Pinduoduo: Don't try to predict my profits, you can't grasp them

The following is a summary of the first quarter financial report conference call for Pinduoduo in 2024. For financial report analysis, please refer to " Pinduoduo "Laughing at the Rivers and Lakes"! 》

1. Review of Core Financial Information:

2. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Management:

1. Operational Highlights:

① Strategic Direction: 2023 was the first year for the company to move towards high-quality-driven development, and 2024 is a crucial year for achieving balanced growth. Emphasizing high-quality development as a long-term strategy, the company will continue to focus on three key areas: consumption, supply, and compliance & platform ecosystem.

② Investment Focus: R&D expenses increased by 15% to enhance supply chain and service capabilities; compliance investment increased by 10% to ensure platform compliance operation.

a. Supporting High-Quality Consumption: Meeting consumer needs through innovative services and product supply.

b. Expanding Supply: Deepening cooperation with top brands and launching new products.

c. Promoting a High-Quality Ecosystem: Establishing an industry-leading compliance plan to ensure the healthy development of the platform.

③ Key Capability Building:

a. Supply Chain Capability: Introducing customized fulfillment solutions to improve efficiency and reduce costs.

b. Legal and Compliance Capability: Establishing an industry-leading compliance plan to create a safe and trustworthy environment.

c. Service Capability: Investing in technology and operations to enhance user experience.

④ Growth Opportunities: New markets and technologies provide significant growth opportunities, such as expansion plans in the Southeast Asian market; achieving new growth points through technological innovation and market expansion.

⑤ Market Performance: A strong start in the market, with strong online consumption in the first quarter and a continuous increase in online retail penetration. Actively responding to policies that promote consumption, investing through the "100 Billion Plan," collaborating with millions of high-quality merchants to meet consumer demands for savings and services, and enhancing the user shopping experience.

⑥ Service Improvement: Collaborating with third-party service platforms to provide convenient door-to-door services covering categories such as mobile phones, electronics, and home appliances, serving over 10 million customers. Introducing free delivery to villages in remote provinces, covering the majority of consumers within a 2-kilometer radius, and increasing order volume in remote areas.

⑦ Agricultural Investment: Supporting agricultural technological innovation, launching smart agriculture competitions and Pinduoduo Academy growth competitions, advancing the agricultural cloud plan, supporting over 1,000 high-quality agricultural production areas, and increasing farmers' income.

2.2. Q&A Analysts' Questions and Answers

Q: Over the past year, various platforms have made adjustments in pricing and service strategies. How does the management evaluate the current competitive landscape? In such a market environment, what is Pinduoduo's future strategic direction?A: Regarding your first question about strategy and competition, we have observed that consumers are accustomed to comparing shopping experiences across different e-commerce platforms, including product selection, pricing, and services. In the face of intensified industry competition, we insist on prioritizing consumer needs. Our survival and success depend on the value we create for users. After years of investment, our value proposition - more savings and better services - is gradually gaining recognition from consumers. At the same time, we recognize that consumer demands are becoming more rational and diversified. In addition to providing savings, we must also meet their needs for high-quality products and diverse consumption scenarios. Therefore, we are not only focusing on improving savings and service quality, but also striving to enrich the supply of high-quality products on our platform, aiming to further enhance user trust through optimized shopping experiences.

Q: In the recent earnings conference call, management seemed to emphasize compliance issues, which the market is also very concerned about. Could you please provide a detailed introduction to the measures the company has taken in terms of compliance? What are your goals in this regard?

A: Regarding compliance issues, as our business expands, we face increasingly stringent compliance requirements from consumers, revenue institutions, and higher standards for the merchants we cooperate with. We are committed to creating a safe user environment, and compliance is an area where we continuously improve and invest heavily. Global trade regulations are constantly evolving, with new laws and regulations emerging. We view compliance capability as a key part of our high-quality development strategy and a core competency of our platform.

In the last quarter's earnings conference call, we mentioned actively communicating with regulatory agencies in multiple countries. We are proactively strengthening our compliance capabilities, investing heavily in researching regulations in various markets, and having a dedicated team apply the research findings to all aspects of our business. Our compliance measures cover not only platform operation-related regulations, such as data protection, but also merchant operation regulations, such as product compliance and consumer rights protection. We also encourage small and medium-sized merchants to operate in a more compliant and higher-quality manner, which contributes to the sustainable development of the platform ecosystem.

