 36% from RMB 23 billion in the same quarter of 2021. This was mainly driven by an increase in revenues from online marketing services and transaction services, offset by a decrease in revenues from one-piece trials. revenues from online marketing services and others were only 25.2 billion this quarter, up 39% compared with the summer period of 2021. This was primarily due to increase in merchant activities as the result of a consumption recovery. As Lei has mentioned, we experienced a recovery in consumer sentiment in the latter part of the quarter especially during the June 18 shopping festival. Our transaction services revenue this quarter were RMB 6.2 billion, up 107% versus the same period of 2021. Moving on to cost and expenses. Our total cost of revenues increased 1% from RMB 7.9 billion in Q2 2021 to RMB 8 billion this quarter. Total operating expenses this quarter were RMB 14.8 billion versus RMB 13.2 billion in the same quarter of 2021. The postponements of certain projects, including promotional events and agricultural initiates, as well as lower business-related expenses during the first half of the quarter temporarily affected our overall expenses. As things gradually returned to the normal, we incurred more expenses in the second half of this quarter. Our total non-GAAP operating expenses as a percentage of total revenues has declined from 52% in Q2 2021 to 41% in this quarter. quarter. Looking into specific expensive items. Our non-GAAP sales and marketing expenses quarter, RMB 10.8 billion, up 8% versus the same quarter of 2021. On non-GAAP basis, our sales and marketing expenses as a percentage of our revenue this quarter was 34%, compared with 43% for the same quarter in 2021. Our non-GAAP general and administrative expenses were RMB 164.7 million versus RMB 213.8 million in the same quarter of 2021. Our non-GAAP research and development expenses were RMB 1.9 billion an increase of 11% from RMB 1.8 billion in the same quarter of 2021. The increase was primarily due to an increase in headcount and the recruitment of more experienced R&D personnel. Operating profit for the quarter was RMB 8.7 billion on a GAAP basis. Compiled with operating profit of RMB 2 billion in the same quarter of 2021. Non-GAAP operating profit was RMB 10.5 billion, versus operating profit of RMB 3.2 billion in the same quarter of 2021. Net income attributable to ordinary shareholders were RMB 8.9 billion, compared with RMB 2.4 billion in the same quarter of 2021. Basic earnings per ADS was RMB 7.06 and the dilute earnings per ADS was RMB 6.22 versus basic earnings per ADS of RMB 1.93 and dilute earnings per ADS of RMB 1.69 in the same quarter of 2021. Non-GAAP net income attributable to ordinary shareholders was RMB 10.8 billion, compared with RMB 4.1 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB 7.54 versus RMB 2.85 in the same quarter of 2021. Now, let me move on to cash flow. Our net cash flow generated from operating activities to RMB 19.4 billion, compared with RMB 7.4 billion in the quarter of 2021, primarily due to the increase in net income and the changes in working capital. As of June 30, 2022, the company had RMB 119.4 billion in cash cash equivalents, and short-term investments. To conclude, profitability in the past quarter was mainly attributable to a few short-term factors that may not repair in the future. But we saw good user engagement during the past quarter. As competition remains intense, we're not sure whether such engagement momentum will continue. Second, project performance and lower business related activities affected our overall expenses in Q2. We view this factor just mostly temporarily in nature. In fact, we incurred higher expenses in the second half of Q2 when things returned to normal. Therefore, given that process in the second quarter, are mainly due to a combination of several short-term factors. We do not expect the profitability in the past quarter to serve as a benchmark for future quarters. Thank you. This concludes my prepared remarks.

Thank you, Jing. Next, we will move on to the Q&A session. For today's Q&A session, Lei and Jing will take questions from analysts on the line. We are happy to take a maximum of two questions per analyst. Lei will answer questions in Chinese and I will help translate Lei's remarks for ease of reference. Operator, we are now ready to take questions from analysts on the line.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one, one on your telephone and wait for your name to be announced. Participants are requested to restrict to two questions each time. Our first question comes from Kenneth Wong from Credit Suisse. Please go ahead.

