Pinduoduo Inc. (PDD) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day and thank you for standing by. Welcome to the Pinduoduo First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to first speaker today Mr. Jason Zhu . Please take over. Unidentified Company Representative: Thank you operator. Hello everyone and thank you for joining us today. Pinduoduo earnings release was distributed earlier and is available on the IR website at investor.pinduoduo.com as well as through Globenewswire services. So on today's call our Chairman and Chief Executive Officer, Chen Lei will make some general remarks on our performance for the past quarter and our strategic focus going forward. Our VP of Strategy, David Liu will then elaborate further on our specific strategic initiatives. Our VP of Finance, Tony Ma will then take us through our financial results for the first quarter ended March 31st, 2021. Chen Lei: Thank you, Jason. Hello everyone and thank you for joining our first quarter 2021 results announcement. It has been over a year since the initial break of COVID-19. Since then we have carefully moved towards normalcy, while respecting the necessary precautions and occasional measures to tamp down the flare up of the coronavirus. After mostly staying in place over Lunar New Year holidays in February, Chinese consumers finally took a well-deserved break over the May day holidays, shopping and traveling along the country. With summer approaching, we hope that the global pandemic situation will continue to improve as more people receive their vaccinations. I would like to thank the merchants and logistics partners who worked closely with us to serve our users throughout the period. Together we created another industry first by staying open and serving users over the Lunar New Year. We provided users with cheer by ensuring that they could get what they required over the holiday and easily send presents and care packages to their love ones back home with just a few clicks on our app. According to the State Post Bureau, the total parcel volume over the period from 11th to 17th February stood at 660 billion, growing by 260% over the same period last year. We are proud to have contributed towards keeping our users' spirit, while they kept themselves their loved ones and their communities safe. Our overarching commitment to serving our users has helped us put yet another strong quarter. Our annual active buyers increased by 35.4 million from the December quarter to reach 823.8 million for the 12 months ending on the 31st March, 2021. We've continued to build trust and mind share with our users. User activity on our platform continued to increase. Over the last -- over the quarter, our MAU increased to 724.6 billion, representing 88% of our annual active buyers. Total revenues excluding revenues from merchandise sales was RMB17 billion, a year-on-year increase of 161%. Our growing scale gives us both greater capacity as well as responsibility to live our missions to benefit all. David Liu: Thank you, Lei. Hello, everyone. So as per Lei, our overarching commitment is serving our users. We're laser-focused on understanding our users constantly changing needs and working with our partners and merchants to fulfill them in a way that is respectful of the community and the environment. With our aim of becoming the world's largest agriculture and grocery platform, we want to help create food systems that are greener, healthier, more inclusive and more resilient. We developed and assessed all our initiatives against those objectives. Let me elaborate on how this has worked in three key fronts. First, we are gratified by our positive early foray into agriculture-focused logistics infrastructure system. Duo Duo Grocery, our next-day self-pickup grocery service is creating many social benefits. It intelligently connects our users directly to local farmers and increases the variety of fresh produce they can purchase online. It lowers cost by reducing spoilage from storage and transport and improves carbon emission and eliminates that from the last mile. Farmers sell more as well. Along the way, we created new economic opportunities within the communities by tapping on existing shops to serve as collection points and through third-party service providers and warehouses that we have built to support it. We're happy that the growth momentum for Duo Duo Grocery remains very strong. We continue to see an increasing number of farmers and agri merchants, as well as pickup points joining our platform. This will only amplify the social benefits that Duo Duo Grocery can bring. We have also applied for patents for our proprietary cold chain logistics network system that is aimed at minimizing the loss and quality degradation of agriculture products and other perishable products in transportation. The system applies novel technologies that can plan, routes based on information of collection and distribution points, availability of cold chain infrastructure and transit points among others. It is still early days but we are optimistic that the solutions we develop and apply will be very – bring very positive impact going forward. Second, we