PDD conference call: Prepare to sacrifice short-term profits, no dividends or buybacks in the next few years

Pinduoduo announced its financial report on Monday, showing an 86% year-on-year growth in revenue in the second quarter, bringing it closer to breaking the one trillion mark, with net profit increasing by 140%. Among the two main revenue pillars, commission income growth has slowed down but still achieved over 230% high growth, while advertising revenue growth slowed to 29% year-on-year.

However, during the subsequent earnings conference call, Pinduoduo's founder and CEO, Chen Lei, stated:

The profit growth of the company in the past few quarters is the result of the asynchronous short-term investment cycle and financial reporting cycle, and should not be seen as a long-term trend.

Given the intense competition the company faces in multiple businesses and the fact that it is still in the investment phase overall, Chen Lei stated that Pinduoduo will not engage in share buybacks or dividends in the next few years.

Furthermore, in order to support the long-term healthy development of the platform and the construction of high-quality supply, Chen Lei pointed out that Pinduoduo is prepared to sacrifice short-term profits in the coming period, and the management has reached a consensus on this.

The management also stated that due to the fierce competition in the e-commerce industry, the company's revenue growth may slow down, and there may be fluctuations and rebounds in profits in the next few quarters, but the trend of declining long-term profits is inevitable.

Allocate 10 billion yuan to support high-quality merchants and improve platform ecosystem

In terms of supply, Pinduoduo stated that it will invest a large amount of resources to support high-quality merchants willing to innovate and improve quality, significantly reducing the transaction costs for these merchants, with an initial target of 10 billion yuan in the first year.

While profits may fluctuate and rebound in the next few quarters, the trend of declining long-term profits is inevitable. This measure aims to encourage and support those merchants who operate seriously and innovate actively, promoting their higher quality development.

Pinduoduo's Executive Director and Co-CEO, Zhao Jiazhen, stated that although the company expects profits to fluctuate in the next few quarters, the commitment of the management to building a healthy and sustainable platform ecosystem will not change. He added:

We will continue to make long-term and patient investments to achieve the long-term healthy development of the platform ecosystem.

To improve the platform ecosystem, Pinduoduo stated that it will take dual measures by supporting high-quality merchants on one hand and persistently regulating low-quality merchants on the other, to continuously build a healthy and sustainable ecosystem.

Zhao Jiazhen said:

On this journey, we will inevitably pay the price of growth, but for long-term health, the management team will unite to build our platform ecosystem well.

Increasingly Severe Challenges in Global Business

Although the global business has expanded to over 70 overseas markets, Pinduoduo's management remains cautious about the future development of this business.

Chen Lei stated that Pinduoduo's global business is still in the early exploration stage and may face many changes and challenges in the future, with non-commercial challenges becoming increasingly severe.

He pointed out that Pinduoduo is continuously exploring and learning, striving to promote the high-quality development of its global business. Pinduoduo will focus on enhancing its own supply chain capabilities, service capabilities, and compliance capabilities to cover global high-quality merchants and goods, improve supply chain efficiency, reduce merchant costs, and benefit global consumers and merchants Chen Lei believes that no matter how the market environment changes, consumers' demand for "more affordable" and "good service" on e-commerce platforms will not change. He stated:

PDD will continue to implement a high-quality development strategy, prepare for long-term investment, constantly improve internal strength, actively explore technological and model innovations, and embrace market competition and various challenges