PDD Holdings Inc.

Thank you for standing by. Welcome to PDD's third quarter 2022 earnings conference call. At this time, all participants are in the 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 will need to press star 1 on your telephone. I must advise you that this conference call is being recorded today. I would now like to hand the conference over to your host today, Mr. Cheng Pen. Sir, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Cheng, and I will help host the earnings call. PDD earnings release was distributed earlier and is available on our website at investor.com. pddholdings.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. So 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, 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 third quarter ended September 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 language 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 all for joining our 3Q 2022 earnings call. Let me start by giving a brief overview of our third quarter results. Our total revenue for this quarter with RMB 35.5 billion. This represents a year-on-year increase of 65%. Over the past quarter, we worked closely with our immersion partners to serve our customers. We continue to provide our users with an enjoyable and affordable shopping experience to meet their growing demand for high-quality and a value for money product. During the past few months, many product categories, such as agriculture, consumer electronics, beauty and cosmetics, they all enjoyed positive consumer feedback. Many brands joined Pinduoduo and extended our consumers their best deals. We are happy to keep creating value for our consumers. But meanwhile, we still have many areas to improve, and the color industry competition remains intact. We need to continue to deepen our value creation, increase our R&D investment to help further improve the supply chain's efficiency, support upgrades of the supply side, and facilitate agricultural digital inclusion. We celebrated our seventh anniversary last month, and we are extremely grateful for the support and chat from our consumers, merchants, farmers, and society. And we will continue to uphold our core values of putting people first, benefiting all, and being more open so that we can create lasting value for all the stakeholders. Technology is at the heart of our value creation. From the very beginning, we committed to introducing technology to improve the efficiency of supply chain and create value for all the parties through digitalization. In the past year or so, we increased our investment in technology and the focus on driving innovation through research and development. We have built a young, energetic, innovative team with strong technology background. And we are encouraged to see that our investment in technology is creating positive impacts to society. In agriculture, we keep promoting our holistic approach to digitalize the agricultural sector so that more and more people can benefit from advances in science and technology. Our approach in agriculture is a holistic way of creating inclusive growth. By leveraging the resources of Qingduoduo, we hope that more farmers will adopt agricultural technology to improve their productivity and put their farming practices in a more sustainable footing. The Harvest Festival last quarter is a good example of this approach. In September, Pinduoduo launched a dedicated Harvest Pavilion on the platform to support the annual Harvest Festival with its exclusive e-commerce platform partners. Lasting three months, the Harvest Pavilion features over half a million types of agricultural products across the country. We widen the market for farmers by bringing them into digital economy. The millions of consumers also make it more feasible to implement agricultural technology. Farmers are more willing to plant improved crops if they have confidence that consumers will buy them. Festival, we worked with CCTV and several professors from the Chinese Academy of Agricultural Sciences and the China Agricultural University to promote agricultural technology. For example, we introduced a new variety of sweet potatoes that are less prone to disease developed by research institutes. The Pinduoduo platform helped these new sweet potatoes to reach more consumers nationally. And this crop is now grown in many parts of China and is available year-round. Its success has helped many farmers to prosper. This is a good example of how market demand can bring more science out of the lab and into the field. We are committed to using the Pinduoduo platform for consumers to discover new agricultural treasures so that they can enjoy healthier and more nutritious food. In the harvest festival, we also showcase a series of new and improved wheat varieties cultivated by China Agricultural University with the support of our 10 billion agriculture initiative. These wheat varieties have higher yield, higher quality, and are more resistant to disease. In addition, we continue to support various events to promote the adoption of agricultural technology. Our flagship smart agriculture competition is currently underway in Shanghai. And this is an annual precision farming contest aimed at encouraging researchers to develop practical technology. We are partnering with China Agricultural University and Dejiang University for this competition with technical support from FAO China and the Shanghai Academy of Agricultural Sciences. The theme of the competition this year is vertical farming. Participating teams will compete to produce letters in shipping containers using lightning, cross-modeling, and algorithms to control input variables. Several participating teams from the first two editions have already implemented their technology in the working farms, as well as a large scale pilot to scale a solution. We hope that this initiative can inspire more young researchers, bring more research findings to the market, and support the development of smart agriculture. In a certain way, we are improving agricultural digitalization. We are helping to upgrade real economy enterprises and manufacturers by connecting them directly with the end consumers. Our pioneering team purchase model can quickly and directly connect demand and supply to gathering consumer demand. We have elaborated digital technology to shorten the product development cycle and help manufacturers create products that closely match market needs. This can help manufacturers to build their brand. And in the past seven years, we have helped incubate nearly 1,000 manufacturing brands through technology. And since the beginning of this year, we have launched several activities to support the manufacturing industry. For example, this year, we launched a new craftsman campaign to help local craftsmen and their manufacturers find a bigger market for their products through e-commerce. And we have allocated dedicated resources to support high-quality local products and help small enterprises upgrade their branding. The new craftsman program is now in many regions across the country, helping local manufacturers to build their brand. We hope to use the Pinduoduo platform to help more of these undiscovered manufacturers reach more potential buyers. The increased demand and exposure also benefit the local communities through more income and more job opportunities. As we enter our eighth year of operation, we remain passionate and excited about the future. We are a young company with a team full of drive and energy, and we will constantly explore areas to create positive value through technology. And with that, Jun will take us through the financial.