A high-quality merchant base will bring more high-quality products to our platform. Compliant operations and a sound ecosystem are the foundation for the long-term development of the platform, which will help us better meet the diverse demands of consumers for high-quality consumption and form a virtuous cycle.

Q: The company's revenue growth was strong this quarter. What is management's view on the future growth potential of the business? Is there still room for growth? How should future growth rates be expected?

A: Regarding the question of growth, we always focus on creating long-term value rather than short-term financial performance. We believe that there are extensive opportunities for improvement and growth in the consumer market, especially in the online retail sector. With the improvement of e-commerce infrastructure and the emergence of new models, we are actively exploring innovations to increase consumer value. We are optimistic about the long-term growth potential of online retail penetration and are committed to improving service quality. At the same time, we are also enhancing the scale and value of merchant services, especially supporting high-quality merchants willing to operate in compliance, in order to grow together with them and expand our high-quality product line. We believe that the synergy of these factors will bring positive revenue prospects. In a competitive and continuously growing industry, we focus on maintaining the healthy development and execution of our businessOur core focus is to provide more value to consumers and merchants, and we firmly believe that this value creation will ultimately be reflected in financial results.

Q: Can the management share the latest insights on the global business strategy? What is the outlook for global business in 5 years?

A: Regarding the global business strategy, our global business is still in its early stages. We are committed to developing our business with high quality and actively exploring new business models. Our company emphasizes execution, and once the strategic direction is determined, we will fully execute it.

Looking ahead, we will continue to focus on enhancing supply chain, service, and compliance capabilities. In terms of the supply chain, we aim to expand and deepen our supply chain network, connect with high-quality merchants and products globally, and enrich the variety of products on our platform. We will improve supply chain efficiency, reduce merchants' operating costs, and benefit global consumers and merchants. In terms of service capabilities, we are exploring diversified fulfillment solutions to improve efficiency and meet a wider range of consumer needs. At the same time, we leverage technological advantages to optimize customer service and shopping experience. Compliance is key to ensuring the high quality and sustainable development of our platform, and it is the foundation for providing a safe and reliable environment for users. We will continue to invest in this area.

In summary, our investments are aimed at bringing more high-quality products to global consumers at reasonable prices, providing a safe, enjoyable, and unique shopping experience.

Q: Despite intensifying competition, the company achieved profit growth this quarter and demonstrated good operating leverage in sales and marketing expenses. Does this mean the company is slowing down marketing investments? More broadly, can the management elaborate on the strategy of resource allocation?

A: Regarding profitability, we would like to emphasize that the company's business development does not follow a linear pattern, sometimes it may exceed market expectations, and sometimes it may fall short. Therefore, we advise investors not to predict the company's future growth based solely on a few quarters of performance. We always focus on the long-term intrinsic value growth of the company, rather than short-term financial data.

In terms of business execution, we will carefully evaluate the return on investment in different markets and reasonably plan resource allocation based on this. We will not simply adjust spending based on preset budgets, but will adjust investment strategies for each quarter based on specific investment opportunities in the market.

Currently, we are in a growth phase and actively seeking investment opportunities that can create value for the future. Although these investments may affect profitability in the short term, they will contribute to the long-term intrinsic value growth of the company.

Q: In agriculture, can the management share their views on the growth potential of agricultural products and how to evaluate the company's core competitive advantages in this area?

A: Regarding agriculture, agriculture is the cornerstone of the company's business. We started with selling agricultural products, have been investing in this area for many years, and have launched a new model of agricultural product group buying. We have innovated multiple agricultural solutions, including direct sourcing of agricultural products and the Duoduo Buy platform, aiming to connect local supply and demand.

The agricultural industry faces many challenges, such as low standardization of products and industry fragmentation, leading to difficulties in storage and transportation. Currently, the online penetration rate of agricultural products is still low, and there is huge space for digital transformation. We are committed to investing in and driving the transformation of the agricultural supply chainDuring this process, we have accumulated valuable experience and enhanced team capabilities.

As an important high-frequency consumer goods category, agricultural products have always been the focus of Pinduoduo's comprehensive e-commerce platform. We continue to firmly invest in agriculture, and through the fourth Smart Agriculture Competition launched last month, we focus on AI planting technology to encourage the optimization and commercialization of the agricultural industry.

We will continue to invest in various aspects of agricultural production and supply chain to promote the modernization of the agricultural industry, improve the quality and efficiency of the supply chain. At the same time, we are committed to helping farmers increase value and income, creating employment opportunities, and supporting the comprehensive revitalization of rural communities.

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