PDD Holdings (Nasdaq: PDD) today released its financial report for the third quarter of 2024 ending September 30: total revenue was 99.3544 billion yuan, a year-on-year increase of 44%. According to non-US GAAP, net income was 27.4587 billion yuan, a year-on-year increase of 61%.

After the financial report was released, the Chairman and Co-CEO of Pdd Holdings, Chen Lei, Executive Director and Co-CEO Zhao Jiazhen, and Vice President of Finance Liu Jun attended the subsequent earnings conference call, interpreted the key points of the financial report, and answered questions from analysts.

The following is the main content of the analyst Q&A session from the conference call:

UBS Group analyst Kenneth Fong: My first question is, in the previous quarter, management also emphasized that PDD Holdings will continue to invest in the merchant ecosystem. During this time, we have seen the company continuously introduce many policies to support merchants. Could the management please share with us the current achievements in this area? What are the future plans of the management in this regard?

My second question is about PDD Holdings' global business. I see that the company's globalization business is actively exploring new markets, but at the same time, we also notice that the external environment has been constantly changing, with different voices towards the company's business. Could the management share some thoughts on this? What are the plans of the management for the future development of the global business?

Zhao Jiazhen: I will answer the question about merchant support policies.

As we have been emphasizing, PDD Holdings, as an e-commerce platform, requires collaboration between the platform and all stakeholders in the ecosystem to create value for consumers. Merchants are important partners in serving our consumers well. Therefore, a healthy and sustainable merchant ecosystem is an important foundation for the platform to achieve high-quality development.

To this end, this quarter we have made significant investments in the merchant ecosystem, vigorously supporting high-quality merchants, and launching the 'Billion Rebate' plan. As mentioned in our previous remarks, we have already implemented a series of new measures such as service fee refunds, reduced guarantees, exempted logistics transfer fees, and enhanced merchant after-sales services. Through long-term and effective implementation, we hope these policies can drive high-quality merchants to achieve high-quality development. For example, in terms of cost reduction, we have introduced policies like 'Service Fee Refunds' and 'Guarantee Reductions.' These policies not only reduce the operating costs for merchants but also increase operational efficiency. In the long run, this will incentivize merchants to further improve their products and services.

In addition, in the third quarter, we also put a lot of effort into logistics. We launched a policy to reduce logistics costs, exempting the logistics transfer fees for orders from businesses to remote western regions, so that businesses can cover more consumer groups at a lower cost. The implementation of this policy further promotes the implementation of PDD's "e-commerce westward expansion plan" and encourages more high-quality products to be opened up to western regions.

These policies have received positive feedback from many businesses at present. In the future, we will make more long-term and meaningful investments in this direction. Through the improvement of the business ecosystem, we hope that PDD can build a higher quality supply base and work with businesses to provide better products and services to consumers.

Chen Lei: Let me answer the second question about global business.

In terms of global business, our goal and original intention have always been to bring unique value to consumers in different countries, and this will not change. To achieve this, we will continuously strengthen our own capabilities, and make long-term investments and optimizations in various aspects such as supply chain capabilities and service levels.

With the development of PDD's business, our consumers and various external stakeholders are raising higher demands on us. Faced with these situations, we always maintain a proactive and open attitude. During this period, we have actively communicated with external stakeholders in the business locations, carefully listened to their opinions and suggestions about our business, and promptly reflected valuable feedback into our daily operations, thereby continuously optimizing the standards of service and compliance level.

Currently, we see that these communication efforts have begun to show initial results, and our operations in various locations are demanding higher standards of themselves. With the development of global business, we will continue to focus on enhancing the capabilities in these aspects to provide more high-quality services to global users that are more in line with local usage habits and standards.

At the same time, as mentioned in the previous quarter, the competition faced by PDD's global business is becoming increasingly fierce. This competition, coupled with the complex external environment, will inevitably cause some fluctuations and impacts on our business. However, these short-term impacts will not shake our determination to continue exploring ahead. The sharpening of the environment and the external pressure will constantly drive us to improve ourselves, create a safer and more reassuring shopping environment for global consumers, and provide them with a better consumer experience.

HSBC analyst, Charlene Liu: I have two questions. The first question is about compliance and platform governance. From the recent statements of the management and public information, we noticed that the company has actually paid a lot of attention to compliance and platform ecology recently, and we have seen the company has launched many new initiatives. Could the management introduce to us specifically what measures the company has taken? What achievements does the management hope to make in this regard in the future?

My second question is about profits. We noticed that this quarter the company's profits and profit margins have both decreased compared to the previous quarter. Could management share their thoughts on this? Does this quarter's performance align with the 'long-term trend' mentioned by management in the previous quarter's meeting? Looking ahead, what does management believe the company's future profit direction should be?

Zhao Jiazhen: Let me answer the questions about compliance and governance.

The company's business development and the regulatory trends in various markets have placed higher demands on our compliance capabilities. We have always believed that providing consumers with a safe and secure shopping environment is the responsibility of an e-commerce platform. Therefore, we consider compliance and a high-quality ecosystem to be important components of pdd holdings' 'high-quality development strategy.'

To this end, we have continued to intensify and implement a series of resolute governance measures in this quarter, further investing and improving the platform's compliance and governance system. From a compliance management perspective, we continue to invest heavily in building a professional compliance team, keep up-to-date with regulatory updates and industry trends in our markets, and translate them into practical compliance guidance. At the same time, we have prepared very rich and detailed compliance education materials for merchants to enhance their compliance capabilities and promote the high-quality development of supply chain merchants.