Thank you for accepting my question. I have two questions. The first is about the advertising revenue of this record. We have a very strong 39% growth, and it is an increase of two records in a row. I have two questions. First, on the second quarter growth rate, we noticed a very strong online marketing service revenue that record a strong growth of 39% year-on-year. And this reaccelerates from the previous two quarters. What's the reason behind this quarter's strong growth? And the second question is on the brands. Can management speak more about the progress on bringing more brands onto our platform? We saw many brands participate in our 616 events. How did this help our growth for this quarter? And what's your overall plan for the brand recruitment? Thank you.

Hello, Kenneth. I'm happy to answer your question. First of all, it's about growth. From the beginning of May, we have seen that consumption is recovering.

I am happy to take your questions. First about our revenue growth. Starting from the second half of May, we saw a trend of consumption recovery. Also, we actively made efforts to facilitate consumer spending by offering various forms of promotion to help with consumption recovery.

And during this year's June 18 event, we saw many merchants as well as brands

actively participating. We also saw solid demand coming from consumers. Given this background, on our platform, many categories, including FMCG products, agricultural produce, consumer electronics, and cosmetics, these categories all had a decent growth on our platform.

On the other hand, we also always do our best to meet the needs of consumers. This is also inseparable from the hard work of many of our employees over the past period of time. Their efforts have helped many consumers to solve the needs of such a life necessity. Our company is also very grateful to the team for their hard work over this period of time.

In addition, we always try our best to satisfy consumer demand. And this is inseparable from many of our team members' hard work during the past period of time. They worked very hard to help many consumers meet their essential demand. And we are grateful toward our team's hard work during this process.

At the same time, we can see that the competition in the industry is still intense. In order to meet the needs of consumers, there is still a lot of room for improvement. As I mentioned earlier, in the second quarter, due to some external reasons, At the same time, we also saw that competition landscape is still very intense. And in terms of satisfying consumers' needs,

we have many areas that we can further improve. And as I mentioned earlier, due to outside reasons, our overall investment activity during the second quarter was impacted. And this is actually not beneficial to our long-term competitiveness.

And therefore, we need to further step up our efforts and also strengthen our core capabilities so that

we can create more value for consumers as well as for the society.

About your second question, about the brand issue, we can see that the needs of the consumers on our platform are becoming more and more diversified. Each consumer And as for your second question, our brand, we see that the needs from our consumers on our platform are becoming

more and more diversified, and different consumers, they have different needs in different product categories and across different consumption scenarios. Therefore, it is very natural for them to need more choices and more products.

And our goal is always to better serve our consumers and to bring them more savings, more fun shopping experience. And in terms of

how to serve the consumers, we believe that essentially the brand's goal and our goal are well aligned. That is to serve consumers well. So we would continue to focus on our own part and remain to be very down to earth and patient. Thank you. Okay, operator, we may now move on to the next analyst.

Thank you. Next question comes from Joshi from Bank of America. Please ask your question.

Good evening, management. Thanks for taking my questions. My first question is related to the overseas expansion. Could management share some colors on the reported new initiative in the overseas market? What's the latest status, any main target market, and what's the core value proposition of this new business? And my second question is related to the transaction service revenue. Transaction service revenue continue to grow faster than the online marketing revenue this quarter. Also, we actually see it accelerated from the last quarter to a triple-digit Yovia growth. May we know, like, you know, what's the reason behind? 我自己翻译一下我的问题,那个管理层晚上好,感谢给我这个提问的机会,我有两个问题。 The first question is about the recent media coverage of many of our upcoming cross-border e-commerce platforms. Can you please share with us our strategic plan in this regard? How is the current progress? What are the main target markets? What are our advantages, targets, and budgets? My second question is about our transaction service revenue. We see that this quarter's revenue continues to rise above advertising revenue. Thank you.

Joyce, so let me address your first question, and I will hand it over to Jane to answer your other question. First,

our overseas business. First of all, we are a young company with a relatively young team, and everyone is continuing to grow and searching for new opportunities during our growth process.