will introduce our consumer-to-manufacturer or C2M revolution to agriculture. We already enjoy a very good partnership with farmers and agri merchants. More than 12 million farmers sell through our platform. This relationship has deepened with initiatives such as Help the Farmers live-stream session last year when COVID-19 struck. Tony Ma: Thank you, David. Now let me take you through our financial results for the first quarter 2021. We continue to see solid user growth in Q1 and are pleased with the progress we have made in building trust and winning mind share with our users. Our annual active buyers for the last 12 months ending March 31, 2021 increased to RMB 823.8 million up RMB 35.4 million from the prior quarter. Our MAU in Q1 reached RMB 724.6 million from the prior quarter. This is up 49% compared to the same quarter in 2020. Our MAU as a percentage of our annual active buyers was 88% in the quarter, our highest engagement record achieved for any first quarter. According to National Bureau of Statistics during the Q1, total retail sales in China grew 34% and online sales of physical goods increased 24% from the same quarter in 2020. The number of express delivery parcels in Q1 grew 75%. A significant growth rate in both online sales and -- of physical goods and the parcel shipment volume reflected a strong recovery in e-commerce activities from the low base in Q1 2020 due to the business interruption caused by the COVID-19 outbreak. We also saw less pronounced Chinese New Year holiday related seasonality in Q1 this year, as more merchants stayed open in response to people staying put. We collaborated with merchants and logistics service providers to ensure uninterrupted order fulfillment and delivery during the quarter. In terms of P&L, our total revenues in the quarter ending March 31, 2021 were RMB 22.2 billion, up 239% from RMB 6.5 billion in the same quarter last year. Excluding revenues from our 1P trials, our total revenues grew by 161% to RMB 17 billion in Q1 2021. The main driver of this growth was our online marketing services. Online marketing services revenue was RMB 14.1 billion this quarter up 157% compared to the same period last year due primarily to continued increase in merchant activities. We continue to offer better advertising products and analytic tools to our merchants, educate them on how to best leverage these features and improve their services to their targeted users, and thereby help them meet and exceed their ROI targets. As a result, we have seen merchants spending more and exploring new ways to engage with users, and our users browsing more and discovering more items of interest. We are pleased to see the growing endorsement by our merchants and our users. Our transaction service revenues this quarter amounted to RMB 2.9 billion, which is up 180% compared with the same period last year. The increase in our transaction service revenues was due to two primary factors: number one, the increase in our GMV in Q1; and number two, the service revenues that we recognized in connection with Duo Duo Grocery for which we provide fulfillment and other related services. We also recorded RMB 5.1 billion in merchandise sales from our 1P trials in Q1 2021 as compared to RMB 5.4 billion in the preceding quarter. This 1P trial is meant to temporarily meet the demand of our users on products which our merchants cannot fulfill. Therefore, this number may fluctuate from quarter-to-quarter. Our strategy is unchanged and this will remain a very small part of the business. Now moving on to costs. Our total cost of revenues increased from RMB1.8 billion in Q1 2020 to RMB10.7 billion this quarter. The increase was mainly due to the costs and expenses attributable to 1P merchandise sales, higher cost of payment processing fees, cloud service fees and delivery storage fees. Total operating expenses this quarter were RMB15.6 billion as compared to RMB9.1 billion in the same quarter of 2020. Our total non-GAAP basis operating expenses were RMB14.6 billion as compared to RMB8.3 billion in the same quarter a year ago. Our non-GAAP sales and marketing expenses this quarter increased 80% to RMB12.7 billion from RMB7.1 billion in the same quarter of 2020. This was mainly due to an increase in online and off-line advertisement and promotions. As we continue to invest in user engagement and mind share, in the first quarter, we had an incentive program for merchants who could stay open and continue dispatching orders during the spring festival. We also recently marked the second anniversary of our hugely popular RMB10 billion program, which has steadily expanded over time to cover all categories including agriculture product and fresh produce. In line with our platform's vision of helping to accelerate the transformation of the agriculture sector, we will continue to make it free for agriculture products and fresh produce to be featured in this program. At the same time, we will continue to refine and improve the quality of our RMB10 billion program by raising the standard required for merchants to participate. Our 824 million users trust us to deliver great value and quality to them, and we