Pinduoduo Phone Conference: Healthy low-price competition is beneficial to industry development, and high-quality development is the primary goal.

On Tuesday, August 29th, before the U.S. stock market opened, Pinduoduo announced its "explosive" performance, causing its stock to surge by 14% in pre-market trading.

According to the financial report, as of June 30, 2023, Pinduoduo's second-quarter revenue reached 52.28 billion yuan, a year-on-year increase of 66.3%, far exceeding market expectations of 43.28 billion yuan. Adjusted net profit for the second quarter was 13.1 billion yuan, a 47% increase compared to the same period last year (88.96 billion yuan), and market expectations were 8.599 billion yuan. Both revenue and net profit greatly exceeded expectations, making Pinduoduo stand out in the e-commerce sector.

After the release of the financial report, Pinduoduo's Chairman and Co-CEO, Chen Lei, Co-CEO Zhao Jiazhen, and CFO Liu Jun attended the subsequent earnings conference call to interpret the key points of the financial report and answer analysts' questions.

During the conference call, Pinduoduo executives expressed the following key points:

• The revenue growth in the second quarter mainly came from two factors: "on one hand, the improvement in the macroeconomic environment, and on the other hand, the positive feedback from the initial stage of our high-quality development strategy." Revenue and profit are natural results of creating value.

• Agriculture is Pinduoduo's core strategy. We are committed to long-term investment in agriculture, introducing advanced technology and experience, and participating in agricultural technology innovation and inclusiveness. We hope to make positive contributions to the high-quality transformation of agriculture in various aspects such as cutting-edge agricultural technology research, modern agricultural talent cultivation, and application of agricultural research results.

• With the continuous recovery of market confidence, Pinduoduo seizes opportunities and regards high-quality development as the most important task and primary goal. We will increase investment in three major directions: high-quality consumption, high-quality supply, and high-quality ecosystem. We will continue to benefit consumers, promote platform ecosystem construction, and unleash consumer potential.

• Pinduoduo started with agricultural products, and agriculture is an important focus for achieving high-quality development. In the process of promoting the upward trend of agricultural products, we have found that technological innovation is a crucial link for the high-quality development of the agricultural industry. Only by strengthening agricultural technological innovation can we improve the quality and added value of agricultural products and better meet consumers' demand for high-quality, safe, and healthy agricultural products.

• We are not surprised that competitors will increase subsidies. Healthy competition based on consumer-centricity is beneficial to the industry's development. The core of responding to rapid changes in the industry is not to focus on changes in competitors' business strategies, but to enhance our own capabilities, face competition squarely, and focus on implementing high-quality development.

• Regarding the TEMU strategy, the team is currently in the learning phase, focusing on understanding and accepting different market cultures, social environments, and consumer demands in order to create more unique value. In the process of continuously understanding and exploring the needs of consumers in different markets, we will carefully evaluate the return on investment for each investment and make responsible capital allocation decisions. The following is a transcript of a phone conference:

Q1: What is the future strategy for pursuing high-quality development, and how will this strategy drive progress?

In recent years, we have gradually completed the transformation from rapid to stable growth, shifting from being marketing-driven to being research-driven. Starting from the first half of this year, we have fully embarked on a strategy of high-quality development, entering a new chapter of progress.

As a service-oriented company, I believe there is still much room for improvement in serving consumers, shopping, and platform operations. Therefore, cultivating internal strength to achieve high-quality development is the path to further enhancing the value of the platform. As I mentioned earlier, the strategy for implementing high-quality development can be divided into three main parts:

The first part is high-quality consumption. We are strengthening our ability to provide affordable and excellent services, insisting on delivering a comprehensive and satisfying experience to consumers, in order to meet their increasingly diverse needs. This will enhance consumer trust in the platform and further stimulate the release of consumption potential.

The second part is high-quality supply. We are leveraging our technological background and advantages to promote the technological inclusiveness of the manufacturing and agricultural sectors within the supply chain, aiming to directly connect more high-quality products to national and even global markets.

The third part is high-quality ecology. In the process of transforming towards high-quality development, a high-quality ecology is the fertile soil for the platform and all participants to grow together. Through the implementation of a dedicated program for a billion-yuan ecology, we are strongly supporting high-quality merchants, small and medium-sized enterprises, and farmers, thereby enhancing the overall governance capability of the platform.

Platform resources are prioritized towards high-quality merchants and products. This initiative is leading the way for small and medium-sized enterprises and high-quality merchants on the platform to improve quality and efficiency, thereby driving the overall service efficiency and quality of the platform.

For a considerable period of time in the future, Chen Lei and I will lead the team in patiently investing and striving to improve consumer experience, optimize the supply chain of agriculture and manufacturing, and further consolidate the positive trend of the platform's ecology, ensuring the high-quality development is implemented effectively.

Q2: Agriculture is one of the company's development strategies. How does the agricultural strategy and the focus on high-quality development affect the company's daily operations? Will there be any changes in the previous investment scale?

Our development is closely related to the upward trend of agricultural products, and we have been actively leveraging our technological background to promote the technological inclusiveness of agriculture.

Looking at the history of agricultural products, the online penetration rate is relatively low, and there is still significant room for improvement in the efficiency of agricultural product circulation. On the path of high-quality development, leveraging technological innovation to support agricultural development is a unique value that we, as a technology company, can provide. Therefore, agriculture will continue to be the focus of our development.