And overseas business is one

of the opportunities that we see and we also see that the possibility of creating a value in this opportunity at the same time we also see that many peers in the industry achieving good results so we believe that it is a direction that is worth trying out for us

And with that said, we will not just simply repeat what others have done in this field.

What is important to us is that we will start from the needs of consumers and strive to create our own unique value.

At the same time, we fully understand that overseas business will be full of challenges. We need to keep trying. And at the same time, we are sufficiently aware that overseas business will be full of challenges.

and it will require constant trials and experimentation. This process would not just happen overnight, but the experience gained along the way would prove to be very valuable to our company as well as to our team. Thank you.

Thanks for your caption, Joyce. We have a question about transaction service revenue. Well, first, we always remain consumer-centric. Operating metrics and the financial metrics are natural results from how we serve consumers. And over the past quarter, because of consumption recovery, we had user engagement and transactions. These contribute to the revenue growth. In addition, for us, our business cycle does not always match exactly to our quarterly financial reporting cycle, and we are not managing our business on a quarterly basis. So it is common to see fluctuations between quarters. We remain focused on serving consumers better, and investing creates a long-term value. Thank you.

Okay, operator. We are ready to move on to the next analyst on the line.

Thank you. Our next question comes from Thomas Chong from Jefferies. Please ask your question.

Good evening. Thank you for accepting my question. My first question is about capital sales. In the case of the global red-light environment, I see that Internet companies have made a lot of positive statements about cost control. I would like to ask the management team about these ideas and our strategy. The second question is related to profit. Seeing that the profit of the second quarter is better than expected by the market, can we share the trend of profit in the second half of the year? Thank you. Thanks, management, for taking my questions. My first question is about cost control and efficiencies. Given the macro uncertainties right now, and we are seeing a lot of internet companies exercising sort of cost control, I just want to get some color from management about our cost control strategies. And my second question is about our profitability. Given the second quarter earnings comes in better than market expectations, how should we think about the profitability trend in the second half? Thank you.

Thomas, hello. Let me answer your first question. Hi, Thomas. So let me address your first question. First of all,

I believe that we are still in the development stage, not the stabilized stage. And at this point in time, we still have a long way to go and a lot of work to do to serve our consumers well.

In our development process, we continuously meet the consumer needs And as a part of our development, to constantly satisfy consumer demands

would take a lot of patience. Not only do we need to constantly explore, but we also need to seize the key opportunities and also make the relevant investments.

In the past quarter, especially in the first half, And in the past quarter, and especially during the first half of the second quarter,

our team's investment activity was impacted. And during the short term, this might bring about decent financial results. But if we look at it with a long-term perspective, this actually weakens our competitiveness.

Therefore, we will continue to invest in the future. We will focus on long-term investment in agriculture and technology development. We will also support our platform to create more value for consumers and society.

Therefore, looking ahead, we would always think about the long term and we would remain very committed to investing for the future. We need to further strengthen our core capabilities and to continue to focus on investing into the fields of agriculture and R&D over the long term in order to create value for consumers as well as for the society. And this would support our long term and high quality development. And this is my thinking. of overall strategies and hope it addressed your first question.

This is Jing. Thanks, Thomas. I will take your second question. For your second question about profits, well, as mentioned before, we have not changed our strategy to focus on profitability. So for the past quarter alone, Our profitability was mainly attributable to a number of external factors, which are mostly short-term or one-off in nature. On the revenue side, we saw a good level of user engagement and consumption, which are mostly boosted by consumption recovery. At the same time, we still face very intense competition. For the expense side, factors such as project delays and decrease in business-related activities lead to the short-term impact in our Q2 expenses. And to sum up, this quotation profitability is due to short-term factors combined. So it is not a good benchmark for your future reference. And this is our view on profitability. Thank you.

Operator, we're ready to move on.

Our next question comes from Bai Yang from CICC. Please ask your question.