will constantly seek to improve to uphold their trust in us. On a non-GAAP basis, our sales and marketing expenses, as a percentage of our revenue, excluding 1P trials this quarter was 75%, as compared to 103% and 108% for the same quarter in 2019 and in 2020. A reduction in sales and marketing expenses as a percentage of revenue is a reflection of our economic of scale and our consistent efforts of sticking to a high standard of ROI benchmarks. On a non-GAAP basis our general and administrative expenses were RMB161 million, an increase of 36% from RMB118 million in the same quarter of 2020, primarily due to an increase in headcount. Our non-GAAP research and development expenses were RMB1.7 billion, an increase of 55% from RMB1.1 billion in the same quarter of 2020. The increase was primarily due to an increase in headcount and the recruitment of more experienced R&D personnel as well as increase in R&D-related cloud services expenses. On a non-GAAP basis, our R&D expenses, as a percentage of our revenues, excluding 1P contribution was 10%, as compared to 17% for the same quarter last year. To sum up, operating loss for the quarter was RMB4.1 billion on a GAAP basis compared with operating loss of RMB4.4 billion in the same quarter of 2020. Non-GAAP operating loss was RMB3.2 billion compared with operating loss of RMB3.6 billion in the same quarter of 2020. Our non-GAAP operating loss as a percentage of our revenue improved from minus 55% in Q1 2020 to minus 14% in Q1 2021. Net loss attributable to ordinary shareholders was RMB2.9 billion as compared to net loss of RMB4.1 billion in the same quarter last year. Basic and diluted net loss per ADS, were RMB2.33 compared with RMB3.54 in the same quarter of 2020. Non-GAAP net loss attributable to ordinary shareholders was RMB1.9 billion, compared with RMB3.2 billion in the same quarter last year. Non-GAAP basic and diluted net loss per ADS, were RMB1.52 compared with RMB2.73 in the same quarter of 2020. That completes the profit and loss payment for the first quarter. Our net cash flow used in operating activities was RMB3.7 billion compared with outflow of RMB567 million in the same quarter of 2020, primarily due to an increase in restricted cash outflow due to seasonality offset by an increase in online marketing services revenues. As of March 31, 2021, the company had RMB 83.4 billion in cash, cash equivalents and short-term investments. As of the end of April, 2021, US$756.4 million of our 0% convertible bonds due in 2024 have been converted into equity. This concludes my prepared remarks. Operator, we are ready for questions. Thank you. Operator: Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. We have the first question coming from the line of Thomas Chong from Jefferies. Please go ahead. Thomas Chong: Hi. Good evening. Thanks management for taking my questions. I have two questions. The first question is about monetization. Can you comment about the feedback on our advertising products? And how we should think about the monetization rate going forward? And my second question is about the 1P business. You said that the 1P GMV contribution to our overall GMV is around like 1%. And on the other hand, can you also comment about our non-GAAP net margin without the 1P business? And also, how about the non-GAAP net margin without 1P? And those are my tries. Thank you. Tony Ma: Okay. That sounds a little bit more than two questions. But let me try to address one-by-one. Thank you again for the questions. For the first question, I want to emphasize here our strategy has always been serving our users well. That being said, we believe that either the growth or the monetization are a natural result of that. And then we also believe there's still a lot of room to grow from where we are now. Today, we see very strong growth performance in Q1 because of the merchants' ROI actually is reflected in our revenue. As you can see our revenue in this quarter continued to grow, which is a reflection of our merchants' confidence with the platform and with the confidence in the ROI they achieved. What the platform is providing is better design of various tools to help them to understand their target user better and so that they can leverage as well as the Duo Duo Academy to gain more insights on how the technology analysis can help them to enhance their ROI. I believe as long as this target can be achieved, naturally the growth and monetization will follow. On your second question on the 1P business, as I mentioned in the prepared remarks, our 1P business is a temporarily measurement to offer products that our consumer want, but for which our vendor cannot offer at that time. So this is another strategic priority for us. The GMV contribution of the 1P business is immaterial compared to the overall GMV of the platform. And I guess that's your third question on the margin profile, the 1P business contribution to this does have an impact, but stripping that out our total platform margin profile will stay more or less the same range as previous quarters. Thomas Chong: Got it. Thank you. Unidentified Company Representative: Operator, next question please? Operator: The