PDD Holdings Inc. Q3 FY2025 earnings call

• The company celebrated its 10th anniversary, having pioneered the team purchase model since 2015, focusing on providing affordable goods and serving a wide range of consumers.
• Prioritizes long-term value over short-term results, with a focus on e-commerce core business.
• Rolled out substantial merchant support initiatives like the RMB 10 billion fee reduction program and RMB 100 billion support program to aid merchants, including SMEs.
• In agriculture, the Duo Duo Premium Produce initiative saw 47% year-over-year growth in agriculture sales in H1 2025, with over 30% year-over-year increase in 2000s-born agricultural merchants.
• In industrial belts, continued investment in new quality supply through the RMB 100 billion support program, visiting industrial belts like Pinghu down jackets and Huizhou snacks to enhance quality and efficiency.
• Invested heavily in R&D, with non-GAAP R&D expenses at RMB 3.7 billion, up 41% year-over-year.

In the third quarter, PDD Holdings reported total revenues of RMB 108 billion. Revenues from online marketing services and others were RMB 53.3 billion, up 8% from Q3 2024. Revenues from transaction services were RMB 54.9 billion, up 10% from Q3 2024. Total cost of revenues increased 18% to RMB 46.8 billion. On a GAAP basis, total operating expenses were RMB 36.4 billion, up 3%, while non-GAAP operating expenses were RMB 34.4 billion, up from RMB 32.9 billion in Q3 2024. Non-GAAP operating profit was RMB 27.1 billion, down from RMB 28 billion in Q3 2024. Net income attributable to ordinary shareholders was RMB 29.3 billion, up from RMB 25 billion in Q3 2024.

• Financial results may continue to fluctuate due to ongoing ecosystem investments and intensifying competition.
• The company will prioritize high-quality development over short-term financial results, with more strategic initiatives like the RMB 100 billion support program planned for both supply and demand sides.
• Simple linear projections are not suitable for future performance due to the unpredictable nature of profitability influenced by investments and competition.

• Global regulatory uncertainties in trade policies, tax, data security, and product compliance across different countries and regions, posing unpredictable and difficult-to-quantify risks to financial performance.
• Intense industry competition, including new business models emerging, which may impact the company's market position and financial results.

Q: In the third quarter, observed recovery in online retail sector, slowdown in Duo Duo's online marketing service revenue, and competitive dynamics. How does management view industry trend and competitive outlook?

A: The industry is in a new investment cycle with intense competition. Management focuses on creating unique value for consumers, merchants, and participants. Will leverage inherent strength for high-quality growth, with plans for more merchant support initiatives. Financial performance may fluctuate due to investments and competition.

Q: Concerns about global business regulatory scrutiny and status of merchant ecosystem investment. How does management view global regulation and assess financial impact of merchant ecosystem investment?

A: For global business, aims to integrate with local cultures and regulations, investing in trust and safety, product compliance. On merchant ecosystem, initiatives like RMB 100 billion support program improve platform ecosystem, lower merchant costs, with positive feedback seen. Focus on building sustainable merchant ecosystem for high-quality growth.

Q: Company's operating margin decline, upcoming investment pace, and new consumption trends. How to view investment pace, profitability, and competitive landscape under new models?

A: Operating margin affected by competition and investments. Will continue increasing ecosystem investments, facing challenges to revenue and profit. New consumption shows positive momentum, but intense competition with new models. Will strengthen core capabilities, invest in supply chain and ecosystem, prioritizing long-term value over short-term profits despite potential competitive disadvantages.