It seems that it is not as fast as before. At the same time, we also see that some companies in the industry are starting to control their spending and pay more attention to benefits. I would like to ask if Pinduoduo is also paying attention to such an improvement in efficiency. And if we look at the increase in the wealth of buying more vegetables, what kind of help does the overall wealth of this quarter have? The second question is also related to the cost. As our revenue continues to grow, the role of operating leverage continues to play. We see that the cost of this quarter has also dropped to 47%. Can we expect that the effect of operating leverage can continue? At the same time, we observe that the company has a very good growth in revenue. 我们是怎么在一个兼顾增长的这个同时, 然后做到费用一个这么好的优化? 我自己来翻译一下。 Thanks, management, for taking my question. My first question is about dodo grocery. They think that dodo grocery is reaching a relatively steady growth state, and players started to care about loss reduction and unique economy. So can management share some color on the future prospects of dodo grocery? Do we also care more about the efficiency measures? Also, how will the increase in total growth rate financial leverage contribute to the firm's level margin this quarter? My first question is also regarding to the operating expense ratio. As the company's revenue continues to grow and the operating leverage continues to play its role, the company's expense ratio has dropped to 47%. Should we expect the situation to be sustainable? Meanwhile, we recorded a 36-year-over-year growth in revenue. Could management comment on how we managed to optimize expense while also maintaining strong growth? Thank you.

Good evening, Baiyang.

Let me first talk about how to buy more vegetables. From the strategy point of view, we always think that buying more vegetables is actually a natural life of our platform business. It is also a very important component of our platform business, which is to play our own agricultural characteristics to better serve consumers. This is a project that we will put our patience into. This implementation strategy will not be affected by external short-term changes.

Hi, Dayang. So let me talk a little bit about DoDo Grocery first. First, from a strategy point of view, DoDo Grocery is a natural extension from our platform. And in terms of how we are able to leverage our value proposition in terms of agriculture to better serve consumers it also plays a very important role. And this is the project that we would patiently invest into. And this strategy will not be impacted by external short-term changes. 自从我们在2020年的下半年推出多多买菜以来,

我们也看到了多多买菜在本地农产品的供需匹配和履约上, 能够给消费者带来更新鲜,更实惠,更便利的农产品, 确实创造消费者价值。 Since we introduced Dodo Grocery in the second half of 2020, we have also seen that

In the areas of matching localized demand and localized supply, as well as in the area of fulfillment, this service can provide consumers with fresher, more affordable, and more convenient agricultural products. It can create tangible value for consumers.

At the same time, we also saw that this business still has a lot of areas that can be improved. For example, how to make more effective supply and match, discover high-quality goods, how to further optimize the delivery system, improve the service quality, and so on. We are still making these adjustments and improvements. All of this is to strive to bring better experiences to consumers.

And at the same time, for the doodle grocery service, we also see many areas that we can improve. To give you some examples here, how to match supply and demand more efficiently, how to secure more quality products and produce, how to better optimize the distribution network and to further improve our fulfillment service quality, just to name a few here. And we are still constantly adjusting and improving All this is to make an effort to bring better service experiences to our consumers.

Since then, we have been insisting on consumer-oriented projects. The first thing we do is to create value for consumers. This has not changed at all. The specific financial target is actually to serve consumers.

And we have always remained consumer-centric and would remain to be so. Our top priority is to create value for our consumers, and this would never change. As for the financial metrics, they are a result and a reflection of how well we serve our consumers. Thank you.

Thanks, Baiyang. On your question on operating expenses trends, well, our total operating expenses percentage revenue decreased to 47% this quarter, as you just mentioned. I want to point out here, many short-term factors, such as project delays and lower business activities, caused such decrease. So it is unlikely to continue. In fact, as things gradually went back to normal, expenses during the second half of the quarter actually increased, compared to the first half. So due to costly expenses may not be a good benchmark. Also, just as Lei previously mentioned, we believe Pinduoduo is still in the development stage. Such impact on our investment is not good for us from business perspective. Competition is still intense, so we need to continue to invest. Hope it addressed your question. Thank you.

Hi, operator. We may now take questions. from the next analyst on the line.

Thank you. Our next question comes from the line of Natalie Wu from Haitong International. Please ask your question, Natalie.