Thank you, Lei. Hello, everyone. I will go through our performance in the quarter ended September 30, 2022. In terms of P&L, our total revenues in the quarter were RMB 35.5 billion, up 65.1% from RMB 21.5 billion in the same quarter of 2021. This was mainly driven by an increase in revenues from online marketing services and transaction services. Revenues from online marketing services and others were RMB 28.4 billion this quarter, up 58.4% compared with the same period of 2021. This was primarily due to an increase in merchant activities in Q3. Our transaction services revenue this quarter were RMB 7 billion, up 102% versus the same period of 2021. Moving on to cost and expenses. Our total cost of revenues increased 13% from RMB 6.6 billion in Q3 2021 to RMB 7.4 billion this quarter. Total operating expenses this quarter were RMB 17.6 billion versus RMB 12.8 billion in the same quarter of 2021. Our investment in certain projects, including a few agriculture-related projects, was affected in Q3. As such, our total operating expenses as a percentage of our total revenues have declined from 59.6% in Q3 2021 to 49.7% in this quarter. Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter will be $13.4 billion, up 39% versus the same quarter of 2021. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 37.9%, compared with 44.9% for the same quarter in 2021. Our loan gap general and administrative expenses were RMB 226.3 million versus RMB 178.1 million in the same quarter of 2021. Our known gap research and development expenses were RMB 2.1 billion, an increase of 15% from RMB 1.9 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. We're committed to growing our R&D capabilities, and we step up our spending to drive innovation on our platform, so as to better meet evolving consumer needs and lay the foundation for sustainable growth. In the area of agriculture, we will continue to deepen our investment in agri-tech and promote its adoption. Technology is also key to increasing supply chain efficiency and helping facilitate the development of manufacturing industry. Operating profit for the quarter was RMB 10.4 billion on a GAAP basis, compared with operating profit of RMB 2.1 billion in the same quarter of 2021. Non-GAAP operating profit was RMB 12.3 billion versus RMB 3.3 billion in the same quarter of 2021. NAS income attributable to ordinary shareholders was RMB 10.6 billion, compared with RMB 1.6 billion in the same quarter of 2021. Based earnings per ADS was RMB 8.38, and diluted earnings per ADS was RMB 7.34, versus basic earnings per ADS of RMB 1.31, and diluted earnings per ADS of RMB 1.15 in the same quarter of 2021. Non-GAAP net income attributable to ordinary shareholders was RMB 12.4 billion, compared with RMB 3.1 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB 8.62 versus RMB 2.18 in the same quarter of 2021. In summary, we think the current level of profitability in Q3 is temporary and unlikely to maintain. On the one hand, several investments in certain projects were affected in the last quarter. On the other hand, we continue to see good user engagement, which contributed to revenue growth. This shows that our financial and business cycles are not always in sync. We plan to increase our investment to further drive innovations on our platform and strengthen our core capabilities. As such, we think it's unlikely that the profit level of the past quarter can be maintained. That concludes the profit and loss statement for the third quarter 2022. Now let me move on to cash flow. Our net cash flow generated from operating activities was RMB 11.7 billion. compared with RMB 8.7 billion in the same quarter of 2021, primarily due to the increase in net income and changes in working capital. As of September 30, 2022, the company had RMB 137.8 billion in cash, cash equivalents, and short-term investments. 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 could 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 may now take questions on the line.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. Participants are requested to restrict two questions at each time. The first question comes from the line of Joyce Zhou from Bank of America. Please go ahead.

Thanks, management, for taking my question. I have two questions. My first question is your online marketing services revenue this quarter delivered a faster growth rate than last quarter. What is the reason for this re-accelerated growth in the third quarter? How should we understand the growth rate momentum in the future? And the second question is could management share the latest updates on your international initiative? Could you share your views or any takeaways at this stage? Does the current level of development meet the management's original expectation? 我把我自己的问题翻译一下。 My first question is, we noticed that the company's advertising revenue this quarter is faster than last quarter. So I want to ask the management team, what is the reason why the company can accelerate growth in the third quarter? How should we understand the future growth momentum of the company? The second question is, can you please share with us the progress of the overseas business that the company is currently doing? What is the current company's experience from the practice, and are there any data and observations that can be shared with us? Is the current progress of Taiwan's business in terms of the management level? Thank you. Hello, Joyce.

Let me answer your two questions. First, it is about growth.

Joyce, so,

Let me take your two questions with regards to your first question on growth. During the third quarter, we worked closely with our merchants to create value for our consumers. And we keep bringing our consumers more savings, more fun shopping experience in the Pinduoduo platform. and we adopted different methods, including coupons and also promotional events to better serve our consumers.

And at the same time, we saw

that our consumers' demand for high-quality products are growing. We actively make efforts to satisfy their demand. And this year, more and more brands have started to cooperate with us. They provide more choices for consumers. And categories such as agricultural produce, electronics, home appliances, as well as cosmetics, these categories have received positive consumer feedback. And we are grateful toward the trust our consumers placing us.

This means that we still have a lot of areas that need to be improved. Short-term investment and passive reduction are not conducive to our long-term business competitiveness. Therefore, we will continue to increase our investment by better understanding and serving consumer needs. At the same time, we will continue to expand our industry But in the meanwhile, we should see that industry competition is still intense, and also consumer preferences

and demand become more and more diversified. So we still have many areas to improve, and the impact of our overall investment activity, in fact, is not beneficial to our long-term competitiveness. So in the future, we will continue to step up investments, and we will invest to better understand our consumers' needs and serve them better. And we will also need to continue to immerse ourselves deeply in the real economy and invest in technology R&D to help improve the efficiency of the agriculture as well as the manufacturing sectors. This would support our high-quality development over the long run.