next question comes from the line of Natalie Wu from Haitong International. Please go ahead. Natalie Wu: Hi. Good evening. Thanks for taking my question. Congratulations on a very solid quarter. Just curious how do you see the update of the competitive landscape change in the coming year? Given on the one hand, we've seen several antitrust-related regulatory departments lately. And on the other hand, the space seems to be getting more and more crowded with the entry of cross-border players like social content platforms and local live service providers. Just wondering does any of that affect your internal GMV target for this year? Thank you. Chen Lei: David Liu: Thank you. Let me go ahead and address this question in Chinese and David will translate into English this evening. Chen Lei: David Liu: So, first your question regarding competition. In China, the Internet space has always been very competitive. And it is also true that e-commerce in China is very advanced in terms of development ahead of the rest of the world. But many people underestimate the retail opportunity that comes about and the broad market potential that exists as the experiences improve. Chen Lei: David Liu: So taking agriculture as an example, the digitalization of the industry remains low. And opportunities are abundant for those like, PDD that can help drive efficiency and other fundamental changes. Chen Lei: David Liu: Looking back to 2015, when we entered this business, we foresaw that mobile Internet will lead to some very fundamental changes to consumer behaviors, making it more real-time, more spontaneous and making the access more ubiquitous. And we have decided to focus on, the development of an entirely mobile product. And that meant, we also had to make some very fundamental changes to the e-commerce product available at the time. Chen Lei: David Liu: Consumers' behaviors can evolve quickly. And we believe that, people always want to more -- have more choices. So to constantly serve our users better, we need to be aware of these constant changes in consumer trends and to invest in technology and business model innovation. Chen Lei: David Liu: Today being the largest agriculture platform in China, Pinduoduo is well positioned to play another leading role in driving some change. The team is very excited about the value we can bring to the agriculture industry. Chen Lei: David Liu: So going back to your question around competition, I believe that, each company is unique. And ultimately, it boils down to the unique value proposition that each player, represents to the consumers. For us, we have been focused on delivering value for many products with fun and interactive shopping experiences to our consumers, through our mobile-only platform from day one. User-centric is deeply rooted in our principles. And it's the first thing that we think of, when we need to make tough decisions. Chen Lei: David Liu: The market potential is huge. And we are still in the early days particularly early in a business like, Duo Duo Grocery. As the service standards, improves and the consumer experiences improve, we believe this new business model will be able to motivate more consumers. And further expand the market -- addressable market. Chen Lei: David Liu: At the same time, we think, healthy competition is a good thing, whether you are talking about, the 2B side of the business or the 2C side of the business, because as more platforms develop, the users can get better services. And that is really fundamentally why we entered this business in the first place. Operator? Thank you, Lei. Why don't we move on to the next question? Operator: The next question comes from Robin Zhu from Bernstein. Please go ahead. Robin Zhu: So I have two questions. One is on bringing brands onto the PDD platform and whether there's progress to be shared in Q1 some of the key bottlenecks and challenges that management might want to share. And then the second question is again on monetization rates in Q1 compared to the last few quarters and outlook how quickly they think this can increase? Thank you. David Liu: Sure, Robin. Thank you for your questions. Let me speak to the brand question that you raised and then I will pass it over to Tony to talk about your question on monetization. So first and foremost, I would say that we are making steady progress with brands because we believe our user-centric mentality is very much aligned with how brand efforts in turn are looking for new channels to reach and serve their prospective customers. So as a user scale and engagement growth, we're seeing an increasing number of brands approaching us to collaborate. Since the beginning of the year, you have seen a number of notable new additions to our platform entering into fairly deep strategic collaborations. This includes brand names on the international side Adidas, Johnson & Johnson and Unilever. And we have also entered into strategic collaborations with the likes of Midea and Ecovacs. So you asked about challenges in terms of working with brands. I think it's really, really helping them to understand the incremental value that PDD as a platform can bring to brands and how