PDD Holdings Inc.

Ladies and gentlemen, thank you for standing by and welcome to PDD's Holdings Inc. Fourth Quarter and Fiscal Year 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 will need to press star 1 on your telephone. I must advise that today's conference is being recorded. I would 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. PDD Holdings earnings release was distributed earlier and is available on our website at investor.pddholdings.com. as well as through Global Newswire Services. Before we begin, I would like to refer you to our Safe Harbor Statements in Earnings Press Release, which applies to this call, as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our Earnings Release, which contains a reconciliation of non-GAAP measures to GAAP measures. Joining us today on the call are Chen Lei, our Chairman and Chief Executive Officer, and 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 fourth quarter and fiscal year ended December 31st, 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.

Hello, everyone. Thank you all for joining us on our earning call for the fourth quarter and the fiscal year of 2022. Let me begin by summarizing our results for Q4 and the full year of 2022. Our total revenue for this quarter was RMB 39.8 billion. which is a 46% increase compared to the previous year. Our total revenue for the past year was RMB $130.6 billion, which represents a growth of 39% year-over-year. In 2022, we focused on strengthening our core capabilities, We invested over RMB 10 billion in research and development last year, which is the highest amount since our establishment. Our goal is to further improve our technological know-how and bring the benefits of digitalization to our users and ecosystem partners. We will continue to invest in RMB as a long-term commitment to better serve our users and society as a whole. During the past year, we are encouraged to see many of our young colleagues take on more responsibilities and step into bigger roles. These young talents are full of passion and creativity and have demonstrated their ability to take on new challenges, explore different possibilities, and asking our vision with patience and determination. We will continue to provide more personal development opportunities for them to grow as future leaders. As a young company still in the investment stage, we will remain agile and energetic as we move forward. And we are committed to adapting to trends in consumer preferences. My team and I are eager to keep exploring and identifying the right opportunities. When we find the right opportunities, we will invest and execute relentlessly to create value for consumers and the society. In Q4, we observed rising sentiment among our users. To support consumption recovery, we actively elaborated resources in the Pinduoduo platform. During the promotion season, we stepped up our investment to further improve consumer engagement and build their trust. For example, during the Double 11 period last quarter, we provided robust coupons and discounts in a simple and straightforward way, making shopping easier and more enjoyable for our consumers. We are also working hard to enlarge the diversity of products. of our platform to address our consumers' diverse needs. With efforts of our platform, as well as merchants, we saw decent performance across various categories during the promotion season. For example, categories such as mobile phones and cosmetics showed encouraging growth among users with different demographics. The auto volume of many seasonal agricultural products more than doubled, which helped to boost consumer awareness of various local agricultural production regions. As the Chinese New Year happened earlier this year, we launched a Chinese New Year promotion in late December to meet consumer needs. We worked closely with merchants all over the world who curate more product selections for consumers. And we are happy to see that our efforts have taken off with many imported produce, such as cherries from Chile and the salmon from Norway, receiving very positive feedbacks. We are glad to contribute to in supporting consumer confidence. As consumption continues to recover and consumer sentiment continues to improve, everyone can see the potential and opportunities in this market. As the industry evolves, we notice a number of recent moves by our peers. I believe healthy competition is beneficial for the industry. But sometimes, when competition intensifies, Some companies may take different actions. For us, we will always adhere to our own beauty as a company, focus on our own sustainable development, embrace competition, even when sometimes it involves unsustainable practices from peers. We always think about how to better serve our consumers. We are also fully aware that we still have a long way to go before we can fully meet consumers' evolving needs. We are committed to deepening our value proposition of more savings, more funds. In addition, we will continue to invest in supply chains to improve supply chain efficiency and satisfy consumers' increasing needs for quality products. In the manufacturing industry, sector, for example. Pinduoduo can quickly gather consumer insights to help manufacturers make more informed decisions on project design and production. This enables the creation of products that better match consumer needs and passes on the savings to consumers. In the past year, we rolled out multiple initiatives to help manufacturers directly engaged with end consumers. Take a manufacturer in the personal care sector as an example. It used our insights to identify opportunities for personalized quality products among a younger generation. As a result, the manufacturer developed personal care products with present features and designs, which received excellent market feedback. This also helped manufacturers to gradually establish its own brand. Over the past seven years, we have helped incubate thousands of manufacturers' brands in this way. Our prudent insights and technology can help manufacturers better position themselves, develop popular products in rapid-changing markets, and reduce uncertainty in production. We are dedicated to build a platform that is accessible to all merchants and brands regardless of size. In the agricultural sector, we continue to utilize our resources and technology to promote digital inclusion and generate a positive impact. We devote ourselves to facilitating the adoption of agri-tech solutions. Since 2020, Pinduoduo has hosted a flagship smart agriculture competition for three consecutive years, offering a stage for young agricultural researchers and growers to explore practical technology solutions that improve yield, shorten production cycles, and promote sustainability. We also have teams from previous competitions to commercialize their technical solutions on a large scale. By promoting agri-tech adoption, we hope to push forward agricultural modernization. Another key driving force is the training of new farmers. These young new farmers have returned to their hometown after years of experience in large cities. They are tech savvy about the latest tools, such as live streaming, and they are full of energy and drive. With the help of insights from our platform, they can develop good understanding of consumer needs and play an important role in their local communities. On average, one such new farmer can bring five to 10 other young people into e-commerce. creating around 50 local job opportunities directly or indirectly. In addition, our efforts in supply chain have generated a meaningful positive impact for the society. For example, last quarter, bad weather in winter caused a supply chain disruption, which prompted us to quickly assemble a dedicated team and launch a nationwide campaign with People's Daily. Through our Helpless Farmer channel on Pinduoduo platforms, we provided dedicated traffic support to help affected farmers to sell their unsold seasonal produce by reaching more end consumers in a short period of time. Our Duoduo grocery teams all across the country also have played an important role as each team visited various agricultural production regions in their harvest. Sauce also produced directly from farmers and quickly matched it with local consumer demands to sell it. With our team's strong efforts, we were able to sell nearly 15,000 tons of agricultural produce nationwide during this campaign. And we are encouraged to see that our supply chain capabilities and create tangible value for the sector and the society. We are proud to receive the FAO 2022 Innovation Award from the United Nations Food and Agriculture Organization, which recognizes innovation that creates an impact in the agricultural supply chain. This award is a vote of confidence in our holistic and proactive approach to agriculture. And it motivates us to keep forging ahead so that more and more people can enjoy the benefits of digital inclusion and technology adoption in agriculture. Here, I would also like to provide an update on Tmoo, a new global online marketplace that we launched in September 2022. Timu and Pinduoduo are sister companies under the parent company PVD Holdings, which has built the sourcing, logistics, and fulfillment capabilities developed to support its various businesses. We strive to create our own unique value with Timu, so we always start from the fundamental consumer needs and explore how we can serve them well. People will stick to the values of empowerment, diversity and inclusion, integrity, as well as social responsibility. As we enter the new year, we remain committed to creating value for all stakeholders. And therefore, we will remain patient and invest for the long term. Our goal is to further improve the services we provide to consumers. and bring more businesses into a digital economy to increase opportunities for local communities and small businesses. Thank you for your continuous support. And now, let me turn it over to Jun to update you on our financial performance.

