Pinduoduo: Confident in performance, dividends not yet considered

The following is a summary of the PDD 2023 fourth quarter financial report conference call. For financial report analysis, please refer to " PDD: How Lonely Invincibility Is! "

1. Review of Core Financial Information:

2. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1. Research and Development Investment and Innovation: R&D expenses in 2023 reached 11 billion RMB, with a 19% increase in R&D expenses in the fourth quarter, reaching 2.9 billion RMB. PDD continues to optimize supply chain insights and technological capabilities to help manufacturers reduce costs and improve efficiency.

2. Agricultural Strategy: ① Support the Agricultural Cloud Plan and the "Powder Face Line Competition," strengthen the agricultural strategy, and promote the development of digital agriculture regions. ② Promote the development of specialty agricultural products, expand the market for agricultural products through measures such as "zero commission" and a 10 billion RMB plan.

3. Global Business Expansion: Since September 2022, PDD's global business (TEMU) has expanded to 50+ countries and regions.

4. Promotion of National Trend Brands and High-end Consumer Goods: During the Double 11 event, the growth of national trend brands and high-end consumer goods was promoted through limited-time sales channels and other promotional activities, while also providing imported products and supporting national trend brands to meet the demand for consumer upgrades.

5. Outlook: PDD plans to continue investing in three key areas of high-quality consumption, supply support, and platform ecosystem to promote consumption recovery, emphasize national trend brands and imported goods, enhance user shopping experience, and strengthen the positive feedback loop between consumers and merchants on the platform.

2.2. Q&A Analyst Discussion

Q: Can management briefly evaluate the execution of last year's strategy? Will there be significant changes in the strategic focus for 2024?

A: 2023 marked the start of our high-quality development strategy. After a year of hard work, we have achieved positive results in consumption, supply, and platform ecosystem, further confirming our commitment to high-quality development. As we expanded to multiple countries and regions, we encountered diverse market environments and consumer habits. We firmly believe that consumer demand for better prices and services is universal. Therefore, in the fourth quarter, we continued to invest in online platforms to meet consumer needs.

On the consumption side, we have received positive responses by customizing promotional activities to meet consumer demands. On the supply side, we continue to invest in high-quality products and dining merchants to provide more premium products. A healthy ecosystem is the foundation of our sustainable growth, and we will continue to strengthen platform governance to create a favorable environment. Looking ahead, we will deepen our strategy, enhance platform capabilities, and create greater value for consumers and societyQ: Briefly assess PDD's performance in the fourth quarter shopping festival? Are there any interesting trends for consumers or platforms? Can you explain the relationship between promotional seasons, seasonality, and fourth quarter performance?

A: During last year's Double 11 and Double 12 periods, we provided direct price discounts to consumers, reinforcing our "more savings" concept. For example, during last year's Double 11, we introduced direct price reductions for the first time in the billion subsidy plan, while expanding the range of brands and products in promotional activities to meet the demand for consumer upgrades. Over 620 million consumers benefited during the shopping festival, with order volume more than doubling. The team is more focused on enhancing platform capabilities to meet consumers' year-round demand for quality products and prices. Since its inception, PDD has focused on its core e-commerce business and gradually gained the trust of users. We will continue to invest to create long-term value for consumers and merchants.

Q: Can management share your views on the overall consumer market for the next year? What new trends have you seen in the first quarter?

A: In the past year, the Chinese consumer market has shown depth and resilience, and we are confident about the future. The activities on our platform indicate improved consumer sentiment, coupled with more macro policy support, and we expect this trend to continue. I believe there are three long-term driving factors, including consumers' desire for a better life, the emergence of new retail models brought about by technological innovation, and the potential of high-quality domestic brands and agricultural products. In such a positive consumption environment, we will continue to invest, enhance service capabilities, collaborate with more merchants to provide better services to consumers, improve the platform ecosystem, and create greater social value.

Q: What are management's views on profit margins for 2024 and beyond? Also, given that peers have announced significant increases in share repurchases and dividends, we have a strong balance sheet and cash flow. Do we have similar plans?

A: Short-term profitability is not our top priority. Our strategic focus is on building long-term value for the platform. Over the past few years, we have continued to invest: ① to reward consumers to increase market share; ② in research and development, with R&D investment exceeding 10 billion for two consecutive years. These investments have begun to pay off. In the future, we will continue to invest in areas with long-term return potential. As for share repurchases and dividends, we are currently in the investment stage, focusing on investing in long-term value.

Q: Share your thoughts on the company's global business plans? Additionally, how does the company balance legal compliance with business development?

A: Regarding global business, our vision is to leverage our supply chain and technological capabilities to provide excellent merchants and high-quality products to global consumers, helping them achieve their dreams. Currently, our business is still in the early stages, facing many challenges and uncertainties. To address these issues, we continuously improve ourselves, actively seek innovation to adapt to market competition.

As for compliance issues, legal compliance has always been an important part of our business. Last year, we established a legal compliance committee to strengthen internal compliance mechanisms and processes. We will continue to work with regulatory authorities to ensure compliance with the latest laws and regulations, aligning with industry standardsQ: How does the management view the repositioning of competitors? Are you concerned that this may affect PDD's market share? In such intense competition, how do you adjust your strategy?

A: In 2023, as consumer confidence continues to recover, they are starting to seek upgrades in products and services at more favorable prices. In this context, increasing promotional activities and price competition on e-commerce platforms have become the norm in the industry.

Facing fierce competition, PDD has always been committed to deeply understanding and meeting consumer needs, while continuously strengthening its own capabilities. Over the past year, we have made positive progress in the strategy of high-quality development and remain confident in the future strategic direction. We will continue to deepen user stickiness by providing discounted prices and straightforward promotional activities to meet consumer demands for popular product categories and price ranges.

In addition to pricing, we are also committed to enhancing the overall shopping experience, including pre-sales consultation, logistics delivery, after-sales service, and consumer rights protection, ensuring a safe and pleasant shopping environment. As a technology company, we will increase research and development investment, promote industry digitization, support the development of small and medium-sized enterprises, and continuously introduce new products that meet strong market demand.

We believe that by focusing on these areas crucial for long-term value, PDD can maintain a leading position in the competition and create greater value for consumers and society.

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