This is related to your second question. We mentioned that we are planning an international business in the second quarter of this year. I believe many people have noticed that we have launched our own international e-commerce platform in September this year.

And as for your second question, for our international business, in our last quarter's earnings conference call, we shared with you the international business that we are working on. and i believe that many of you may have may have noticed that we rolled out our international marketplace in september and it has just been a few months since we started this business

And for our team, the international business is a new area to explore, and we will start

from the fundamental needs of consumers and apply the operation and supply chain know-how and experiences that we have gained over the years and strive to create our own unique value.

At the same time, we will fully respect the diversity of different markets. And also,

we fully respect that there are many differences across different markets. And we also understand the need to constantly experiment and we expect that the process will be full of challenges. So we will be patient and work together with our partners to create the long-term value for our consumers.

At present, this business is still in the early stage of research. The services we provide exist in many places that can continue to improve. We will continue to learn and improve ourselves. This process may require time.

And currently, we are still in the early stage of exploration. And we have many areas to improve in terms of the services that we provide We need to learn and also optimize. The process itself will take time, but I'm pretty certain that the experience that we gain along the way will be very valuable for our company and also for our team. Thank you. So operator, we are ready to move on to the next question. Thank you.

The next question is from the line of Thomas Chong from Jefferies. Please go ahead.

晚上好,謝謝管理層接受我的提問。 我的第一個問題是關於我們第三季度收入增長的驅動力。 如果把收入拆分成 GMV 還有 Take-away, 我們在這兩個指標的趨勢情況, 請問可以分享一下嗎? 另外的話,公司對於商家, Has there been a change in tick rate policy? Thanks, management, for taking my questions. My first question is related to the main drivers behind this quarter's revenue growth. If we further break down the revenue to GMV and tick rate, can you share more about the trend in these two factors? Also, have you changed the tick rate policy for merchants on your platform? And then I have another quick follow-up. My second question is also related to the first question. In addition to the take-away policies for businesses, could you please introduce more about whether we have any support policies and measures for businesses and the industry? And in the case of passenger cars, will the company have plans for the future? Thank you. And my second question is also related to the first one. Apart from tech wage policies, I'm also wondering for merchants and the industry upstream, can you also help to share if you have support measures and policies? Could management share more about your progress and the plan in this area? Thank you.

Hello, Thomas. Let me answer the question about supporting manufacturing and attack testing. Since we started, we have been improving the efficiency of manufacturing through our own technical background. Our first product, Pingdan, can connect demand and attack testing directly through meeting orders to help manufacturing companies reduce the middle part Hi, Thomas. So let me address your second question.

around our support for the manufacturing sector and the supply chain first. From the beginning, we have been leveraging our technical background to help and improve the efficiency in the manufacturing sector. And the team purchase model that we pioneered aggregate order and connect the demand side and the supply side directly and this helps manufacturers reduce the intermediary layers help them directly reach out to our consumers and in the process it helps the brand create their own brand for manufacturers So over the past seven years, Pinduoduo has helped to build up nearly 1,000 brands through technology, and we are growing up with many manufacturers together.

At the same time, we also provide digital services for our manufacturing partners. In addition, we also provide

one-stop digital solution covering the entire value chain to our manufacturing partners in order to help traditional manufacturers and factories to go through digital transformation. And we cooperate with the manufacturers on product designs and adjustments. This significantly lowers the cost and reduces the uncertainty during the R&D and also production processes.

What we have done so far also means that consumers can buy quality goods at a more affordable price and create value for consumers. This has enabled consumers

And all of these that we have done also help consumers get quality products with savings. And we can generate value for consumers in the process. This, in turn, can create a virtual cycle among consumers, our manufacturing partners, and also the Pinduoduo platform.

Since this year, we have launched a number of support manufacturing projects. In many areas, such as home appliances, clothing, sports, and cosmetics, And this year, we have introduced several dedicated initiatives

support manufacturers with technology. This includes many industries such as consumer appliances, apparel, sports, cosmetics, home care, as well as furniture. And we will continue to invest in this area to improve the efficiency of the supply chain. Thank you.

Thanks, Thomas. I will take your first question about the GMV. Well, in the third quarter, we worked closely with Albertans to serve our consumers and improve their shopping experience. As the consumer activities and engagement grow, we think the merchants are naturally coming to our platform for growth and opportunities. And for financial metrics such as GMV and revenue, they are mainly the reflection of the value we create. So for us, the most important thing is to constantly increase value creation. We will continue to invest to DPU so much engagement and further build up our technology capabilities. This will lay the foundation for our long-term development. Thanks.

Harpreet, we can move to the next analyst in line.

Thank you. The next questions come from from . Please go ahead.

Thank you for accepting my question. I have two questions. The first is to ask you to talk about the overall trend of the e-commerce industry in recent years, including the current situation in the fourth quarter, the performance of the company in the 21st century, and the latest changes in the industry between the big two. Let me translate my question. First, could management talk about the latest industry trends, including what we saw in fourth quarter, quarter to date? Can you talk about our performance during the 2011 promotion? What are the key industry themes have we seen for the 2011 itself? And then second question is on the overseas. Could management share with us the financial impact for this initiative? What are the main financial statement like items that the impact? Could you talk, could you help us quantify the impact for the third quarter and what level of investment do you expect to make going forward? Thank you.