Thank you, Lei. Hello, everyone. Now, let me walk you through our financial performance in the fourth quarter. and fiscal year ended December 31, 2022. In terms of income statement, our total revenues increased 46% year-over-year, generally $39.8 billion in the fourth quarter, and 39% year-over-year, generally $130.6 billion for the full year of 2022. This was mainly driven by an increase in revenues from online marketing services and transaction services. Revenues from online marketing services and others, 1 to 31 billion this quarter, of 38% compared to the same period of 2021. This was primarily due to an increase in merchant activities as a result of improvements in consumer sentiment. Our transaction services revenues this quarter were RMB 8.8 billion, up 86%, that is just the same period of 2021. Moving on to cost and expenses, our total cost of revenues increased 37%, from RMB 6.5 billion in Q4 2021 to RMB 8.9 billion this quarter. For the full year, Our total cost of revenues decreased one percent to RMB 31.5 billion. Total operating expenses this quarter were RMB 21.8 billion on a gap basis, versus RMB 13.8 billion in the same quarter of 2021. On a non-gap basis, our total operating expenses increased to RMB 19.3 billion this quarter, from RMB 12.3 billion in Q4 2021. During the past quarter, we devoted more resources to better address user needs, encourage their consumption confidence, as well as step up investments in our long-term focus areas, such as R&D and agriculture. As such, our total non-GAAP operating expenses as a percentage of total revenues have increased from 45% in Q4 2021 to 48% in this quarter. The full year of 2022, total gap operating expenses were RMB 68.7 billion, up from RMB 55.3 billion last year. Looking into specific expense items, Our known gap sales in the marketing expenses this quarter were only 17.3 billion, up 59% versus the same quarter of 2021. We offered various forms of promotions and subsidies and increased advertising spending in Q4 to support consumption recovery. On a known gap basis, our sales in the marketing expenses as a percentage of our revenues this quarter was 43%, compared with 40% for the same quarter in 2021. For the full year, loan gap sales and marketing expenses increased from RMB 43.2 billion in 2021 to RMB 52.2 billion in 2022. Our non-GAAP general and administrative expenses were RMB 360.8 million in Q4, versus RMB 145.8 million in the same quarter of 2021. Our annual non-GAAP general and administrative expenses were RMB 1 billion in 2022, versus RMB 748.4 million last year. Our non-GAAP research and development expenses were under $1.7 billion in the fourth quarter, an increase of 34% from under $1.3 billion in the same quarter of 2021. The increase was primarily due to an increase in HACOM and the recruitment of more experienced R&D personnel on the server cost. As a technology-driven company, The value we create cannot be achieved without our R&D efforts. We need to further grow our R&D capabilities to understand the constantly evolving consumer demands and drive innovation to satisfy their needs more effectively. In addition, we continue to leverage our technology background to improve digital technology adoption sectors such as agriculture, and manufacturing. Also, it is worth noting that for a full year, our annual gap RMD expenses surpassed RMD 10 billion for the first time. We aim to continue to step up investment in this area to form a solid foundation for our long-term development. Operating profit for the quarter was RMD 9.1 billion on a gap basis and RMB 11.6 billion on a non-gap basis. Net income attributable to ordinary shareholders was RMB 9.5 billion for the quarter and RMB 31.5 billion for the full year. In the fourth quarter, base earnings per ADS was RMB 7.42 and diluted earnings per ADS was RMB 6.52. The suspected earnings per ADS of RMB 5.26 and diluted earnings per ADS of RMB 4.66 in the same quarter of 2021. Non-GAAP net income attributed to ordinary shareholders was RMB 12.1 billion for the quarter. In the fourth quarter, Non-GAAP diluted N is per ADS was RMB 8.34 versus RMB 5.88 in the same quarter of 2021. That completes the income statement. Now, let me move on to cash flow. Our net cash flow generated from operating activities was RMB 26.6 billion for Q4. and RMB 48.5 billion for the full year of 2022, compared with RMB 16.4 billion in the same quarter of 2021, and RMB 28.8 billion in 2021, primarily due to the increase in net income and the changes in working capital. As of December 31, 2022, The company had R&D $149.4 billion in cash, cash equivalents, and short-term investments. Thank you. This concludes my prepared remarks.

Thank you, Jane. Next, we will move on to the Q&A session. For today's Q&A session, Lei and Zhu will take questions from analysts on the line. we could take a maximum of two questions per analyst. And Lei will answer questions in Chinese, and I will help translate his remarks for easier reference. Operator, we may now take questions online.

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, Participants are requested to restrict two questions at each time. Your first question comes from Joyce Ju with Bank of America. Please ask your question.

Thanks, management, for taking my questions.

I have two questions. The first one is as now Pinduoduo developed into an e-commerce conglomerate with multiple business initiatives globally, How could management actually prioritize different business lines? And can management share more about your latest strategies going forward? Have you shifted your strategy after you have expanded your business lines globally? And how do you position yourself in the global market? And my second question is actually related to the revenue. Your online marketing service revenue growth 38% year-over-year last quarter, ahead of the industry growth and peers. But at the same time, we have seen this represent a deceleration from the third quarter. How should we understand the growth and how should we actually expand the momentum going forward? Let me ask my own question. My first question is, we see that Duoduo is gradually developing into a multinational multi-business group. Could you please share with us the latest development strategy of the company? After the expansion of the business line, has our development focus changed? What is our strategic plan? How does the company position Duoduo in the international market? The second question is about our income this quarter. We see that the net sales income of this quarter has increased by 38%. Compared to the increase of the industry and the same industry, it is still very bright. But it is also a little bit obvious compared to our third quarter. Can you please share with us the reason and help us look forward to the speed and space of our income and business in 2023? Thank you very much.

Joyce, hello. I would like to answer the question about the company's development strategy.

Hello, Joyce. And thank you for your questions. And I can take your question on strategy first.

First of all, I think our company is still in its growth stage. We have not reached a stable stage. First of all, we are still in our development stage instead of a stabilized phase.

and we still have a long way to go in terms of serving consumers well. And to better serve consumers, we will firmly stick to our strategy, which is to create long-term value through R&D and technology.

Binduoduo is a technical core company. More than half of its employees are engineers. Many core management layers are also technology-based. So, from the perspective of creating value for users and consumers, it is efficient to understand the user's use preference for rapid change, and to quickly treat services, because these are inseparable from the powerful development capabilities. So, we believe that the key to serving users in the future is to continue to strengthen our own development capabilities.

We are a technology-driven company and more than half of our employees are engineers. Also, many of our core management team members are also from a technical background. So, from the perspective of creating more value for users, many areas such as understanding the rapidly changing user preferences and continuously iterating our services. All these areas are inseparably linked to our R&D capabilities. And we firmly believe that the key to serving our users well in the future is to further strengthen our R&D capabilities.

At the same time, we will also focus on using technology to support agriculture and manufacturing. In terms of agriculture, we will continue to invest in different sections of the entire agricultural industry chain through our technical background, and bring more agricultural products to the market. At the same time, we will play an important role in the overall platform advantage. At the same time, we will continue to focus on supporting the agriculture

and the manufacturing industries through technology. For agriculture, we will continue to invest in the various links along the agricultural value chain with our technical expertise so that we can facilitate the efficient distribution of agricultural produce. And we will also leverage other resources on the Pinduoduo platform to bring more agri-tech solutions to the market faster. As for the manufacturing sector, we will devote more resources and help many more manufacturers as well as factories to go through digital transformation and improve their efficiency. And we have a very clear long-term strategy to strengthen our R&D capabilities and to improve the efficiency of the agricultural and manufacturing supply chains. Our strategic direction as well as the investment level will not be affected by short-term external trends or fluctuations. and we will continue to make a long-term and patient investment.

And as for your second question regarding our revenue growth, well, throughout the past quarter,

we saw a strong resilience and also vigor in the consumption market. And we are confident toward the prospects of this market. During events such as the Double Eleven and the Chinese New Year promotion, we collaborated with more merchants and also brands and provided consumers with a broader selection of high-quality products, and many consumers showed a good shopping demand at the same time.

We all saw a good growth in sales.

And under the backdrop of consumption recovery, we have also devoted more resources to better fulfill consumer demand. In the fourth quarter, the Pinduoduo platform leveraged its focus on serving the fundamental needs of users. And sales volume of daily essential products on the platform showed steady growth. Furthermore, as consumer demand toward high-quality merchandise is growing, categories including mobile phones, beauty cosmetics, and maternal and baby care products all had decent growth. 与此同时,很多人看到是说

The competition in the industry is very intense. As consumers, we can choose between different platforms and shopping patterns. We still have a lot of areas to improve. Therefore, our team will continue to work hard and invest, and continue to develop our core capabilities. We insist on providing consumers with more affordable and more fun.

At the same time, we are fully aware that the competition in the market is intense, and consumers have many different e-commerce platforms and shopping formats to choose from. We still have a lot to further improve, so as a result, Our team must continue to work hard, and we plan to step up investment, strengthen our core competencies, and continue to provide consumers with more savings, more fun shopping experience. Thank you. Operator, we can take next question on the line.

Thank you. Your next question comes from Kenneth Fong with Credit Suisse. Please ask your question.

Hi. Thank you, management, for taking my question. I have two questions. First is a management comment on the latest competitive landscape. Specifically, we saw a number of your peers stressed the importance of low price. Do you have any plan or program in response? How do you position yourself to achieve quality growth in such an environment? And my second question is about sales and marketing, which we saw an acceleration in sales and marketing expenses of 56% year over year to around $18 billion in the fourth quarter. So what investment opportunities did you see? As consumer sentiment improved, are you becoming more aggressive in terms of investment, or does it just reflect a temporary seasonal hike? Thank you for accepting my question. I will translate it myself. There are two questions. The first one is about the competitive environment. We see that our team also adds subsidies and uses land prices to compete with the market. How will we deal with it? Under this competitive environment, how can we continue to maintain high quality growth? The second question is about market sales and spending. We see that in the D.C. quarter, sales and marketing has increased by 56%, reaching 180.1%. I would like to ask if the management has seen any better opportunities for sales, especially when consumers' confidence is slowly recovering. In the next few quarters, will sales and marketing expenses continue to increase? Or is the D.C. quarter a seasonal factor that we should not care too much about? Thank you.

Hello, Kenneth. First of all, I would like to answer the question about the competition in the industry. In China, e-commerce is a very big and very active market. Especially with the overall development now, the market continues to show strong vitality. I believe that everyone has seen the opportunity in the current industry. Therefore, we see that various e-commerce platforms Hi, Kenneth. So I will first share my views on your question on competition. The e-commerce market in China is huge and it is full of energy.

Also, with the optimization in pandemic control measures, it continues to show strong resilience. And I believe it is easy for everybody to see the opportunities in this market. Therefore, I think it is natural and also logical for e-commerce peers to choose to raise spending, which makes competition more intense as a result.

Also,

we have noticed the recent moves in the industry. And we saw that different companies may form different strategies in face of competition. And as I have mentioned in my remarks, we believe that healthy competition is beneficial to consumers and the entire industry. competition intensifies, sometimes peers' reaction could go in a different direction. And we will always keep our duty in mind, focus on our own healthy development and embrace industry competition, even when sometimes it involves unsustainable practices from peers.

So for us, we believe that serving consumers is the key to creating long-term value. We will continue to insist on providing more affordable and fun shopping experiences for consumers. Therefore, our team is also starting from our own position to explore how to bring more value to consumers. So we will continue to develop our own direction For us, we believe that serving consumers better is the key to creating long-term value. And we will continue to provide consumers with

more savings, more fun shopping experience. Therefore, we start from our own unique value propositions. And our team and I are exploring how to provide more value to consumers. And toward this end, we will continue to focus on R&D so that we can better understand the new needs and preferences of consumers, improve their shopping experience. And in this way, we can increase consumer satisfaction.

At the same time, we are fully aware that we still have a lot to improve.

So as a result, we will further step up investments, especially in the areas of agriculture and manufacturing sectors, as well as improve supply chain efficiency so that we can create more values for consumers and deepen our more savings, more found propositions. So this is my view on industry competition. As for your question on sales and marketing expenses, I will leave it to Jun to answer your question. Thank you.

Hi, Kenneth. This is Jun. Let me take the question on sales and marketing expenses. Well, during the quarter, we saw consumption recovery trends continue. Given this background, we offered various types of promotions and subsidies to support consumption, as I just mentioned in the remarks. These offers are reflected in the financial number, and you can see that our sales and marketing expenses in Q4 increased. Actually, we always carefully evaluate the ROI for every investment for all of our projects. We hope to allocate resources to places that can generate long-term, high-quality development. When we see good opportunities that can create value, we invest firmly. Thank you.

Hi, operator. We can go to the next analyst on the line.

Thank you. Your next question comes from Ellie Jang with Macquarie. Please ask your question.

Thank you, management, for taking my questions. I have two regarding our overseas product, Timu. We saw that you're now introducing Timu to Canada and Australia, although we saw exciting commercials being put out on Super Bowl. Can management share with us some latest developments and operational updates? How would Timu differentiate from the more well-established players in the current market. The second question is on the relative impact on the fourth quarter financials. How did TMOO's revenue being booked? Any operating metrics that management could share regarding the estimated loss levels, order size, or unit economics? Do we have any GMB or growth target for TMOO going forward? Thank you.

Hi, Alec. Hello, Alec.

Hello, Alec. Let me answer the question about globalized business in terms of strategic development. In the T5 business, we hope to create our own unique value. For example, through our years of experience in the supply chain, Hi, Eli. So let me take your question. Our global business. So for this initiative, we aspire to create our own unique value.

For example, using our supply chain know-how that we have accumulated over the years, we can offer consumers a curated selection of quality goods at attractive prices. And also, through evolving our product features, we hope to improve consumers' shopping experience.

We launched Timo in September last year. It's been about half a year now. So far, this business is still in its early stages. Compared to focusing on new competitors, we will actually pay more attention to our own development and delivery. We will see that there are many different places in the market in different regions around the world. We also need to accumulate a lot of experience.

And since we launched this platform in September of last year, it has only been about half a year. And instead of focusing too much on competitors right now, we actually pay more attention to our own development and product iteration. We see that different markets in different regions, they have different, many differences and we still have a lot to learn and a lot to improve. So we will remain patient, iterate constantly and create strive to create a long-term value. In addition, we also appreciate the support coming from consumers and merchants who have chosen our platform at this early stage of its development. Their support motivates us to do this business well. And they have also given us many valuable advices to improve our services. As for the second part of the question, the financial booking, revenue booking and financial impact of our business, I will hand it over to Jane to further discuss.

Allow me to address the questions on revenue booking and financial impact of our global business. Well, it just started out roughly half a year ago. And given its early stage nature, the financial impact from this business is relatively small. And in terms of revenue booking, this business recorded as a 3P model. We are entering new markets, so we need to understand customer demand better and experiment how to make their demand effectively. We are not driven by financial metrics. Instead, the most essential thing for us right now is to build our own unique value over the long run. Over time, financial metrics are just a reflection of the value we can generate. And in terms of future investment and financial impact, as always, we will continue to carefully evaluate different opportunities, stick to our investment discipline, and keep up with our high RI standard. Thank you.

Okay. Hi, operator. I think we still have time to take two questions from one more analyst.

Thank you. Your next question comes from Yang Bai with CICC. Please ask your question.

Hi. Thank you for taking my question. My first question, can management share with us some updates on your total grocery business? We understand that online grocery business is slowing down. Are you still expanding this business? or do you focus more on efficiency and cost control right now? And my second question is about the profitability. We noticed that your profitability margin decreased from the last two quarters. Given Q4 is usually a strong quarter in terms of profits. Does that mean that you have shifted focus more to growth And what opportunities are you spending extra? Let me translate. My first question is about the situation of bulk purchasing. We have recently noticed that the increase in the industry has been reversed. How should we understand the future strategy of bulk purchasing? Is it still to put the expansion in a relatively small position, or will it focus more on a state of cost-effectiveness? The second question is about the interest rate. Hello, everyone. First of all, I would like to talk about Dogecoin.

Hi, Baiyang. So let me take your question on our dodo grocery business. Pinduoduo started by selling agricultural produce, and agriculture is one of our key long-term strategies. Through our dodo grocery business, we leverage technology to improve agricultural distribution efficiency and match local supply and demand effectively. This business plays a very critical role of leveraging our unique positioning in agriculture and creating our own unique value. 那么在工作买家这项业务中我们看到了

And in our grocery business, we have seen the value that we can generate.

by improving supply chain efficiency in areas such as offering more choices of local produce, increasing fulfillment efficiency, and improving user experience. At the same time, the dodo grocery business also creates positive social values.

Let me give you an example. In the past four seasons, Duoduo Buying Vegetables launched a warm-up campaign to help the agricultural products that are in demand and in demand, and to connect with consumers. In fact, it is our各省区团队深入到农产区田间地头去采用农产品,高效地将本地的农产品匹配给本地的消费者,

Let me give you a recent example here that in the fourth quarter, we launched a dedicated campaign to help sell through seasonal unsold agricultural products to consumers directly. And the local teams of Dodo Grocery went upstream into the agricultural production region. to source agricultural produce directly and match these products efficiently with local demands. We are still in the early stage in our agriculture investments, and we see a lot of areas that can be further improved with technology. So for Dodo Grocery, we are still far away from the best level of services, and there are still a lot to improve. As a result, we will remain down to earth and continue to make long-term investments in order to further create values for consumers. Thank you.

This is Jane. Let me take your question on the profitability. Well, we are in our development stage. We still see many areas to improve and create more value for users. We continue to step up investment in key areas to strengthen our R&D capabilities, support agriculture and manufacturing. through technology and improve our service offerings to users. And profitability is not our current priority. With that said, we always practice financial prudence for every investment. We carefully evaluate the ROI and ask ourselves if it can create long-term high-quality balance for us. When we seek good opportunities, we invest firmly.

Thank you everybody for joining us on the conference call today. That concludes the call and have a great day.

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

Thank you. Thank you.

Ladies and gentlemen, thank you for standing by and welcome to PDD's Holdings Inc. Fourth Quarter and Fiscal Year 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 will need to press star 1 on your telephone. I must advise that today's conference is being recorded. I would 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. PDD Holdings earnings release was distributed earlier and is available on our website at investor.pddholdings.com. as well as through Global Newswire Services. Before we begin, I would like to refer you to our Safe Harbor Statements in Earnings Press Release, which applies to this call, as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our Earnings Release, which contains a reconciliation of non-GAAP measures to GAAP measures. Joining us today on the call are Chen Lei, our Chairman and Chief Executive Officer, and 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 fourth quarter and fiscal year ended December 31, 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.

Hello, everyone. Thank you all for joining us on our earning call for the fourth quarter and the fiscal year of 2022. Let me begin by summarizing our results for Q4 and the full year of 2022. Our total revenue for this quarter was RMB 39.8 billion. which is a 46% increase compared to the previous year. Our total revenue for the past year was RMB $130.6 billion, which represents a growth of 39% year-over-year. In 2022, we focused on strengthening our core capabilities, We invested over RMB 10 billion in research and development last year, which is the highest amount since our establishment. Our goal is to further improve our technological know-how and bring the benefits of digitalization to our users and ecosystem partners. We will continue to invest in RMB as a long-term commitment to better serve our users and society as a whole. During the past year, we are encouraged to see many of our young colleagues take on more responsibilities and step into bigger roles. These young talents are full of passion and creativity to have demonstrated their ability to take on new challenges, explore different possibilities, and asking our vision with patience and determination. We will continue to provide more personal development opportunities for them to grow as future leaders. As a young company still in the investment stage, we will remain agile and energetic as we move forward. And we are committed to adapting to trends in consumer preferences. My team and I are eager to keep exploring and identifying the right opportunities. When we find the right opportunities, we will invest and execute relentlessly to create value for consumers and the society. In Q4, we observed rising sentiment among our users. To support consumption recovery, we actively elaborated resources from the Pinduoduo platform. During the promotion season, we stepped up our investment to further improve consumer engagement and build their trust. For example, during the 2011 period last quarter, we provided robust coupons and discounts in a simple and straightforward way, making shopping easier and more enjoyable for our consumers. We are also working hard to enlarge the diversity of products. of our platform to address our consumers' diverse needs. With efforts of our platform, as well as merchants, we saw decent performance across various categories during the promotion season. For example, categories such as mobile phones and cosmetics showed encouraging growth among users with different demographics. The auto volume of many seasonal agricultural products more than doubled, which helped to boost consumer awareness of various local agricultural production regions. As the Chinese New Year happened earlier this year, we launched a Chinese New Year promotion in late December to meet consumer needs. We worked closely with merchants all over the world who curate more product selections for consumers. And we are happy to see that our efforts have taken off with many imported produce, such as cherries from Chile and the salmon from Norway, receiving very positive feedbacks. We are glad to contribute to in supporting consumer confidence. As consumption continues to recover and consumer sentiment continues to improve, everyone can see the potential and opportunities in this market. As the industry evolves, we notice a number of recent moves by our peers. I believe healthy competition is beneficial for the industry. But sometimes, when competition intensifies, Some companies may take different actions. For us, we will always adhere to our different beauty as a company, focus on our own sustainable development, embrace competition, even when sometimes it involves unsustainable practices from peers. We always think about how to better serve our consumers, We are also fully aware that we still have a long way to go before we can fully meet consumers' evolving needs. We are committed to deepening our value proposition of more savings, more funds. In addition, we will continue to invest in supply chains to improve supply chain efficiency and satisfy consumers' increasing needs for quality products. In the manufacturing industry, sector, for example. Tingdodong can quickly gather consumer insights to help manufacturers make more informed decisions on project design and production. This enables the creation of products that better match consumer needs and passes on the savings to consumers. In the past year, we rolled out multiple initiatives to help manufacturers directly engaged with end consumers. Take a manufacturer in the personal care sector as an example. It used our insights to identify opportunities for personalized quality products among a younger generation. As a result, the manufacturer developed personal care products with present features and designs, which received excellent market feedback. This also helped the manufacturers to gradually establish its own brand. Over the past seven years, we have helped incubate thousands of manufacturers' brands in this way. Us pricing insights and technology can help manufacturers better position themselves, develop popular products in a rapidly changing market, and reduce uncertainty in production. We are dedicated to build a platform that is accessible to all merchants and brands regardless of size. In the agricultural sector, we continue to utilize our resources and technology to promote digital inclusion and generate a positive impact. We devote ourselves to facilitating the adoption of agri-tech solutions. Since 2020, Pinduoduo has hosted a flagship smart agriculture competition for three consecutive years, offering a stage for young agricultural researchers and growers to explore practical technology solutions that improve yield, shorten production cycles, and promote sustainability. We also have teams from previous competitions to commercialize their technical solutions on a large scale. By promoting agri-tech adoption, we hope to push forward agricultural modernization. Another key driving force is the training of new farmers. These young new farmers have returned to their hometown after years of experience in large cities. They are tech savvy about the latest tools, such as live streaming, and they are full of energy and drive. With the help of insights from our platform, they can develop good understanding of consumer needs and play an important role in their local communities. On average, one such new farmer can bring five to 10 other young people into e-commerce. creating around 50 local job opportunities directly or indirectly. In addition, our efforts in supply chain have generated a meaningful positive impact for the society. For example, last quarter, bad weather in winter caused a supply chain disruption, which prompted us to quickly assemble a dedicated team and launch a nationwide campaign with People's Daily. Through our Helpless Farmer channel on Pinduoduo platform, we provided dedicated traffic support to help affected farmers to sell their unsold seasonal produce by reaching more end consumers in a short period of time. Our Duoduo grocery teams all across the country also have played an important role as each team visited various agricultural production regions in their harvest. Sauce also produced directly from farmers and quickly matched it with local consumer demands to sell it. With our team's strong efforts, we were able to sell nearly 15,000 tons of agricultural produce nationwide during this campaign. And we are encouraged to see that our supply chain capabilities and create tangible value for the sector and the society. We are proud to receive the FAO 2022 Innovation Award from the United Nations Food and Agriculture Organization, which recognizes innovation that creates an impact in the agricultural supply chain. This award is a vote of confidence in our holistic and proactive approach to agriculture. And it motivates us to keep forging ahead so that more and more people can enjoy the benefits of digital inclusion and technology adoption in agriculture. Here, I would also like to provide an update on Tmoo, a new global online marketplace that we launched in September 2022. Timu and Pinduoduo are sister companies under the parent company PDD Holdings, which has built the sourcing, logistics, and fulfillment capabilities developed to support its various businesses. We strive to create our own unique value with Timu, so we always start from the fundamental consumer needs and explore how we can serve them well. People will stick to the values of empowerment, diversity and inclusion, integrity, as well as social responsibility. As we enter the new year, we remain committed to creating value for all stakeholders. And therefore, we will remain patient and invest for the long term. Our goal is to further improve the services we provide to consumers. and bring more businesses into a digital economy to increase opportunities for local communities and small businesses. Thank you for your continuous support. And now, let me turn it over to Jun to update you on our financial performance.

Thank you, Lei. Hello, everyone. Now, let me walk you through our financial performance in the fourth quarter. and fiscal year ended December 31, 2022. In terms of income statement, our total revenues increased 46% year-over-year, generally $39.8 billion in the fourth quarter, and 39% year-over-year, generally $130.6 billion for the full year of 2022. This was mainly driven by an increase in revenues from online marketing services and transaction services. Revenues from online marketing services and others were under 31 billion this quarter, up 38% compared to the same period of 2021. This was primarily due to an increase in merchant activities as a result of improvements in consumer sentiment. Our transaction services revenues this quarter were RMB 8.8 billion, up 86% versus the same period of 2021. Moving on to costs and expenses, our total cost of revenues increased 37% from RMB 6.5 billion in Q4 2021 to RMB 8.9 billion this quarter. For the full year, our total cost of revenues decreased one percent to RMB 31.5 billion. Total operating expenses this quarter were RMB 21.8 billion on a gap basis, versus RMB 13.8 billion in the same quarter of 2021. On a non-gap basis, our total operating expenses increased to RMB 19.3 billion this quarter, from under $12.3 billion in Q4 2021. During the past quarter, we devoted more resources to better address user needs, encourage their consumption confidence, as well as step up investments in our long-term focus areas, such as R&D and agriculture. As such, our total non-GAAP operating expenses as a percentage of total revenues have increased from 45% in Q4 2021 to 48% in this quarter. The full year of 2022, total gap operating expenses were RMB 68.7 billion, up from RMB 55.3 billion last year. Looking into specific expense items, Our known gap sales in the marketing expenses this quarter were only 17.3 billion, up 59% versus the same quarter of 2021. We offered various forms of promotions and subsidies and increased advertising spending in Q4 to support consumption recovery. On a known gap basis, our sales in the marketing expenses as a percentage of our revenues this quarter was 43%, compared with 40% for the same quarter in 2021. For the full year, loan gap sales and marketing expenses increased from RMB 43.2 billion in 2021 to RMB 52.2 billion in 2022. Our non-GAAP general and administrative expenses were RMB $360.8 million in Q4, versus RMB $195.8 million in the same quarter of 2021. Our annual non-GAAP general and administrative expenses were RMB $1 billion in 2022, versus RMB $748.4 million last year. Our non-GAAP research and development expenses were under $1.7 billion in the fourth quarter, an increase of 34% from under $1.3 billion in the same quarter of 2021. The increase was primarily due to an increase in outcome and the recruitment of more experienced R&D personnel on the server cost. As a technology-driven company, The value we create cannot be achieved without our R&D efforts. We need to further grow our R&D capabilities to understand the constantly evolving customer demands and drive innovation to satisfy their needs more effectively. In addition, we continue to leverage our technology background to improve digital technology adoption sectors such as agriculture, and manufacturing. Also, it is worth noting that for a full year, our annual gap R&D expenses surpassed RMB 10 billion for the first time. We aim to continue to step up investment in this area to form a solid foundation for our long-term development. Operating profit for the quarter was RMB 9.1 billion on a gap basis and RMB 11.6 billion on a non-gap basis. Net income attributable to ordinary shareholders was RMB 9.5 billion for the quarter and RMB 31.5 billion for the full year. In the fourth quarter, base earnings per ADS was RMB 7.42 and diluted earnings per ADS was RMB 6.52. There's a space earnings per ADS of RMB 5.26 and diluted earnings per ADS of RMB 4.66 in the same quarter of 2021. Non-GAAP net income attributed to ordinary shareholders was RMB 12.1 billion for the quarter. In the fourth quarter, Non-GAAP diluted annuities per ADS was RMB 8.34 versus RMB 5.88 in the same quarter of 2021. That completes the income statement. Now, let me move on to cash flow. Our net cash flow generated from operating activities was RMB 26.6 billion for Q4. and RMB 48.5 billion for the full year of 2022, compared with RMB 16.4 billion in the same quarter of 2021, and RMB 28.8 billion in 2021, primarily due to the increase in net income and the changes in working capital. As of December 31, 2022, The company had R&D $149.4 billion in cash, cash equivalents, and short-term investments. Thank you. This concludes my prepared remarks.

Thank you, Jane. Next, we will move on to the Q&A session. For today's Q&A session, they and you will take questions from analysts on the line. we could take a maximum of two questions per analyst. And Lei will answer questions in Chinese, and I will help translate his remarks for easier reference. Operator, we may now take questions online.

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, Participants are requested to restrict two questions at each time. Your first question comes from Joyce Ju with Bank of America. Please ask your question.

Thanks management for taking my questions.

I have two questions. The first one is as now Pinduoduo developed into an e-commerce conglomerate with multiple business initiatives globally. How could management actually prioritize different business lines? And can management share more about your latest strategies going forward? Have you shifted your strategy after you have expanded your business lines globally? And how do you position yourself in the global market? And my second question is actually related to the revenues. Your online marketing service revenue growth 38% year-over-year last quarter, ahead of the industry growth and peers. But at the same time, we have seen this represent a deceleration from the third quarter. How should we understand the growth and how should we actually expand the momentum going forward? Let me ask my own question. My first question is, we see that Duoduo is gradually developing into a multinational multi-business group. Could you please share with us the latest development strategy of the company? After the expansion of the business line, has our development focus changed? What is our strategic plan? How does the company position Duoduo in the international market? The second question is about our revenue in this quarter. We see that the net sales revenue in this quarter has increased by 38%. Compared to the increase in the industry and the same industry, it is still very bright. But it is also a little bit obvious compared to our third quarter. Can you please share with us the reason and help us look forward to the speed and space of our revenue and business in two or three years? Thank you very much.

Joyce, hello. I would like to answer the question about the company's development strategy.

Hello, Joyce. And thank you for your questions. And I can take your question on strategy first.

First of all, I think our company is still in its growth stage. It has not reached its stability yet. First of all, we are still in our development stage instead of a stabilized phase.

and we still have a long way to go in terms of serving consumers well. And to better serve consumers, we will firmly stick to our strategy, which is to create long-term value through R&D and technology.

Binduoduo is a technology-oriented company. More than half of its employees are engineers. Many core management layers are also technology-based. So, from the perspective of creating value for users and consumers, it is efficient to understand the user's use preference for rapid change, and the fast-tracking service, because these are inseparable from the powerful development capabilities. So, we believe that the key to serving users in the future is to continue to strengthen our own development capabilities.

We are a technology-driven company, and more than half of our employees are engineers. Also, many of our core management team members are also from a technical background. So from the perspective of creating more value for users, many areas such as understanding the rapidly changing user preferences and continuously iterating our services. All these areas are inseparably linked to our R&D capabilities. And we firmly believe that the key to serving our users well in the future is to further strengthen our R&D capabilities.

At the same time, we will also focus on using technology to support agriculture and manufacturing. In terms of agriculture, we will continue to invest in different segments of the entire agricultural industry chain through our technical background, and bring more agricultural products to the market. At the same time, we will play a big role in the entire platform advantage, At the same time, we will continue to focus on supporting the agriculture

and manufacturing industries through technology. For agriculture, we will continue to invest in the various links along the agricultural value chain with our technical expertise so that we can facilitate the efficient distribution of agricultural produce. and we will also leverage other resources on the Pinduoduo platform to bring more agri-tech solutions to the market faster. As for the manufacturing sector, we will devote more resources and help many more manufacturers as well as factories to go through digital transformation and improve their efficiency. And we have a very clear long-term strategy to strengthen our R&D capabilities and to improve the efficiency of the agricultural and manufacturing supply chains. Our strategic direction as well as the investment level will not be affected by short-term external trends or fluctuations. And we will continue to make a long-term and patient investment.

And as for your second question regarding our revenue growth, well, throughout the past quarter,

we saw a strong resilience and also vigor in the consumption market. And we are confident toward the prospects of this market. During events such as the Double Eleven and the Chinese New Year promotion, we collaborated with more merchants and also brands and provided consumers with a broader selection of high-quality products. And many consumers showed a good shopping demand at the same time.

Now, in terms of the overall consumer demand, we have also increased resource investment to better meet the consumer's needs. In the fourth quarter, P&O has developed We've all seen a good growth in sales.

And under the backdrop of consumption recovery, we have also devoted more resources to better fulfill consumer demand. In the fourth quarter, the Pinduoduo platform leveraged its focus on serving the fundamental needs of users. And sales volume of daily essential products on the platform showed steady growth. Furthermore, as consumer demand toward high-quality merchandise is growing, categories including mobile phones, beauty cosmetics, and maternal and baby care products all had decent growth.

The competition in the industry is very intense. As consumers, there are different platforms and forms of shopping that we can choose from. We have a lot of areas that need to be improved. Therefore, our team will continue to work hard and invest, and continue to develop our core capabilities. We insist on providing consumers with more affordable and more fun.

At the same time, we are fully aware that the competition in the market is intense, and consumers have many different e-commerce platforms and shopping formats to choose from. We still have a lot to further improve, so as a result, Our team must continue to work hard, and we plan to step up investment, strengthen our core competencies, and continue to provide consumers with more savings, more fun shopping experience. Thank you. Operator, we can take next question on the line.

Thank you. Your next question comes from Kenneth Fong with Credit Suisse. Please ask your question.

Hi. Thank you, management, for taking my question. I have two questions. First is a management comment on the latest competitive landscape. Specifically, we saw a number of your peers stressed the importance of low price. Do you have any plan or program in response? How do you position yourself to achieve quality growth in such an environment. And my second question is about sales and marketing, which we saw an acceleration in sales and marketing expenses of 56% year over year to around 18 billion in the fourth quarter. So what investment opportunities did you see? As consumer sentiment improved, are you becoming more aggressive in terms of investment, or does it just reflect a temporary seasonal hike? Thank you for accepting my question. I will translate it myself. There are two questions. The first one is about the competitive environment. We see that our team also adds subsidies and uses land prices to compete with the market. How will we deal with it? Under this competitive environment, how can we continue to maintain high quality growth? The second question is about market sales and spending. We see that sales and marketing growth in the D.C. region has increased by 56%, reaching 180.1%. I would like to ask if the management has seen any better opportunities for sales, especially when consumers' confidence is slowly recovering, will sales expenses continue to increase in the next few seasons? Or is the D.C. region a seasonal factor that we should not care too much about? Thank you.

Hello, Kenneth. First of all, I would like to answer the question about the competition in the industry. In China, e-commerce is a very big and very active market. Especially with the overall development now, the market continues to show strong vitality. I believe that everyone has seen the opportunity in the current industry. Therefore, we see that various e-commerce platforms Hi, Kenneth. So I will first share my views on your question on competition. The e-commerce market in China is huge and it is full of energy.

Also, with the optimization in pandemic control measures, it continues to show strong resilience. And I believe it is easy for everybody to see the opportunities in this market. Therefore, I think it is natural and also logical for e-commerce peers to choose to raise spending, which makes competition more intense as a result.

Also,

we have noticed the recent moves in the industry and we saw that different companies may form different strategies in face of competition and as I have mentioned in my remarks we believe that healthy competition is beneficial to consumers and the entire industry but when competition intensifies, sometimes peers' reaction could go in a different direction. And we will always keep our duty in mind, focus on our own healthy development and embrace industry competition, even when sometimes it involves unsustainable practices from peers.

So for us, we believe that serving consumers is the key to creating long-term value. We will continue to insist on providing consumers with more affordable and more fun shopping experiences. Therefore, our team is also starting from our own position to explore how to bring more value to consumers. So we will continue to develop our own direction For us, we believe that serving consumers better is the key to creating long-term value. And we will continue to provide consumers with

more savings, more fun shopping experience. Therefore, we start from our own unique value propositions. And our team and I are exploring how to provide more value to consumers. And toward this end, we will continue to focus on R&D so that we can better understand the new needs and preferences of consumers, improve their shopping experience. And in this way, we can increase consumer satisfaction.

We are fully aware that there are many areas that need to be improved. Therefore, we will further increase our investment, especially in the agricultural and manufacturing sectors. By improving the efficiency of supply chains, At the same time, we are fully aware that we still have a lot to improve.

So as a result, we will further step up investments, especially in the areas of agriculture and manufacturing sectors, as well as improve supply chain efficiency so that we can create more values for consumers and deepen our more savings, more found propositions. So this is my view on industry competition. As for your question on sales and marketing expenses, I will leave it to Jane to answer your question. Thank you.

Hi, Kenneth. This is Jane. Let me take the question on sales and marketing expenses. Well, during the quarter, we saw consumption recovery trends continue. And given this background, we offered various types of promotions and subsidies to support consumption, as I just mentioned in the remarks. And these offers are reflected in the financial number, and you can see that our sales and marketing expenses in Q4 increased. Actually, we always carefully evaluate the ROI for every investment for all of our projects. We hope to allocate resources to places that can generate long-term, high-quality development. When we see good opportunities that can create value, we invest firmly. Thank you.

Hi, operator. We can go to the next analyst on the line.

Thank you. Your next question comes from Ellie Jang with Macquarie. Please ask your question.

Thank you, management, for taking my questions. I have two regarding our overseas product, Timu. We saw that you're now introducing Timu to Canada and Australia, although we saw exciting commercials being put out on Super Bowl. Can management share with us some latest developments and operational updates? How would Timu differentiate from the more well-established players in the current market. The second question is on the relative impact on the fourth quarter financials. How did T-MOODS revenue being booked? Any operating metrics that management could share regarding the estimated loss levels, order size, or unit economics? Do we have any GMB or growth target for T-MOODS going forward? Thank you.

Hi, Alec. Hello, Alec. Hello, Alec.

Let me answer the question about globalization and the development direction of the strategic aspect. In the TEMO business, we hope to create our own unique value. For example, through our years of experience in the supply chain, Hi, Eli. So let me take your question. Our global business. So for this initiative, we aspire to create our own unique value.

For example, using our supply chain know-how that we have accumulated over the years, we can offer consumers a curated selection of quality goods at attractive prices. And also, through evolving our product features, we hope to improve consumers' shopping experience.

We launched TEAM in September last year. It's been about half a year now. The business is still in its early stages. Compared to focusing on new competitors, we will pay more attention to our own development and delivery. We will see that there are many different places in the global market. We have a lot of experience to accumulate.

And since we launched this platform in September of last year, it has only been about half a year. And instead of focusing too much on competitors right now, we actually pay more attention to our own development and product iteration. We see that different markets in different regions, they have many differences, and we still have a lot to learn and a lot to improve. So we will remain patient, iterate constantly, and create strive to create a long-term value. In addition, we also appreciate the support coming from consumers and merchants who have chosen our platform at this early stage of its development. Their support motivates us to do this business well. And they have also given us many valuable advices to improve our services. As for the second part of the question, the financial booking, revenue booking and financial impact of our business, I will hand it over to Jane to further discuss.

Okay. Allow me to address the questions on revenue booking and financial impact of our global business. Well, it just started out roughly half a year ago. And given its early stage nature, the financial impact from this business in Q4 is relatively small. And in terms of revenue booking, this business recorded as a 3P model. We are entering new markets, so we need to understand customer demand better and experiment how to make their demand effectively. We are not driven by financial metrics. Instead, the most essential thing for us right now is to build our own unique value over the long run. Over time, financial metrics are just a reflection of the value we can generate. And in terms of future investment and financial impact, as always, we will continue to carefully evaluate different opportunities, stick to our investment discipline, and keep up with our high RI standard. Thank you.

Okay. Hi, operator. I think we do have time to take two questions from one more analyst.

Thank you. Your next question comes from Yang Bai with CICC. Please ask your question.

Hi. Thank you for taking my question. My first question, can management share with us some updates on your total grocery business? We understand that online grocery business is slowing down. Are you still expanding this business? or do you focus more on efficiency and cost control right now? And my second question is about the profitability. We noticed that your profitability margin decreased from the last two quarters. Given Q4 is usually a strong quarter in terms of profits. Does that mean that you have shifted focus more to growth And what opportunities are you spending extra? Let me translate it. My first question is about the situation of bulk purchasing. We have recently noticed that the increase in the industry has been reversed. How should we understand the future strategy of bulk purchasing? Is it still to put the expansion in a relatively short position, or will it focus more on a state of cost-effectiveness? The second question is about the interest rate. Hello, everyone. First, I would like to talk about Dodo Grocery.

Actually, we, Pinduoduo, started from agricultural products. Agriculture is one of our long-term strategies. Through the business of Pinduoduo, we use technology to improve the efficiency of agricultural products, and to effectively match the local supply and demand. Pinduoduo Buying Vegetables plays an agricultural feature in our process of creating unique values.

Hi, Baiyang. So let me take your question on our dodo grocery business. Pinduoduo started by selling agricultural produce, and agriculture is one of our key long-term strategies. Through our dodo grocery business, we leverage technology to improve agricultural distribution efficiency and match local supply and demand effectively. This business plays a very critical role of leveraging our unique positioning in agriculture and creating our own unique value. 那么在工作买家这项业务中呢,我们看到了

And in our dodo grocery business, we have seen the value that we can generate

by improving supply chain efficiency in areas such as offering more choices of local produce, increasing fulfillment efficiency, and improving user experience. At the same time, the dodo grocery business also creates positive social values.

Let me give you an example. In the past four seasons, Duoduo Buying Vegetables launched a warm-up campaign to help the agricultural products that are in demand and in demand, and to connect with consumers. In fact, it is our各省区团队深入到农产区,田间地头去采用农产品,高效地将本地的农产品匹配给本地的消费者,

Let me give you a recent example here that in the fourth quarter, we launched a dedicated campaign to help sell through seasonal unsold agricultural products to consumers directly. And the local teams of Dodo Grocery went upstream into the agricultural production regions. to source agricultural produce directly and match these products efficiently with local demands. We are still in the early stage in our agriculture investments, and we see a lot of areas that can be further improved with technology. So for Dodo Grocery, we are still far away from the best level of services, and there are still a lot to improve. As a result, we will remain down to earth and continue to make long-term investments in order to further create values for consumers. Thank you.

This is Jane. Let me take your question on the profitability. And while we are in our development stage, we still see many areas to improve and create more value for users. We will continue to step up and invest in key areas to strengthen our R&D capabilities, support agriculture and manufacturing. through technology and improve our service offerings to users. And profitability is not our current priority. With that said, we always practice financial prudence for every investment. We carefully evaluate the ROI and ask ourselves if it can create long-term high quality balance for us. When we seek good opportunities, we invest firmly. Thank you.

Okay. Thank you, everybody, for joining us on the conference call today. That concludes the call, and have a great day.

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