From a technical perspective, we have further optimized the norms and processes for merchants to join and list products. We have invested a lot of resources, combined with technology and manual screening methods, actively inspected and managed products, further improving the ability to detect potential safety risks in goods and respond promptly. While actively opening up the market, we are also actively cooperating with external stakeholders in responding to their requirements, setting high standards for ourselves, and striving to establish pdd holdings' industry-leading compliance level.

Through the investments in compliance and governance mentioned above, combined with the platform support policies for high-quality merchants, we hope to achieve optimization and upgrading on the supply side, cultivating a healthier and more sustainable merchant ecosystem in a way that 'rewards good currency and eliminates bad currency.' These efforts will ultimately translate into products and services with better value for consumers, creating more value for them.

Liu Jun: Let me answer the second question about profits.

Indeed, in the previous quarter, we mentioned that due to competition and external factors, pdd holdings' revenue growth may slow down. Furthermore, as we will steadfastly invest in building a healthy and sustainable platform ecosystem, in the long run, our profit capabilities may experience slight fluctuations, or even decline.

However, setting aside the discussion on performance, we have already seen initial results from the investment in platform ecosystem. The positive feedback from merchants on our merchant support plan has greatly encouraged us. We believe that investing in the merchant ecosystem can lay a foundation for the healthy and sustainable development of pdd holdings platform. In the long run, these efforts will benefit platform merchants, consumers, and the platform itself. Additionally, we believe that through supply chain upgrades, we will also create more value for consumers. This will be a long-term process.

Looking ahead, we will continue to explore investments in this area on the platform in order to achieve better results.

UBS Group analyst Joyce Ju: I have two questions. The first question is, could management share with us whether during the recent 'singles' day sales' event, on the pdd holdings platform, management observed any new consumer trends? How does management evaluate pdd holdings' performance in this event? Were there any new gameplay changes for pdd holdings in this event? What were the results of these changes? My second question is about competition. All along, including events like 'singles' day' promotions, we can feel that the current domestic e-commerce competition environment is still very intense. This quarter, we have seen a slowdown in pdd holdings' domestic growth rate as well. My question is, could management share with us how you view this situation? Correspondingly, will there be any adjustments to the company's future global strategy?

Zhao Jiazhen: I will answer questions regarding domestic consumption and promotions.

We have seen that since the second half of this year, overall consumption has been picking up, and there has been a good momentum in offline consumption large cap. Recently, driven by the promotional atmosphere, we have also seen the consumption vitality on the pdd holdings platform further unleashed. From the consumption trend perspective, we have also observed that in the context of interconnectedness, consumers' choices are more diversified, and the comparison and flow between various platforms have increased.

Facing such trends, from the platform's perspective, firmly positioning consumers and enhancing consumer trust in the platform are fundamental. For this reason, we have consistently invested a significant amount of resources on the consumption and supply side to bring real benefits to consumers, constantly reinforcing consumer mindset. In the recent 'singles' day sales' event, we introduced the 'billion-yuan consumer coupons' activity for the first time, providing tangible benefits to consumers. After the activity started, the feedback from consumers was very enthusiastic. Sales of various categories of products, especially agricultural products, small appliances, daily necessities, etc., have shown significant growth. The platform and merchants have effectively met consumers' demand for high-quality and cost-effective products.

At the same time, we launched the 'super multiple compensation' activity, focusing on supporting a group of high-quality merchants with product and technological innovation capabilities. Many domestic brands have launched products on the pdd holdings platform that cater to users' mindset, quickly gaining traction during the event. The growth of these high-quality supplies has provided consumers with better and more diverse product choices, further consolidating the trust foundation of consumers in the pdd holdings platform, achieving mutual benefit and win-win between consumer and supply sides.

In the past, guided by the concept of "consumer first", we have made long-term, patient, and continuous investments, accumulating valuable user mindshare for the platform. Currently, we believe that by persisting in making high-quality long-term investments in consumer, supply, and ecological aspects, we can further strengthen consumer trust in the pdd holdings platform. This is also the cornerstone of our long-term healthy development.

Your second question is related to industry competition.

As we have communicated with you many times before, the current overall e-commerce competitive environment remains very intense, and our business faces many challenges. At the same time, constrained by the natural path of business development, our business growth rate will not be linear extrapolation in the long term. In such an environment, we believe that the slowdown in revenue growth is inevitable.

Since the third quarter, with further efforts in macro policies, we have seen many opportunities while also facing some challenges. We see that China's domestic market is very active, with many changes. The market's operating models are more diverse, and competition has become more intense. In response to some changes, the aging and insufficient capabilities of the pdd holdings team may also cause us to miss some macro opportunities. For example, the macro policies this year have had a significant positive impact on certain industries and consumption. Our team, limited by the historical capabilities of third-party platform operations, did not fully grasp the dividends of these macro policies. This led to us needing to incur significantly higher costs than other peers in order to maintain the same competitiveness in commodities on the platform, which will inevitably affect the profitability of the pdd holdings platform in the short term and for some time to come.

With the continuation and expansion of these consumer-promotion policies, we will actively embrace change, seize new opportunities, and better serve consumers. However, due to the operational model of the pdd holdings platform, historical experience limitations of the team, and insufficient capabilities, our relative disadvantages compared to peers will exist significantly for a period of time, and the resulting financial impact may further expand. For us, this is indeed a challenge.

Therefore, we will further elevate our standards, strengthen core business capabilities, continue to seek new investment opportunities in the supply chain and platform ecology, make long-term high-quality investments, and convert these capabilities into offering consumers higher-quality, more cost-effective products and better services. We firmly believe that the high-quality development of ecology and supply side is an important foundation for the long-term development of the platform, creating long-term value for consumers. This is a long and patient process. We are prepared for a protracted battle, and the changing external competitive environment will not affect our pace. (End)