In fact, we hope that every day of the year, we can continue to create value for consumers. I think this is the power of industry development and our own development. We also fully understand the experience of optimizing consumers and deepening consumers' trust in us. This is a process that needs to take time to gradually develop. Hi, Eli. So let me take your question on industry transfers. So for this question, we always start from consumers' fundamental needs.

and we hope to create value for consumers each single day throughout the year. And I think it is the core driver for the industry and also for ourselves. And we also fully understand that to improve consumer experience and deepen their trust in us, it takes time and it is a gradual process. And for a shopping festival and promotion, they are just one of the many ways to serve our consumers well.

We hope that consumers can have a more affordable and more enjoyable shopping experience on Pinduoduo. So when we are planning this kind of shopping event, And we hope that

consumers can get more savings and more funds from shopping in Pungno-do. So when we plan shopping festivals and events, we remain consumer-centric and we use simple rules to provide consumers with an enjoyable shopping experience. This year, we have cooperated with many brands as well as merchants to bring more quality products to consumers in order to satisfy their diversified needs across different categories and in different consumption scenarios.

At the same time, if we look at the entire industry, should see that the competition is still very fierce. We still have a lot of places to improve. Therefore, we need to be patient in the supply chain investment. Increase technical innovation investment to further improve the efficiency of the supply chain, promote agricultural physical development, and promote the improvement of the supply chain. From a better service,

And at the same time, if we look at the industry, we do see the competition remains intense. And we need to invest patiently in the supply side. And we need to step up our investment in technology and innovations to further improve the overall supply chain efficiency. We need to support the development of the agriculture sector and also the manufacturing sector. These would essentially enable us to better serve our consumers increasing demand for quality products. Thank you.

Thanks, Eli. I will take your question about the financial statements on our international initiative. Well, first of all, our international business is currently in a very early stage. It is still going through constant trials. Whereas, we focus on how to create unique value. We believe that financial metrics are the natural results from the value that we create. And the international business deals very early, as I just mentioned. So its current impact on our financial numbers is small. And as with any other part of the business, we carefully evaluate the ROI of every investment. Thank you.

Operator, we can move on to the next question.

Thank you. The next question comes from Kenneth Fong from Credit Suisse. Please go ahead.

This can help us share some new growth. And then my other question is about profit. I see that the company has achieved profit in six consecutive seasons. We also see that other Internet companies are also slowly starting to transfer to capital benefits. So I would like to understand whether the profits of the past few seasons have seen the management team pursue a similar strategy of capital benefits? Thank you, management, for taking my questions. May management share about the latest thoughts and developments in agriculture? Are there any cases or projects that you're putting resources into? What are the latest financial impacts on your financial statements? And also for your $10 billion agricultural initiative, is there any update to share? And my second question is about profitability. We have delivered profitability for six quarters in a row. We have also noticed that many of your peers have started to focus more on cost control and efficiency improvement. So does your profitability for the past three quarters mean you have started to pursue a similar strategy? and should we expect a similar level of profitability to continue over the next two quarters? Thank you.

Kenneth, hello. Let me answer the question about agriculture. We have shared that agriculture is our long-term strategy. We hope to promote technology to support agricultural development. Hi, Kenneth. So let me address your question on agriculture first. So we have shared with you before

that agriculture is our long-term strategy. We hope to promote agricultural development through technology. And for many of our efforts, we are still in the early stage of our agricultural strategy. But we already see a lot of areas to create value. And we are also very happy to take this chance to introduce more about our latest developments in this area.

First of all, we have improved the efficiency of the communication through our own technical background.

In the third quarter of this year, First of all, we use our

technical background, we help improve the distribution efficiency of agricultural produce. During the third quarter in our dedicated promotional events such as the harvest festival and agricultural festival, we cover thousands of production regions and help farmers broaden their market access. This also helps consumers enjoy fresher and high-quality agriculture produce within a shorter amount of time.

For example, in our harvest festival, we have promoted a variety of agricultural products through the latest agricultural technology. With our resources, we have helped these products to quickly open up the market and increase the conversion rate of agricultural technology. Then, for the 100 billion agricultural projects, we have also shown the Chinese Agricultural University, which is provided by this project,

On top of that, sales volume can also help commercialize agri-tech solutions and support research efforts and improve how commercialization happens. So for example, in our harvest festival event, we introduced many agricultural products created with the help of agritech. And with resources that we devote into agriculture, we can help these products roll out to the market quickly and help turn more agri-tech breakthroughs and innovations into consumer products. As for our 10 billion agriculture initiative, we recently introduced a few new wheat varieties developed by China Agriculture University with support from this initiative.

In agriculture, we will continue to remain down to earth and make long-term patient investment

as well as bring more agri-tech results to the market. Going forward, we will continue to share updates with you in the future. Thank you.

Thanks, Kenneth. I will take your second question about our profitability. Well, first of all, I would like to point out the high profitability level for Q3 is unlikely to continue. Over the past quarter, some of our projects, such as a few agricultural-related projects, as I just mentioned in my remarks, were impacted in terms of project timeline and investment pace. So the expenses like items on our quarterly results were affected. And on the other hand, our quarterly revenue increased as a result of increased merchant activities. Therefore, profitability is partially due to such time lapse. And this shows that our business cycle and financial reporting cycle are not always in sync. We think such profitability level may not be sustainable. In addition, we are still in the development stage. Profitability is not our current priority. We will continue to step up investments, especially to support agriculture and manufacturing industry through technology. And this may cause fluctuations in our future profitability, and the Q3 level will not continue. Thank you.

