Pinduoduo denies three in a row, claiming once again that high profitability is not sustainable (phone conference minutes)

The following is a summary of Pinduoduo's Q3 conference call. For a detailed analysis of the financial report, please refer to "Performance explosion, is Pinduoduo invincible?."

I. Remarks by Management

1. Overview

In Q3, Pinduoduo saw strong growth in verticals such as cosmetics and electronics, while also continuing to invest in the agriculture sector, with positive feedback from consumers. However, competition in the industry remains fierce.

2. China Agriculture Harvest Festival

In September, the company invested RMB 1 billion in the harvest festival campaign, and continued to expand partnerships in the e-commerce sector, promoting more agricultural products nationwide. Currently, the platform promotes over 500,000 agricultural products.

3. Doudou New Artisans Program

The promotion of the new artisans program in many regions across China not only increases exposure of the Pinduoduo platform, but also helps to boost local artisans' income and create more job opportunities.

4. Sustainability of Q3 Profit Level

The reason for the record-breaking profits in Q3 were due to 1) reduced investment in certain agriculture projects, resulting in cost savings, and 2) increased activity from merchants, driving up quarterly revenue. However, the financial cycle and business development cycle are not completely aligned, so it's unlikely that the high profit level in Q3 can be sustained. In the future, the company will continue to increase investment, promote innovation, and enhance core capabilities. Key investments in the past, such as in agriculture, remain critical and will continue to be a focus.

II. Q&A with analysts

Q: Reasons for the accelerated growth of online marketing revenue in Q3, and potential future growth drivers?

A: In Q3, the company worked with merchants to create value for consumers and provide a "more affordable and fun" shopping experience, better serving consumers through coupons, promotions, and other means.

Demand for quality products is high, and more and more brands are partnering with the Pinduoduo platform to provide consumers with more choices. Multiple categories such as agricultural products, 3C, home appliances, and cosmetics have received positive feedback from consumers.

Competition within the industry remains intense and consumer demand is diversified, so the company needs to continue to improve. Reducing passive investment in the short term is not conducive to long-term business competitiveness, so in the future, investment will be increased to better understand and serve the needs of consumers, while continuing to focus on the industry, and investing in technology in different aspects of agriculture and manufacturing to support high-quality, long-term platform development.

Q: Latest progress of overseas business and experience, and whether it has met management expectations?

A: Temu, the international e-commerce platform, was launched in September and has been in operation for several months.

International business is a new exploration for the entire team. Starting from consumer demand, the team is building on the previous experience in operations and supply chain to create unique value, while fully respecting the diversity of different markets. The business presents challenges, and the company will be patient, collaborating with partners to create long-term value for consumers.

Currently, the business is in its early stages and there is still room for optimization. The team will continue to learn and improve, which is a meaningful process for both the company and the team. Q: Does the company have a subsidy policy for merchants and upstream industries, and what are the future plans for helping with supply-side upgrading?

A: Since its inception, the company has been improving manufacturing efficiency through technological innovation. The company pioneered the "group purchase" model, which connects the demand and supply sides directly by aggregating orders to help manufacturing enterprises reduce intermediate links, reach consumers directly and build their own brands. Over the past seven years, the company has created nearly a thousand manufacturing brands with technology.

Furthermore, by providing manufacturing partners with digital services for the entire supply chain, the company assists traditional enterprises in realizing digitalization and helps manufacturing enterprises design and adjust products, reducing uncertainty in research and development and production.

These efforts also enable consumers to obtain high-quality products at affordable prices, creating value for consumers. Thus, creating a positive cycle between Pinduoduo platform, manufacturing partners, and consumers.

Since this year, the company has successively launched several special plans supporting the development of manufacturing in various fields such as home appliances, clothing, sports, beauty, cosmetics, and home furnishing with technology. In the future, the company will increase investment in manufacturing to assist supply-side upgrading.

Q: What are the trends in GMV and Take Rate and has there been any changes in the policy regarding merchant Take Rate?

A: In Q3, the company worked with merchants to provide consumers with a better experience, and the user participation rate increased significantly. The company hopes that this will attract more merchants to choose the Pinduoduo platform to achieve positive financial indicators such as GMV and Take Rate. In the future, the company will continue to increase investment and fully utilize technological advantages to build a stronger competitive advantage.

Once again emphasized, the financial reporting cycle and business development cycle are not completely matched, and Q3's high profitability may not continue.

Q: What are the latest trends in the industry during the Double Eleven/Big Promotion period?

A: The motive force for the industry and the company's own development is to start from the fundamental needs of consumers, creating value for consumers every day. Shopping festivals, promotional activities, and others are just one of the many ways that the company serves consumers.

The company hopes that consumers can have a "more affordable, happier" shopping experience on Pinduoduo. Therefore, when planning shopping festival activities, the company centered on consumers and enabled them to enjoy shopping pleasure through simple rules. This year, the company cooperated with many brands and merchants to provide consumers with more high-quality goods, satisfying their demands in different categories and scenarios.

Q: What is the impact of the development of overseas business on the company's financial report, and what are the plans for future investment scale?

A: International business is still in the early stage, and the company will continue to explore and create unique value. Financial indicators are a natural result of value creation. Currently, international business is still in the early stages of development, and the financial impact is not yet clear.

Q: What is the financial impact of the agricultural strategy and what is the latest progress of the "One Hundred Billion Agricultural Research Project"?

A: Agriculture is a long-term strategy. The company hopes to promote agricultural development with technology. It is still in the early stage, but we see great potential for value creation. The company improves the efficiency of agricultural product circulation through its own technology. In Q3, it launched a series of promotional activities for agricultural products, such as the Harvest Festival and the Super Agriculture Festival, covering nearly a thousand production areas, helping local farmers continuously expand their market, and enabling consumers to obtain fresh and high-quality agricultural products in a shorter period of time.

Increased sales have pushed more agricultural research products to the market faster, accelerating technology transfer. For example, the new wheat varieties cultivated by the Wheat Research Center of the College of Agriculture, China Agricultural University, with the support of Pinduoduo's "Billion-dollar Agricultural Research" program, were unveiled.

The company will continue to invest steadfastly in the field of agriculture, helping to bring more agricultural achievements to the market.

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