we can work with them to better target and address new users and identify users in a very cost-efficient way and improve their own experiences and their own reach. As an example of that I will point to our efforts with Midea on the C2M side. We're working with them to deliver more value for money quality products to consumers on our platform by developing a co-customized line of washing machines. So these are the type of the differentiation and efforts of strategic collaborations that we can invest and we're investing in brand partners who are working with us to grow their businesses on PDD. Let me then actually ask Tony to make some more comments on your question on monetization. Tony Ma: Yes, again, coming back to our vision and our key strategic priority for Pinduoduo is always focusing on the users, how to serve our users better. And as you know we have 824 million users. And in the past few quarters, basically we are having incremental new users coming to the platform like around 15 million per quarter. And last quarter it's around 35 million close to 40 million. And these new users they need time to build their mind share and trust with the platform. And what we are focusing now is really helping our merchants by providing them tools and help them to understand better to reach their target first. Therefore, our users can benefit from there -- the service provided by our platform and the merchant. Then we can have this fun and interactive experience with us and stay longer time with us. And monetization will be a natural result coming out of this target being achieved. Robin Zhu: Got it. Thank you. David Liu: Thank you. Operator, next question? Operator: Thank you. The next question comes from Jialong Shi from Nomura. Please go ahead. Jialong Shi: Good evening, management. Thanks for taking my questions. Congratulations on a very solid quarter. My question is can you provide any colors to help us to understand the size of your community grocery business and its associated loss in 1Q? And earlier this year itself, we noticed on media several local governments issued warning to community grocery platforms due to the alleged excessive subsidies provided by platform for products sold. I just wonder, after the intervention of the governments, have you guys seen any sort of de-escalation in the competition? Thank you. Tony Ma: Okay. Let me take the first question. Let me just repeat, the question you raised is on the overall performance of Duo Duo Grocery business financially, I guess. Jialong Shi: Yes. Tony Ma: So, first of all, I think, we started Duo Duo Grocery business around a little bit more than two quarters. This is still a very young business. And as previously mentioned by Lei and David in their remarks, Duo Duo Grocery is one of our strategic priorities, a very, very important initiative for us to help to review the agriculture sector, help to bring additional values to our users. So to me this is a long journey, a journey full of challenge and excitement. So up to now, I'd say that it's too early to tell the business model. And there's still a lot of room to improve operationally. So far we have been quite disciplined in our investment in Duo Duo Grocery. And we evaluate every decision based against a set of internal ROI targets. We are quite pleased with the progress we have made to date. We will continue to evaluate the necessary investment on a case-by-case basis. One thing we need to highlight here, we will continue to invest in this area. Some of the areas in the remarks Lei mentioned, things like logistic, infrastructure, technology and also technologies around how to better aggregate the demand in each of the location. All these type of investment we will invest heavily. David Liu: Jialong, let me just add up to Tony's comments and around your question around competition. I would say that, look, as we have conceived Duo Duo Grocery as an extension of our platform business, our priorities are really focused around how to give our users a more holistic and integrated experiences, whether they decide that fulfillment and the convenience through Duo Duo Grocery makes more sense, or they decide to continue to shop, or make purchases for some items on the overall platform. So whilst the competition in the space continues to be intense I think it's more important that we focus on serving our users well and that's certainly what preoccupies us as opposed to looking at what other people are doing. Jialong Shi: Thank you. David Liu: Next question, please. Operator: Thank you. The next question comes from Alicia Yap from Citigroup. Please go ahead. Alicia Yap: Good evening. Thanks for taking my questions. Congratulations on the strong set of results. I have two questions. The first one is, when we look at the transaction commission revenue line, is there any change of the payment rate, or is that fair to assume all the incremental improvement in the revenue was mainly due to the fees that you're able to charge for the Duo Duo Grocery? And then second question is, how many of these new users that you were able to acquire or coming to our platform is just purely purchasing the Duo Duo Grocery