Increasing investment in the future, Pinduoduo is determined to continue to explore (Telephone Conference Summary)

Below is the summary of the Pinduoduo Q2 conference call. For financial performance review, please refer to "Performance Explosion! "Roll King" Pinduoduo is the King behind it".

Analyst Q&A session:

Q: Advertising revenue growth accelerated for two consecutive quarters. What are the driving factors behind it?

A: Consumption started to recover at the end of May, and the company has taken many measures to support it. Many merchants and brands actively participated in this year's 618 event. On the platform, some categories such as daily necessities, agricultural products, small household appliances, and beauty have seen significant growth.

In the second quarter, due to external reasons, overall investment was passively reduced, which is not conducive to cultivating long-term competitiveness. Therefore, we need to make greater efforts to further consolidate our core capabilities.

Q: Regarding the update of branding progress. Because many brands participated in Pinduoduo's 618 sales, how much help did it provide to quarterly performance? What strategies will be used in the future to attract more brands?

A: Consumer demand has become diversified, so they need more products and choices. Our goal is to bring them a more affordable and enjoyable shopping experience.

Q: Regarding the upcoming cross-border e-commerce platform, can the management share with us its strategic plans and progress? What are its goals and budget?

A: Regarding outbound business, we believe this is a direction worth trying. However, we will not simply repeat what others have done, and fully understand that overseas business will be full of challenges and requires constant experimentation. The entire process will not happen overnight, but the experience accumulated during the process will be very valuable for the company and the team.

Q: Global internet companies are all taking measures to reduce costs and increase efficiency. What is the management's evaluation of this trend?

A: At this stage, we are in a growth period and need to constantly seize key opportunities and make corresponding investments. In the previous quarter, especially the first half, our team was passively reduced in investment, which may bring good financial data in the short term, but in the long run, it will affect the overall competitiveness of our platform. Therefore, we believe that we should establish a foothold for the long-term, invest in the future, and focus on long-term investment in agriculture and technology research and development.

Q: The second quarter's profits were better than market expectations. What are your views on profit expectations for the second half of the year?

A: The company did not overly focus on profitability. The profitability in the previous quarter was affected by some short-term or one-time factors. We can see the recovery of consumption and the improvement of user participation, but the competitive landscape is still intensifying. We have received short-term benefits from project delays and reduced business-related costs. Therefore, this quarter's profits cannot reflect the long-term trend.

Q: The growth of Duoduo Mai cai and community group buying areas is not as fast as before. Companies in the industry have also begun to focus on expenditure and unit economics. Will Pinduoduo also focus more on efficiency?

A: In terms of efficiency, Duoduo Mai cai is a natural extension of our platform business, and it is also where we can implement our own agricultural characteristics. Our strategy's execution will not be affected by external short-term changes. Since the launch of Duoduo Maicai in the second half of 2020, we have seen that Duoduo Maicai has brought consumers fresher, more affordable, and more convenient products in the local agricultural product supply and demand matching and performance. At the same time, there are many areas where this business can be improved, such as more effective supply and demand matching, how to tap into high-quality sources, how to optimize the distribution system, and enhance performance services, etc.

Q: Regarding the cost rate, can the trend of decreasing cost rate continue as income further increases? How does Pinduoduo achieve growth while optimizing costs?

A: The proportion of cost rate has decreased to 47% in this quarter, but it should be noted that this quarter should not be used as a long-term indicator. Pinduoduo is still in the development stage, and in the long term, this is not a very good trend. As the competitive landscape intensifies, we will continue to invest.

Q: What is the strategic priority of investment in each business unit, and can you rank them?

A: We always base our investment on meeting the constantly changing consumer needs. As our user base reaches its current scale, how to better serve them and deepen their trust and mindset is our focus, under this goal, agriculture and research and development are the key focuses.

Firstly, at the consumption end of agriculture, we can enable consumers to buy fresher and more affordable products through more efficient agricultural products; in circulation, we can use technology to improve the flow efficiency of agricultural products; in production, we can promote agricultural technology to help farmers increase their yield and actively promote training for small agricultural and commercial households to help them achieve higher income.

On the other hand, by enhancing research and development capabilities, we can understand consumer needs and preferences, improve their shopping experience, and create more value.

Pinduoduo is still in its growth period, so patience and continuous investment are needed to continuously improve team capabilities and better serve consumers. The above is our development focus.

Q: At the end of the second quarter, you had more than RMB 100 billion in cash, and other companies would choose to distribute dividends or repurchase, does Pinduoduo have similar plans?

A: Considering the current competitive landscape, there are still many areas where we can improve to meet consumer demand, such as agricultural research and development. We are still in the investment period and hope that continuous investment will bring long-term value.

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