Pinduoduo: Management issues another "self-criticism" statement

The following is the transcript of the Q3 2024 earnings call for $PDD(PDD.US) For the earnings report interpretation, please refer to Pinduoduo: Is it really becoming "Pinduoduo"? ****

1. Core Information Review of the Earnings Report:

2. Detailed Content of the Earnings Call

2.1. Key Information from Executives:

1. Strategic Execution and Results

Strengthen the execution of high-quality development strategies and firmly build a healthy platform ecosystem. Several initiatives were launched, including a RMB 10 billion fee reduction plan and a high-quality merchant support plan, benefiting over 10 million merchants. Encourage agricultural regions and industrial belts to enter a new stage of high-quality development.

2. Financial Performance

Revenue growth has slowed, and net profit is also on a downward trend, partly due to intensified competition in the e-commerce sector and environmental challenges faced by the business.

3. Fee Reductions

Launched a RMB 10 billion fee reduction plan, including service fee refunds, reductions in "buy now, pay later" service fees, lowering deposits, and simplifying withdrawal processes.

The series of measures under the RMB 10 billion fee reduction plan helps merchants reduce costs and increase efficiency, with many merchants (especially agricultural and domestic product merchants) saving hundreds of thousands annually, lowering operating costs, and freeing up resources for product development and technological upgrades, promoting high-quality growth in the industry.

Currently, the fee reduction plan covers all categories on the platform, with plans to reduce fees by over RMB 10 billion next year.

4. After-sales and Logistics Support

Logistics support measures cover all shipping fees in western China, with delivery fees for agricultural products and daily necessities reduced by up to 70%, encouraging merchants to enter the western market, promoting the development of e-commerce logistics infrastructure for high-quality products to enter the west, and creating opportunities for western resources to enter the national market.

Upgraded the merchant after-sales service system, establishing a green channel and dedicated after-sales team to handle abnormal orders, complaints, and customer satisfaction issues. After merchant appeals are approved, the platform compensates for related orders, improving merchant experience and the business environment on the platform.

5. High-Quality Merchant Support Plan

The company has launched a high-quality merchant support plan, leveraging the company's digital capabilities to provide comprehensive support in product development, marketing, operations, and supply chain management, aimed at empowering merchants and brands that showcase high-quality products and technological innovation capabilitiesIn early September, the Harvest Festival allocated 1 billion yuan in subsidies and traffic resources to high-quality agricultural businesses across the country, helping agricultural products enter cities and increasing the output and income of agricultural communities.

6. Changes in Consumer Preferences and Supply Chain Innovation

Consumer preferences are changing, with a greater emphasis on quality and personalization, leading to new demands for supply chain innovation.

The company's fee reduction and merchant support policies encourage more merchants to innovate, enabling them to better meet consumer demand for high-quality products.

Based on changes in consumer preferences, new smartphones, luxury cosmetics, and health foods will be provided for consumers in first- and second-tier cities; high-quality home appliances, maternal and infant products, and fresh produce will be offered to consumers in third- and fourth-tier cities and rural areas to promote consumption upgrades.

7. Cash Flow

The net cash generated from operating activities was 27.5 billion yuan, compared to 32.5 billion yuan in the same period last year.

As of September 30, 2024, the company had cash, cash equivalents, and short-term investments totaling 308.5 billion yuan.

2.2 Q&A Analyst Q&A

Q: Last quarter, the company emphasized its commitment to investing in the merchant ecosystem and has since implemented a series of merchant support measures. What is the progress of these measures, and what are the future plans?

A: This quarter, we made significant investments in the merchant ecosystem, providing strong support to high-quality merchants through a 10 billion yuan fee reduction plan, implementing policies such as service fee refunds, reduced deposits, and waiving transportation fees for remote areas, while also strengthening the support system for merchants.

These policies have reduced merchants' operating costs while improving efficiency, allowing them to allocate more resources to optimizing products and services. For example, significant progress was made in logistics during the third quarter; after implementing the logistics fee reduction policy, orders shipped to western regions no longer incur transportation fees, which helps merchants reach a broader customer base at lower costs, promoting the company's logistics service expansion strategy in western regions and facilitating the entry of high-quality goods into these areas. Merchants have provided positive feedback during this process.

In the future, the company will steadfastly invest in this direction for the long term, committed to building a stronger merchant ecosystem. By continuously optimizing the supply chain, we will work hand in hand with merchants to provide consumers with higher-quality products and services, further consolidating the partnership between the platform and merchants for mutual development.

Q: We see that the company is still actively exploring new markets for global business. At the same time, we also notice that the external environment is evolving, and external stakeholders have different views on the business. Can you share your thoughts and future plans for global business?

A: The core goal of the company in global business has always been to deliver value to consumers in different countries, and this commitment remains unwavering. To achieve this goal, the company continues to strengthen its capabilities, optimize the supply chain, and enhance service levels. As the business grows, consumers and external stakeholders have raised higher demands on the company. The company maintains a proactive and open attitude, actively engaging with external stakeholders in various markets, carefully listening to their feedback and suggestions, and quickly integrating these suggestions into daily operations. Through these efforts, the company has made initial progress in improving service standards and compliance, continuously raising operational levels to higher standardsLooking ahead, the company will continue to enhance its ability to provide high-quality services in various markets, deeply aligning with consumer preferences and expectations.

Q: It has been noted that the company has recently placed great emphasis on compliance and the platform ecosystem, launching several new initiatives. Can you share the detailed measures you have already taken and the goals you hope to achieve in this area in the future?

A: Given the business growth and regulatory trends in various markets, the company's requirements for compliance capabilities are increasing. The company firmly believes that creating a safe and reliable shopping environment for consumers is a fundamental responsibility of a commercial platform, and a complete and high-quality ecosystem is a key element in achieving a high-quality development strategy.

To this end, the company has further intensified the implementation of trust and safety measures, comprehensively strengthening compliance management. On one hand, a significant amount of resources has been invested to form a professional expert team that closely tracks regulatory changes and industry trends in different markets, transforming deep insights into actionable guidelines; on the other hand, comprehensive educational materials have been carefully prepared for merchants to enhance their compliance capabilities and promote the supply chain towards high-quality development.

At the same time, the company fully utilizes advanced technology to optimize the merchant onboarding and product listing processes, investing sufficient resources for proactive product quality inspections, and effectively detecting and resolving potential product safety risks through a combination of technology and manual screening. In addition, the company actively collaborates closely with external stakeholders to fully meet their requirements, striving to establish industry-leading compliance standards. Through these efforts, the company aims to eliminate poor merchants, empower quality merchants, achieve comprehensive upgrades in the supply chain, cultivate a healthier and more sustainable merchant ecosystem, and ultimately provide consumers with more valuable products and services.

Q: It has been noted that profits and profitability have declined quarter-on-quarter this quarter. Can you share your views on this? Is this consistent with the trends discussed by management in the last quarter's earnings call? Looking ahead, how does management view the long-term profitability trend?

A: As communicated in the last quarter, due to competition and external factors, the company's revenue growth may slow down. At the same time, the company has been committed to promoting the construction of a healthy and sustainable platform ecosystem, and during this process, a gradual decline in profitability at certain stages is expected.

Currently, the company's investments in the platform ecosystem have already yielded initial positive results, and merchants have provided positive feedback on the company's supportive measures. These investments lay a solid foundation for the healthy and sustainable development of the platform. Although there has been some impact on profitability in the short term, from a long-term perspective, these investments will benefit merchants, consumers, and the platform collectively, driving the upgrade of the supply chain and creating more value for consumers. In the future, the company will continue to explore investment opportunities in this direction, striving for more significant and impactful results to ensure the company's competitiveness and achieve sustainable profitability in the long term.

Q: What new consumer trends have you observed during this year's Double 11 shopping festival? How do you evaluate the company's performance during this promotional period? What new initiatives did the company try during this event, and are you satisfied with the results?**

A: In the second half of this year, the consumer market has shown an overall recovery trend, with strong growth in online consumption. Driven by shopping festivals, consumer activity on platforms has become increasingly vibrant. In the current interconnected environment, consumer choices are more diversified, and cross-platform movement is significant. In response, the company has always focused on consumer needs, continuously investing substantial resources in both consumption and supply, committed to bringing tangible benefits to consumers and continuously strengthening their trust in the platform.

This year’s “Double Eleven,” the company launched a 10 billion yuan coupon campaign for the first time, and consumer response was extremely enthusiastic, with strong sales growth across multiple product categories, especially in categories such as agricultural products, small appliances, and daily necessities. Meanwhile, the “Super Double Discount” event provided strong support for many quality merchants with innovative products and technologies, allowing numerous domestic brands to launch new high-end products through the platform and quickly gain market recognition during the shopping festival. The rich supply of these quality products not only meets the diverse needs of consumers but also further enhances their trust in the platform, achieving a mutually beneficial win-win situation for both supply and demand.

The company firmly believes that the high-quality investments made over the long term in consumption, supply chains, and ecosystems will continue to enhance consumer confidence in the company, which is the cornerstone for achieving long-term healthy development. The company is satisfied with the results achieved during “Double Eleven” and will continue to adhere to a consumer-centric philosophy, constantly innovating and optimizing services to create more value for consumers.

Q: Observing the Chinese e-commerce market during this year’s “Double Eleven,” competition remains fierce, and the overall growth rate has slightly slowed this quarter. How do you view the domestic competitive pressure, and will future strategies be adjusted?

A: As mentioned several times before, the competition in the e-commerce industry remains intense, and the company’s business is also part of it. In the long term, the slowdown in the company’s revenue growth is somewhat inevitable. Since the third quarter, the introduction of macroeconomic policies has brought both new opportunities and new challenges. The domestic market in China is highly dynamic, characterized by continuous changes, diverse business models, and increasingly fierce competition.

However, the company team has certain limitations in coping with this, as the company operates solely as a third-party platform, and its operational experience is relatively insufficient, leading to an inability to fully seize opportunities in the face of macroeconomic changes. For example, when responding to some industrial and consumer demand support brought by macro policies, the company, due to its business model and experience limitations, could not effectively utilize these opportunities like its peers, and to maintain competitiveness in similar product competition, it had to bear higher costs than its peers, which has impacted the company's profitability in the current and near term.

With the continued promotion of consumption stimulus policies, the company is full of expectations for the future, actively seeking transformation and new opportunities to better serve consumers. Although the company has shortcomings in platform business models, past operational experience, and capability reserves, which may still face competitive disadvantages compared to peers for some time and could further exacerbate financial pressure, the company will actively respond to challengesIn the face of the current competitive environment, the company will adhere to high standards, focus on enhancing core capabilities, and continuously explore influential opportunities, making long-term, high-quality investments in the supply chain and ecosystem fields to ensure that these initiatives can be transformed into more valuable products and higher quality services for consumers. The company firmly believes that the high-quality development of the ecosystem and supply chain is fundamental to the platform's long-term success, and will respond to this long-term development process with firm belief and patience, undisturbed by changes in the competitive environment, and will steadfastly promote the company's strategy to achieve sustainable development.

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