Okay, operator. It's about time. Thank you everybody for joining us today on the conference call. If you have any further questions, please feel free to reach out to our team. Thank you all and have a great day.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect. Music Thank you. Thank you. Thank you. Ladies and gentlemen, thank you for standing by. Welcome to PDD's third quarter 2022 earnings conference call. At this time, all participants are in the 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 will need to press star 1 on your telephone. I must advise you that this conference call is being recorded today. I would now like to hand the conference over to your host today, Mr. Cheng Pen. Sir, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Cheng, and I will help host the earnings call. PDD earnings release was distributed earlier and is available on our website at investor.com. pddholdings.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. So 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, 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 third quarter ended September 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 language 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 all for joining our 3Q 2022 earnings call. Let me start by giving a brief overview of our third quarter results. Our total revenue for this quarter with RMB 35.5 billion. This represents a year-on-year increase of 65%. Over the past quarter, we worked closely with our immersion partners to serve our customers. We continue to provide our users with an enjoyable and affordable shopping experience to meet their growing demand for high-quality and the value for money product. During the past few months, many product categories, such as agriculture, consumer electronics, beauty and cosmetics, they all enjoyed positive consumer feedback. Many brands joined Pinduoduo and extended our consumers their best deals. We are happy to keep creating value for our consumers. But meanwhile, we still have many areas to improve, and the color industry competition remains intact. We need to continue to deepen our value creation, increase our R&D investment to help further improve the supply chain's efficiency, support upgrades of the supply side, and facilitate agricultural digital inclusion. We celebrated our seventh anniversary last month, and we are extremely grateful for the support and chat from our consumers, merchants, farmers, and society. And we will continue to uphold our core values of putting people first, benefiting all, and being more open so that we can create lasting value for all the stakeholders. Technology is at the heart of our value creation. From the very beginning, we committed to introducing technology to improve the efficiency of supply chain and create value for all the parties through digitalization. In the past year or so, we increased our investment in technology and the focus on driving innovation through research and development. We have built a young, energetic, innovative team with strong technology background. And we are encouraged to see that our investment in technology is creating positive impacts to society. In agriculture, we keep promoting our holistic approach to digitalize the agricultural sector so that more and more people can benefit from advances in science and technology. Our approach in agriculture is a holistic way of creating inclusive growth. By leveraging the resources of Kindle Dwarf, we hope that more farmers will adopt agricultural technology to improve their productivity and put their farming practices in a more sustainable footing. The Harvest Festival last quarter is a good example of this approach. In September, Pinduoduo launched a dedicated Harvest Pavilion on the platform to support the annual Harvest Festival as its exclusive e-commerce platform partner. Lasting three months, the Harvest Pavilion features over half a million types of agricultural products across the country. We widen the market for farmers by bringing them into digital economy. The millions of consumers also make it more feasible to implement agricultural technology. Farmers are more willing to improve crops if they have confidence that consumers will buy them. Festival, we worked with CCTV and several professors from the Chinese Academy of Agricultural Sciences and the China Agricultural University to promote agricultural technology. For example, we introduced a new variety of sweet potatoes that are less prone to disease developed by research institutes. The Pinduoduo platform helped this new sweet potato to reach more consumers nationally. And this crop is now grown in many parts of China and is available year-round. Its success has helped many farmers to prosper. This is a good example of how market demand can bring more science out of the lab and into the field. We are committed to using the Pinduoduo platform for consumers to discover new agricultural treasures so that they can enjoy healthier and more nutritious food. In the harvest festival, we also showcase a series of new and improved wheat varieties cultivated by China Agricultural University with the support of our 10 billion agriculture initiative. These wheat varieties have higher yield, higher quality, and are more resistant to disease. In addition, we continue to support various events to promote the adoption of agricultural technology. Our flagship smart agriculture competition is currently underway in Shanghai. And this is an annual precision farming contest aimed at encouraging researchers to develop practical technology. We are partnering with China Agricultural University and Zhejiang University for this competition with technical support from FAO China and the Shanghai Academy of Agricultural Sciences. The theme of the competition this year is vertical farming. Participating teams will compete to produce letters in shipping containers using lightning, cross-modeling, and algorithms to control input variables. Several participating teams from the first two editions have already implemented their technology in a working farm, as well as a large scale pilots to scale the solution. We hope that this initiative can inspire more young researchers, bring more research findings to the market, and support the development of smart agriculture. In the same way we are improving agricultural digitalization, we are helping to upgrade rural economy enterprises and manufacturers by connecting them directly with the end consumers. Our pioneering team purchase model can quickly and directly connect demand and supply to gathering consumer demand. We have elaborated digital technology to shorten the product development cycle and help manufacturers create products that closely match market needs. This can help manufacturers to build their brand. And in the past seven years, we have helped incubate nearly 1,000 manufacturing brands through technology. And since the beginning of this year, we have launched several activities to support the manufacturing industry. For example, this year, we launched a new craftsman campaign to help local craftsmen and their manufacturers buy a bigger market for their products through e-commerce. And we have allocated dedicated resources to support high-quality local products and help small enterprises upgrade their branding. The new craftsman program is now in many regions across the country, helping local manufacturers to build their brand. We hope to use the Pinduoduo platform to help more of these undiscovered manufacturers reach more potential buyers. The increased demand and exposure also benefit the local communities through more income and more job opportunities. As we enter our eighth year of operation, we remain passionate and excited about the future. We are a young company with a team full of drive and energy, and we will constantly explore areas to create positive value through technology. And with that, Xin will take us through the financial.

