PDD Holdings, Inc. Q3 FY2024 earnings call

• Rolled out a $10 billion fee reduction program including service fee refunds, bill reduction for buy now pay later, lower security deposits, and easier fund withdrawal. Also upgraded after-sales survey support.
• Provided logistics support in Western China, covering transshipment fees for orders to the region, reducing delivery costs for agricultural products and daily essentials by up to 70%.
• Launched a high-quality merchant support program, allocating subsidies and traffic resources to support high-quality agricultural and industrial merchants, leading to growth in sales of national brands during the W11 shopping festival.
• Hosted Smart Agriculture Competition and Global AppriIno Challenge 2024 to advance research and technology innovation in agriculture.

In the third quarter, PDD Holdings reported total revenues of $25 billion and net income of $25 billion. Revenues from online marketing services were $49.4 billion, up 24% from the same quarter in 2023. Revenues from transaction services were $50 billion, up 72% from the same quarter last year. The total cost of revenues increased 48% to RMB39.7 billion. Non-GAAP operating expenses as a percentage of total revenues were 33% in Q3 2024 compared to 35% in the same quarter last year. Non-GAAP sales and marketing expenses were RMB29.8 billion, up 40% year over year. Research and development expenses reached a new high, up 10% year over year.

• Continue to invest in ecosystem development and support high-quality merchants.
• Further broaden support for high-quality merchants in coming quarters, covering more agricultural and industrial regions.
• Remain committed to long-term investment to build a healthy platform ecosystem for sustained benefits to consumers, merchants, and partners.

• Intensified competition in the e-commerce sector impacting financial results.
• External environment and global market competition posing challenges to global business.
• Impact of platform ecosystem investments on short-term financial results.

Q: Last quarter, management placed great emphasis on commitment to invest in the merchant ecosystem. Can management share the current progress of this initiative and elaborate on the plans moving forward?

A: Zhao Jiajun mentioned substantial investments in the merchant ecosystem via $10 billion fee reduction program, including service fee rebates, lower deposits, enhanced logistics, and after-sales support. Moving forward, will make more long-term investments to foster a stronger merchant ecosystem.

Q: We are seeing that the company is still actively exploring new markets in its global business. But at the same time, we also noted that the external environment is evolving, and we are hearing different views on the business from external stakeholders. Could management share your thoughts on this and also provide an update on the future plans for the global business?

A: Chen Lei stated that goal in global business is to deliver unique value to consumers. Will continue to strengthen capabilities, engage with external stakeholders, and bring operations to higher standards in markets.

Q: From your prepared remarks and from public information, we noticed that the company recently paid a lot of attention to compliance and platform ecosystem. Can you share some detailed measures you have taken and what goals you expect to achieve in this area going forward?

A: Zhao Jiajun mentioned investing in compliance team, educational materials for merchants, streamlining onboarding and product listing, and proactive product quality checks to set industry-leading compliance standards and foster a healthy merchant ecosystem.

Q: This quarter's profit and profitability saw a slight decline quarter on quarter. Can you kindly share your thoughts on this? How does this align with the trend discussed by management on last quarter's earnings call? Looking ahead, how does management think about longer-term profitability trends?

A: Jun Liu said last quarter revenue growth may moderate due to competition and external factors, and profitability may gradually trend lower as investing in sustainable ecosystem. Investment in ecosystem lays foundation for long-term value.

Q: Can management share with us some new consumption trends that you have observed during this year's Double Eleven shopping festival? How does management rate PDD's performance in this promotion? What are the new initiatives that PDD experimented with during this event? Does management feel satisfied with the results?

A: Zhao Jiajun said saw strong consumer activities, introduced $10 billion voter campaign with positive response, saw growth in product categories like agricultural products and small home appliances, satisfied with results.

Q: From what we observed during this year's Double Eleven, the competition remained intense in China's e-commerce market, and PDD's growth rate also slightly slowed down during this quarter. Could management help us understand your thoughts on domestic competition pressure? Will there be any adjustment in your strategies going forward?

A: Zhao Jiajun mentioned intense competition, slowdown due to macro factors and platform model limitations. Will continue to enhance core capabilities, make long-term high-quality investments in product chain and ecosystem to create value for consumers.