produce only, versus the original Duo Duo platform? Any color you can share would be great. Thank you. Tony Ma: Okay. Thank you for the question. Let me go first on the transaction service revenue. Our transaction service revenue increased nearly 180% versus last year, the same period. The rate itself doesn't change. We didn't change the rate. And there's two factors that contribute to this increase. Number one is in line with the GMV growth in Q1. Number two is the revenue associated with Duo Duo Grocery. And as for your second question, I will let David comment. David Liu: Alicia, we have not disclosed, obviously, the breakdown of the users between Duo Duo Grocery versus our e-commerce platform, because that's really not how we -- the management thinks about the business. Well, with the introduction of Duo Duo Grocery, we saw improvement in engagement and purchase frequency among our users. This is because the users' needs in fresh produce and groceries. They now have multiple channels to satisfy those needs, whether it is through the Duo Duo Grocery channels or continuing through the main app. From a user's perspective, we are looking at this really as satisfying their needs across different product categories and across different types of fulfillments. So this really is meant to be one integrated app. The orders mostly are generated to the Duo Duo Grocery channel through our app. So we don't focus on what percentage of our annual active buyer base uses Duo Duo Grocery only, any more than we focus on how they are specific for any particular product categories. Alicia Yap: Okay. Great. Thank you. Operator: Thank you. The next question comes from Jerry Liu from UBS. Please go ahead. Jerry Liu: Hi, management. Thank you for letting me ask the question. Two parts. So the first is following up on the service fee. Could we just describe the accounting a little bit -- in a little bit more detail especially if we're talking typical say RMB 10 or RMB 100 of GMV from Duo Duo Maicai then how does that flow through in terms of the service fees? Is that just a markup for the platform? And then secondarily, I just want to ask about the logistics investments. We saw the additional commentary in a separate press release. Where could any of these investments show up this year? Is it still pretty small or could we see R&D CapEx or any other forms of investments? Thank you. Tony Ma: Okay. I would go with the first question. Actually I don't get it very clear what your question is, but like I said, the transaction service revenue compose of the transaction service fees we are charging on the main platform and also including a part coming from the Duo Duo Grocery. But the portion of the Duo Duo Grocery kind of transaction service revenue as a percentage of the total numbers are actually small, and I'm not quite sure I get what your question on the accounting treatment on this probably you can rephrase your question a little bit. But probably David you can comment on the second one first. David Liu: Yes. So Jerry, maybe if I can just jump in here a little bit. So Duo Duo Grocery, as you know is a really -- in providing the Duo Duo Grocery service, what we as a platform are offering incrementally is fulfillment and other transaction-related services. And for this, we do charge the merchants participating on our platform a service fee. So that fee is included or is being categorized as part of the transaction services revenue. So there isn't actually anything complicated from an accounting perspective per se. And the costs associated with that is booked under cost of goods -- as part of the cost of goods sold. So coming back to your question around logistics and investments over the long run, look, I mean, we are looking at logistics as -- really as a result of how consumer purchasing behaviors and fulfillment requirements have evolved over time right? If you take a step back and look back to the rise of e-commerce in China, it's going to be -- it was quite hard for anybody to imagine China today will have an infrastructure that can serve or service -- handle 300 million daily parcels efficiently. While the current system what we have today can cope with the scale, we do think that next wave of efficiency gains is going to come from a more flexible system, right? So more technology, more efficiency driven that can help reduce the need, for example, multiple shipment needs or how to leverage the current infrastructure such that we can deliver greener logistics experience. So as we look at how the consumer experiences are changing and the new fulfillment methods and better technologies are becoming important, and this is an area where we are innovating. So from an investment perspective, I think for the time being, you will see us reflecting this mostly in R&D. You'll also see us looking at our Duo Duo Grocery infrastructure that we have today, and looking at where we need to bulk up in terms of our ability to better provide for user experience. One example, I can give you is that we have rented additional sorting facilities for fresh produce as a way to improve the service experiences that we can offer to our users. So