Thank you, Lei. Hello, everyone. I will go through our performance in the quarter ended September 30, 2022. In terms of P&L, our total revenues in the quarter were RMB 35.5 billion, up 65.1% from RMB 21.5 billion in the same quarter of 2021. This was mainly driven by an increase in revenues from online marketing services and transaction services. Revenues from online marketing services and others were RMB 28.4 billion this quarter, up 58.4% compared with the same period of 2021. This was primarily due to an increase in merchant activities in Q3. Our transaction services revenue this quarter were RMB 7 billion, up 102% versus the same period of 2021. Moving on to cost and expenses. Our total cost of revenues increased 13% from RMB 6.6 billion in Q3 2021 to RMB 7.4 billion this quarter. Total operating expenses this quarter were RMB 17.6 billion versus RMB 12.8 billion in the same quarter of 2021. Our investment in certain projects, including a few agriculture-related projects, was affected in Q3. As such, our total operating expenses as a percentage of our total revenues have declined from 59.6% in Q3 2021 to 49.7% in this quarter. Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter will be $13.4 billion, up 39% versus the same quarter of 2021. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 37.9%, compared with 44.9% for the same quarter in 2021. Our loan gap general and administrative expenses were RMB 226.3 million versus RMB 178.1 million in the same quarter of 2021. Our known gap research and development expenses were RMB 2.1 billion, an increase of 15% from RMB 1.9 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. We're committed to growing our R&D capabilities, and we step up our spending to drive innovation on our platform, so as to better meet evolving consumer needs and lay the foundation for sustainable growth. In the area of agriculture, we will continue to deepen our investment in agri-tech and promote its adoption. Technology is also key to increasing supply chain efficiency and helping facilitate the development of manufacturing industry. Operating profit for the quarter was RMB 10.4 billion on a GAAP basis, compared with operating profit of RMB 2.1 billion in the same quarter of 2021. Non-GAAP operating profit was RMB 12.3 billion versus RMB 3.3 billion in the same quarter of 2021. NAS income attributable to ordinary shareholders was RMB 10.6 billion, compared with RMB 1.6 billion in the same quarter of 2021. Based earnings per ADS was RMB 8.38, and diluted earnings per ADS was RMB 7.34, versus basic earnings per ADS of RMB 1.31, and diluted earnings per ADS of RMB 1.15 in the same quarter of 2021. Non-GAAP net income attributable to ordinary shareholders was RMB 12.4 billion, compared with RMB 3.1 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB 8.62 versus RMB 2.18 in the same quarter of 2021. In summary, we think the current level of profitability in Q3 is temporary and unlikely to maintain. On the one hand, several investments in certain projects were affected in the last quarter. On the other hand, we continue to see good user engagement, which contributed to revenue growth. This shows that our financial and business cycles are not always in sync. We plan to increase our investment to further drive innovations on our platform and strengthen our core capabilities. As such, we think it's unlikely that the profit level of the past quarter can be maintained. That completes the profit and loss statement for the third quarter 2022. Now let me move on to cash flow. Our net cash flow generated from operating activities was RMB 11.7 billion. compared with RMB 8.7 billion in the same quarter of 2021, primarily due to the increase in net income and changes in working capital. As of September 30, 2022, the company had RMB 137.8 billion in cash, cash equivalents, and short-term investments. 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 could 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, you may now take questions on the line.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. Participants are requested to restrict two questions at each time. The first question comes from the line of Joyce Zhou from Bank of America. Please go ahead.

Thanks, management, for taking my question. I have two questions. My first question is your online marketing services revenue this quarter delivered a faster growth rate than last quarter. What is the reason for this re-accelerated growth in the third quarter? How should we understand the growth rate momentum in the future? And the second question is, could management share the latest updates on your international initiative? Could you share your views or any takeaways at this stage? Does the current level of development meet the management's original expectation? My first question is, we noticed that the company's advertising revenue this quarter is faster than last quarter. So I want to ask the management team, what is the reason why the company can accelerate growth in the third quarter? How should we understand the future growth momentum of the company? The second question is, can you please share with us the progress of the overseas business that the company is currently doing? What experience has the company gained from the practice, and are there any data and observations that can be shared with us? Is the progress of Taiwan's business in the current situation up to the level of management? Thank you. Joyce, hello.

Let me answer your two questions. The first one is about growth.

Joyce, so...

Let me take your two questions with regards to your first question on growth. During the third quarter, we worked closely with our merchants to create value for our consumers. And we keep bringing our consumers more savings, more fun shopping experience in the Pinduoduo platform. and we adopted different methods, including coupons and also promotional events to better serve our consumers.

And at the same time, we saw

that our consumers demand for high-quality products are growing. We actively make efforts to satisfy their demand. And this year, more and more brands have started to cooperate with us. They provide more choices for consumers. And categories such as agricultural produce, electronics, home appliances, as well as cosmetics, these categories have received positive consumer feedback. And we are grateful toward the trust our consumers placing us.

This means that we still have a lot of areas that need to be improved. Short-term investment and passive reduction are not conducive to our long-term business competitiveness. Therefore, we will continue to increase investment through a better understanding and service to consumer needs. At the same time, we will continue to expand our industry But in the meanwhile, we should see that industry competition is still intense, and also consumer preferences

and demand become more and more diversified. So we do have many areas to improve, and the impact of our overall investment activity, in fact, is not beneficial to our long-term competitiveness. So in the future, we will continue to step up investments, and we will invest to better understand our consumers' needs and serve them better. And we will also need to continue to immerse ourselves deeply in the real economy and invest in technology R&D to help improve the efficiency of the agriculture as well as the manufacturing sector. This would support our high-quality development over the long run.