Good evening. Thank you for accepting my question. I also have two questions. First, I would like to ask about our current view on each business investment. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. It's been a year and a half since Mr. Lei took over as CEO. So we also said that we need to spend more money on the platform in the second half of the year. But we also said that we still need to invest more money in agriculture and R&D. So I would like to know, at this point in time, what is our perspective on the priority of the strategy in the second half of the year? Including the self-marketing of this platform, the R&D of agriculture, and the new sea, how to arrange them? This is the first one. Secondly, I would like to see Let me translate myself. So thanks for taking my question. I have two. First one's regarding the development priorities. We have seen some time since leadership transition has started to shift more towards the agriculture program in R&D. But we haven't seen much material impact in terms of the income statement generated from the 10 billion agriculture program. So just wondering, have such priorities had changed? And should we expect a change when external factors are different currently? For example, as consumer sentiment improves, will you prioritize again a platform-related social marketing? And what are your current key priorities to bring PVD to the next level? It would be great that if we can get a sense regarding your internal strategic priorities for platform e-commerce, agriculture, and maybe the new initiatives related with overseas expansion. And also, you have a strong balance sheet with over 100 billion RMB in terms of cash. We have seen some peers have introduced plans to redistribute value to shareholders. Just wondering, does PDD have similar plans under consideration? Thank you.

And that's Nihao. Let me answer the priority question first. First of all, we need to look at the most basic starting point of this enterprise. First of all, we always strive to meet the needs of consumers, which are constantly changing. I think that development is inseparable from the support of consumers. To serve consumers well is our duty as an enterprise.

Hi, Natalie. So let me address your question on priorities for us. So first of all, we need to look at on which we base our business and from which we start our business. We are dedicated to serving the rapidly evolving consumer needs and our development is uh inseparable from the support from our consumers and this is the duty of our duty as a company to serve consumers well And as our user base reaches the current scale, it is our focus to better serve them and also deepen their trust in Pinduoduo. as well as increase their mindshare. And toward this goal, we have shifted our attention more toward agriculture and R&D. And this remains to be our priority.

We can see that investment in both aspects can really create value for consumers and society.

We have also seen that the investment in these two areas can bring about a tangible value to consumers and the society.

First, let's look at agriculture. In the realm of consumption, we are able to

enable more efficient online transactions, and we are able to let consumers enjoy fresher and more affordable produce. And we also improved the distribution efficiencies through the use of technology in distribution.

In terms of agricultural production, we facilitated the technology adoption

and usage to help farmers improve yield. And we also actively provided training to small agricultural merchants and producers to help them receive higher as well as a stabler income.

On the other hand, by improving our development capabilities, we can better understand consumers

In addition to that, by strengthening our R&D capabilities, we are also able to better understand consumers' new demands and preferences to improve their shopping experience. so that we can create more value for them.

At the same time, we also see, especially in the past period, young team members are constantly growing. They ensured the smooth operation of the entire platform, helping consumers meet their basic needs, and creating new social values.

我们也为他们创造更多的发展机会。 What is more, over the past period of time, I see our young team members growing up through responsibilities. They ensured the stable operation of our platform, and they also helped satisfy consumer needs essential demand and created social value in the process. We will create more opportunities for these team members to take on more responsibilities and grow. And we are still in the development stage, so we need to continue to invest patiently and improve our team's capabilities so that we can better serve consumers. What I just mentioned are our top priorities.

Thanks, Natalie. I will take your second question on cash balance. I think this is essentially on capital allocation. Well, given the current competitive landscape and challenges, we still have many areas to improve to help us better satisfy our consumers' demands. For example, every character and R&D So we need to invest patiently in these areas. Meanwhile, I think different companies may be in different development stages. As we have mentioned, for us, we are still in the investment phase. So will we continue to place more focus on these areas to generate long-term value? Thank you.

OK. Thanks, Erlang, for joining us on the conference call today. Due to time limits, we hereby conclude the call now. If you have any further questions, please do feel free to reach out to our team. Thank you and have a great day.

Thank you. Ladies and gentlemen, this concludes our conference for today. Thank you for participating. You may all disconnect.