that will be -- and that would result in higher cost of goods sold from a fulfillment perspective, but more specifically though we are looking ahead. We're looking at the long-term where -- how we can invest, and we are looking at technology. So we've been investing as Lei mentioned, working on algorithms, data analytics and on cold chain logistics development and optimization. So we'll continue to focus on innovation in the space to better serve our consumers. Jerry Liu: Okay. Thank you guys. David Liu: Operator, why don't we take one last question in the interest of time? Operator: Certainly, sir. The last question comes from Piyush Mubayi from Goldman Sachs. Please go ahead. Piyush Mubayi: Thank you for taking my question. If I look at DDG and look at the scope of the business, could you take us through what the footprint is now? Could you take us through and give us a feel to what the investment line has been? If I look at the investment line that's been bobbing around quite a bit and it's hard to discern how much of that is going into PP&E, how much is going into other areas of investment, potentially because it's one line. So if you could help us better understand where we are. And if you could also dwell on the overall impact of DDG on the business and in particular looking at sales and marketing spend in the recent quarter, which as a percentage of revenue excluding 1P, seems to have risen after two or three quarters of holding steady. Those are my three questions. Thank you. David Liu: Piyush, so thank you for the questions. So I think your question generally revolves around Duo Duo Grocery. So I will say this, as I mentioned on the last quarterly call, our service is now available nationwide across all the 300-plus major cities in China. So from a footprint expansion perspective, we have a footprint that we find sufficient and necessary. And we are adding to that gradually as the infrastructure on a local basis become more mature and can provide for the type of consumer experiences that we want. So that's – and your question then around investment, I believe you are referring to the investing cash flow line. And there maybe Tony can comment, if I – correct me if I'm wrong, but most of the investing you see in there is actually more from a cash management investment perspective as opposed to investment in hard capital assets. There are some of that infrastructure required in association to Duo Duo Grocery but most of the investment to date has been really in build-out of the operations, which is reflected in the cost of goods sold as opposed to in capital assets and in PP&Es. And then I think Piyush, you asked – the last question you asked was around sales and marketing expenses. I would encourage you to look at this really over a longer-term basis, right? So obviously, the number in the first quarter, first quarter being typically the weaker seasonality quarter of course this year because of the occasion in China, the seasonality is less pronounced. But if you look at this quarter versus the same quarter last year, the year before, sales and marketing intensity as a percentage of revenue excluding the 1P is coming down, right? So I do think you need to take that synergy into account. We are seeing the efficiency from a sales and marketing perspective for us to continue to improve. And this is being done so in a way that's also inclusive of the Duo Duo Grocery as we think about these businesses quite holistically. I realized, I didn't specifically comment on your question on Duo Duo Grocery's impact on our business and this may be a good way to just kind of touch upon that. The Duo Duo Grocery business as we had alluded to earlier on this call, does allow us to extend the services that we can provide to each consumer on our platform allowing us to better fulfill their grocery needs that requires a 24-hour type of fulfillment cycle. What it also does mean is that the users who are participating in Duo Duo Grocery, does have a higher frequency of purchase and higher level engagement activities on our platform. And that's synergistic with the overall activities on the platform and that does have some benefits when it comes to sales and marketing spend over the long run. Tony Ma: I have just one point to add David here. I think speak of the investment on Duo Duo Grocery, it's worth to mention as well investment on people, not just embedded in the lines under the cost of goods or PP&E. We have dedicated Pinduoduo teams deployed at each location we are operating. And also our employees work closely with third-party contractors to ensure the Duo Duo Grocery service can be implemented in manners that meet our quality standards. Since the start of Duo Duo Grocery, we have catalyzed the creation of millions of jobs up and down the entire supply chain. David Liu: Operator, in the interest of time, we will conclude the call here. Thank you everyone for taking the time to join us this evening. If you have any follow-up questions please feel free to reach out to our IR team at investor@pinduoduo.com. Thank you very much. Tony Ma: Thank you. Operator: Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.
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Morgan Stanley analysts maintained their Overweight rating on Pinduoduo (NASDAQ:PDD) with a $181 price target, ahead of Q4/23 results due on March 20. As a consequence, the company’s shares gained more than 4% intra-day today.

The focus is on Pinduoduo's online marketing services (OMS) revenue, expected to grow 47% year-over-year, suggesting robust performance amid weak consumer spending.

Despite potential gains from the overseas platform, Temu, recent negative news and legislative scrutiny in the U.S. could pose challenges. The analysts presented three scenarios for Q4 outcomes and their stock implications: Scenario 1 (base case) expects 45-50% OMS growth with a 0-5% stock price increase; Scenario 2 is more optimistic with over 50% growth, potentially lifting the stock 5-15%; Scenario 3, less than 45% growth, could lead to a >10% price drop.

PDD Stock Jumps 15% on Q3 Beat

Shares of PDD Holdings (NASDAQ:PDD), formerly known as Pinduoduo, saw a significant increase of nearly 15% pre-market today following the announcement of their third-quarter sales, which exceeded expectations.

For the quarter ending September 30, PDD reported a revenue of 68.84 billion yuan (approximately $9.44 billion), surpassing the Street estimate of 54.87 billion yuan. The company's adjusted earnings per American depositary receipt were 11.61 yuan (around $1.55), also exceeding the forecasted 8.81 yuan.

This financial success is partly attributed to the rising popularity of PDD's Temu e-commerce application, launched in 2022. Temu, known for offering significantly discounted products shipped directly from China, has gained substantial traction.

Pinduoduo Stock Jumps 17% on Strong Q2 Earnings

Pinduoduo (NASDAQ:PDD) shares jumped more than 17% intra-day today following the company's remarkable performance in the second quarter, which greatly exceeded expectations.

During the quarter, Pinduoduo reported an EPS of 10.47 yuan per share, surpassing the Street projection by 3.17 yuan. Furthermore, the company's revenue for the quarter totaled 52.28 billion yuan, significantly outpacing the Street estimate of 43.36 billion yuan.

PDD's earnings from online marketing services and other sources reached 37.93 billion yuan, surpassing the expected 32.07 billion yuan. Additionally, the revenue generated from transaction services amounted to 14.35 billion yuan, exceeding the consensus forecast of 11.14 billion yuan.

Pinduoduo Stock Jumps 17% on Strong Q2 Earnings

Pinduoduo (NASDAQ:PDD) shares jumped more than 17% intra-day today following the company's remarkable performance in the second quarter, which greatly exceeded expectations.

During the quarter, Pinduoduo reported an EPS of 10.47 yuan per share, surpassing the Street projection by 3.17 yuan. Furthermore, the company's revenue for the quarter totaled 52.28 billion yuan, significantly outpacing the Street estimate of 43.36 billion yuan.

PDD's earnings from online marketing services and other sources reached 37.93 billion yuan, surpassing the expected 32.07 billion yuan. Additionally, the revenue generated from transaction services amounted to 14.35 billion yuan, exceeding the consensus forecast of 11.14 billion yuan.