We launched our own international e-commerce platform in September this year.

And as for your second question, for our international business, in our last quarter's earnings conference call, we shared with you the international business that we are working on. and i believe that many of you may have may have noticed that we rolled out our international marketplace in september and it has just been a few months since we started this business

And for our team, the international business is a new area to explore, and we will start

from the fundamental needs of consumers and apply the operation and supply chain know-how and experiences that we have gained over the years and strive to create our own unique value.

At the same time, we will fully respect the diversity of different markets. We also understand that this business needs to keep trying. The process will be full of challenges. We will be patient and create long-term value for consumers and our partners.

Also,

we fully respect that there are many differences across different markets. And we also understand the need to constantly experiment and we expect that the process will be full of challenges. So we will be patient and work together with our partners to create the long-term value for our consumers.

We will continue to learn and improve ourselves. This process may take time.

And currently, we are still in the early stage of exploration. And we have many areas to improve in terms of the services that we provide We need to learn and also optimize. The process itself will take time, but I'm pretty certain that the experience that we gain along the way will be very valuable for our company and also for our team. Thank you. So operator, we are ready to move on to the next question.

Thank you. The next question is from the line of Thomas Chong from Jefferies. Please go ahead.

晚上好,謝謝管理層接受我的提問。 我的第一個問題是關於我們第三季度收入增長的驅動力。 如果把收入拆分成 GMV 還有 Take-away, 我們在這兩個指標的趨勢情況, 請問可以分享一下嗎? 另外的話,公司對於商家, in terms of tick rate policy? Thanks, management, for taking my questions. My first question is related to the main drivers behind this quarter's revenue growth. If we further break down the revenue to GMV and tick rate, can you share more about the trend in these two factors? Also, have you changed the tick rate policy for merchants on your platform? And then I have another quick follow-up. My second question is also related to the first question. In addition to the take-away policies for businesses, could you please introduce more about whether we have any support policies and measures for businesses and the industry? Thank you. And my second question is also related to the first one. Apart from tech wage policies, I'm also wondering for merchants and the industry upstream, can you also help to share if you have support measures and policies? Could management share more about your progress and the plan in this area? Thank you.

Hello, Thomas. Let me answer the question about supporting manufacturing and attack testing. Since we started, we have been improving the efficiency of manufacturing through our own technical background. Our first product, Pingdan, can connect demand testing and attack testing directly through meeting orders to help manufacturing companies reduce the middle part Hi, Thomas. So let me address your second question.

around our support for the manufacturing sector and the supply chain first. From the beginning, we have been leveraging our technical background to help and improve the efficiency in the manufacturing sector. And the team purchase model that we pioneered and aggregate order and connect the demand side and the supply side directly. And this helps manufacturers reduce the intermediary layers, help them directly reach out to consumers. And in the process, it helps the brand create their own brand for manufacturers. So over the past seven years, Pinduoduo has helped to build up nearly 1,000 brands through technology, and we are growing up with many manufacturers together.

At the same time, we also provide all-line digitalized services for our manufacturing partners. In addition we also provide

one-stop digital solution covering the entire value chain to our manufacturing partners in order to help traditional manufacturers and factories to go through digital transformation. And we cooperate with the manufacturers on product designs and adjustments. This significantly lowers the cost and reduces the uncertainty during the R&D and also production processes.

What we have done so far also means that consumers can buy quality goods at a more affordable price and create value for consumers. This is how consumers

And all of these that we have done also help consumers get quality products with savings. And we can generate value for consumers in the process. This, in turn, can create a virtual cycle among consumers, our manufacturing partners, and also the Pinduoduo platform.

Since this year, we have launched many support manufacturing projects. In many areas, such as home appliances, clothing, sportswear, and makeup, And this year, we have introduced several dedicated initiatives

support manufacturers with technology. This includes many industries such as consumer appliances, apparel, sports, cosmetics, home care, as well as furniture. And we will continue to invest in this area to improve the efficiency of the supply chain. Thank you.

Thanks, Thomas. I will take your first question about the GMV. Well, in the third quarter, we worked closely with Albertans to serve our consumers and improve their shopping experience. As the consumer activities and engagement grow, we think the merchants are naturally coming to our platform for growth and opportunities. And for financial metrics such as GMV and revenue, they are mainly the reflection of the value we create. So for us, the most important thing is to constantly increase value creation. We will continue to invest to deeper user market share engagement and further build up our technology capabilities. This will lay the foundation for our long-term development. Thanks.

Harpreet, we can move to the next analyst in line.

Thank you. The next questions come from from . Please go ahead.

Thank you for accepting my question. I have two questions. The first one is that I would like to ask you to talk about the overall trend of the recent e-commerce industry, including the current situation in the fourth quarter, and the performance of the company in the 21st century, and the latest changes in the industry between the big two. Let me translate my question. First, could management talk about the latest industry trends, including what we saw in fourth quarter, quarter to date? Can you talk about our performance during the 2011 promotion? What are the key industry themes have we seen for the 2011 itself? And then second question is on the overseas. Could management share with us the financial impact for this initiative? What are the main financial statement items that they impact? Could you talk, could you help us quantify the impact for the third quarter and what level of investment do you expect to make going forward? Thank you.