In the past period of time, we have further strengthened the deep integration of industry, academia, and research, and have continued to hold various technology competitions. We can clearly see that Pinduoduo has contributed its efforts in the process of promoting the transformation of scientific research achievements into the market. As I just mentioned, we are pleased to welcome a new independent director, Professor Ivonne Rietjens, who has been appointed as an independent director. Professor Rietjens has been a professor at the University of Wageningen in the Netherlands since 2001 and is currently the head of the Department of Toxicology.

The Netherlands is an agricultural powerhouse, and the university is widely recognized as a top agricultural research institution. Professor Rietjens' expertise and knowledge in the field of food science and technology will greatly contribute to our organization. We are excited to work under her guidance and make a greater contribution to the modernization of agriculture.

Q3: Pinduoduo's total revenue in the second quarter increased by 66% compared to the same period last year, and advertising revenue also increased by 50%. What are the areas that performed well? Will this trend continue in the second half of the year?

I believe that the growth in this quarter is mainly due to two factors: the overall improvement in the macroeconomic environment and the positive feedback from our high-quality development strategy in its early stages.

Firstly, our business and consumer environment have benefited from the overall economic recovery, and the willingness of consumers on our platform to make purchases has been continuously increasing. We believe that this is closely related to the various policy measures implemented to stimulate consumption. In the second quarter, we seized the opportunity and focused on enhancing our ability to provide affordable and high-quality products across a wider range of categories, in line with our high-quality development strategy.

For example, during the 618 shopping festival, we increased subsidies and invested billions of yuan in consumer vouchers to stimulate demand for consumption. Beyond the 618 shopping festival, we have implemented the concept of "Every day is 618" by continuously offering consumers competitively priced goods.

Through our efforts, we have increased the enthusiasm of platform users for consumption, which has also created more sales opportunities for merchants. The support we provide to high-quality merchants has encouraged them to invest more resources and work together with us to serve consumers. As a result, our revenue has achieved significant growth.

We believe that revenue is the natural outcome of the value created by our platform, and high-quality development is our long-term strategy. We do not deliberately pursue growth in the third quarter because we believe that by providing better services, better cost-effectiveness, and meeting the diverse needs of consumers, as well as building a better ecosystem platform, sustainable high-quality development will naturally be achieved.

Q4: There has been a slight decline in profit margin. Where have the increased investments been made? With the industry becoming more competitive, how do you view the specific impact on profit margin?

We are still in the development stage, and profitability is not everything. As mentioned earlier, revenue and profit are the natural results of the value we create.

Therefore, in the second quarter, we saw different financial results that reflected the early achievements of our high-quality development strategy. In the process of implementing this strategy, we are making investments in various key areas, such as feedback to consumers, support for new merchants, and investments in culture and manufacturing supply chains. These efforts are clearly reflected in our financial performance.

In addition, as competition intensifies, we will give back to consumers and merchants through our core capabilities of providing more cost-effective and higher-quality services. I will never give up high-quality development when I see an opportunity to create long-term value.

Q4: The impact of low-price competition from friendly competitors on Pinduoduo's business and whether it will affect the next strategic planning?

We have noticed the recent changes in the industry. With the recovery of the consumer market, consumers have shown a stronger demand for shopping. We are not surprised that competitors are increasing subsidies. Healthy competition based on consumer needs is beneficial to the industry's development.

The industry has been rapidly evolving, and for us, the key to responding to the industry's rapid changes is not to focus on changes in competitors' business strategies, but to focus on consumer needs and enhance our own capabilities to face competition. Therefore, we will transform this competitiveness and pressure into the driving force to enhance our core capabilities and focus on implementing high-quality development.

Providing excellent service to consumers is the core of our value creation. We are also optimizing our ability to provide affordable and good services. Affordability has always been our foundation. In the past quarter, we increased subsidies and invested over billions of dollars in coupons covering all categories during the 618 promotion. We hope to ensure that consumers can buy a wide range of low-priced and good-quality products on Pinduoduo.

At the same time, a good consumer experience requires comprehensive efforts, not just focusing on price alone. We continue to prioritize research and development to quickly understand and respond to consumers' new needs and preferences. In order to make consumers feel at ease when shopping, we have comprehensively upgraded logistics and after-sales services, eliminating concerns for consumers in online shopping, constantly improving our service capabilities, and improving the consumer environment.

High-quality supply is the underlying support for achieving low-priced and good-quality products. We are also further promoting the integration of agriculture and manufacturing through data and reality.

Our team has always been active in the fields and industrial belts, hoping to guide farmers and small and medium-sized enterprises to introduce standardized processes in production, planting, product design, logistics, and other aspects, and continuously strengthen the ability to provide high-quality supply. We have also launched a special program for the billion-dollar ecosystem to support high-quality merchants and products, guide the comprehensive improvement of product quality and service quality, and promote the high-quality and healthy development of the platform ecosystem.

These initiatives we have launched have received positive initial feedback from all parties, which has strengthened our determination to implement high-quality development. My strategic roadmap is clear, but it is not easy to do things well. It still requires long-term perseverance in doing things right. We will insist on demanding ourselves with integrity, continuously improve ourselves in competition, and create greater value.

Q5: Can you provide an analysis of the TEMU strategy and the financial aspects?

Our global operations team is currently in the learning phase, and the focus now is on how to use our expertise to create our unique value. We hope to leverage our background and supply chain knowledge to provide high-quality and affordable products to consumers in different markets worldwide. This brings us challenges and learning opportunities. Currently, our team is dedicated to understanding and embracing the diverse cultural preferences, social environments, and consumer demands of different markets in order to create more unique value. As we continuously learn and explore the needs of consumers in different markets, we will carefully evaluate the return on investment for each opportunity and make responsible capital allocation decisions. Thank you all.