In fact, we hope that every day of the year, we can continue to create value for consumers. I think this is the power of industry development and our own development. We also fully understand the experience of optimizing consumers and deepening consumers' trust in us. This is a process that needs to be gradually developed over time. Hi, Ali. So let me take your question on industry transfers. So for this question, we always start from consumers' fundamental needs.

and we hope to create value for consumers each single day throughout the year. And I think it is the core driver for the industry and also for ourselves. And we also fully understand that to improve consumer experience and deepen their trust in us, it takes time and it is a gradual process. And for a shopping festival and promotion, they are just one of the many ways to serve our consumers well.

We hope that consumers can have a more affordable and more enjoyable shopping experience on Pinduoduo. So when we are planning this kind of shopping festival activity, And we hope that

consumers can get more savings and more funds from shopping in Pungno-do. So when we plan shopping festivals and events, we remain consumer-centric and we use simple rules to provide consumers with an enjoyable shopping experience. This year we have cooperated with many brands as well as merchants to bring more quality products to consumers in order to satisfy their diversified needs across different categories and in different consumption scenarios.

At the same time, if we look at the entire industry, we should see that the competition is still very intense. We still have a lot of areas that need to be improved. Therefore, we need to be patient in the supply chain investment. Then increase the technical innovation investment to further improve the efficiency of the supply chain, promote agricultural physical development, and promote the improvement of the supply chain. In addition, better service

And at the same time, if we look at the industry, we do see the competition remains intense. And we need to invest patiently in the supply side. And we need to step up our investments in technology and innovations to further improve the overall supply chain efficiency. We need to support the development of the agriculture sector and also the manufacturing sector. These would essentially enable us to better serve our consumers increasing demand for quality products. Thank you.

Thanks, Eli. I will take your question about the financial statements on our international initiative. Well, first of all, our international business is currently in a very early stage. It is still going through constant trials. Whereas, we focus on how to create unique value. We believe that financial metrics are the natural results from the value that we create. And the international business is still very early, as I just mentioned. So its current impact on our financial numbers is small. And as with any other part of the business, we carefully evaluate the ROI of every investment. Thank you.

Operator, we can move on to the next question.

Thank you. The next question comes from Kenneth Fong from Credit Suisse. Please go ahead.

This can help us share some new growth. And then my other question is about profits. I see that the company has achieved profits for six consecutive seasons. I can also see that other Internet companies are also slowly starting to transfer to capital benefits. So I want to understand whether the profits of the past few seasons have also seen the management team pursuing a similar strategy of capital benefits? Thank you, management, for taking my question. May management share about the latest thoughts and developments in agriculture? Are there any cases or projects that you're putting resources into? What are the latest financial impacts on your financial statements? And also for your 10 billion agricultural initiative, is there any update to share? And my second question is about profitability. We have delivered profitability for six quarters in a row. We have also noticed that many of your peers have started to focus more on cost control and efficiency improvement. So does your profitability for the past three quarters mean you have started to pursue a similar strategy? and should we expect a similar level of profitability to continue over the next two quarters? Thank you.

Kenneth, hello. Let me answer the question about agriculture. We have shared that agriculture is our long-term strategy. We hope to promote technology to support agricultural development. Hi, Kenneth. So let me address your question on agriculture first. So we have shared with you before

that agriculture is our long-term strategy. We hope to promote agricultural development through technology. And for many of our efforts, we are still in the early stage of our agricultural strategy. But we already see a lot of areas to create value. And we are also very happy to take this chance to introduce more about our latest developments in this area.

First of all, we have improved the efficiency of communication through our own technical background.

In the third quarter of this year, First of all, with our

technical background. We help improve the distribution efficiency of agricultural produce. During the third quarter in our dedicated promotional events such as the Harvest Festival and Agricultural Festival, we cover thousands of production regions and help farmers broaden their market access. This also helps consumers enjoy fresher and high-quality agriculture produce within a shorter amount of time. 销量的增加也能够让更多的农业产品更快地走向市场,提升科技转化的速度。

For example, in our harvest festival, we have promoted a number of agricultural products through the latest agricultural technology. With our resources, we helped these products quickly open up the market and increase the conversion rate of agricultural technology. We have also shown the Chinese Agricultural University, which is provided by this expert,

On top of that, sales volume can also help commercialize agri-tech solutions and support research efforts and improve how commercialization happens. So for example, in our harvest festival event, we introduced many agricultural products created with the help of agritech. And with resources that we devote into agriculture, we can help these products roll out to the market quickly and help turn more agri-tech breakthroughs and innovations into consumer products. As for our 10 billion agriculture initiative, we recently introduced a few new wheat varieties developed by China Agriculture University with support from this initiative.

In agriculture, we will continue to remain down to earth and make long-term patient investment

as well as bring more agri-tech results to the market. Going forward, we will continue to share updates with you in the future. Thank you.

Thanks, Kenneth. I will take your second question about our profitability. Well, first of all, I would like to point out the high profitability level for Q3 is unlikely to continue. Over the past quarter, some of our projects, such as a few agricultural-related projects, as I just mentioned in my remarks, were impacted in terms of project timeline and investment pace. So the expenses like items on our quarterly results were affected. And on the other hand, our quarterly revenue increased as a result of increased merchant activities. Therefore, profitability is partially due to such time lapse. And this shows that our business cycle and financial reporting cycle are not always in sync. We think such profitability level may not be sustainable. In addition, we are still in the development stage. Profitability is not our current priority. We will continue to step up investments, especially to support agriculture and manufacturing industry through technology. And this may cause fluctuations in our future profitability, and the Q3 level will not continue. Thank you.

Okay, operator. It's about time. Thank you everybody for joining us today on the conference call. If you have any further questions, please feel free to reach out to our team. Thank you all and have a great day.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect.