PDD - Q2 2023

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and welcome to PDD Holdings, Inc. Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host today, Mr. Chen Peng. Sir, please go ahead.

Peng Cheng (Director of Investor Relations)

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Chen, and I will help host the earnings call. PDD Holdings earnings release was distributed earlier and is available on our website at investor.pddholdings.com, as well as through group news wire services. Before we begin, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call, as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. Joining us today on the call are Chen Lei, our Chairman and Co-Chief Executive Officer, Zhao Jiazhen, our Executive Director and Co-Chief Executive Officer, Liu Jun, our VP of Finance.

Lei and Jiazhen will make some general remarks on our performance for the past quarter and our strategic focus. Jun will then walk us through our financial results for the second quarter ended June 30th, 2023. During the Q&A session, Lei and Jiazhen will answer questions in Chinese, and we will help translate. Please kindly note that all translations provided are for reference purpose only. In case of any discrepancy between the original remarks and the translated version, statements in the original language should prevail. Now, it's my pleasure to introduce our Chairman and Co-chief Executive Officer, Chen Lei. Lei, please go ahead.

Lei Chen (Chairman and Co-CEO)

Hello, everyone. Thank you for joining our Earnings Call for the Second Quarter of 2023. I will start by giving a brief overview of our second quarter results. We achieved a total of RMB 52.3 billion in revenue this quarter, representing a 66% year-on-year increase. This reflects the growing trust that consumers place in our products and services. During the past quarter, we observed a continued improvement in consumer sentiment, resulting in increasing consumer demand across multiple product categories. We also actively launched various promotional initiatives that boosted consumer demand. For instance, we supported the June 18 Shopping Festival with attractive promotions and discount coupons to encourage spending. The response from consumers was positive.

Recognizing this trend, we remain devoted to connecting products directly with consumers, so that they can enjoy a wide range of quality products at attractive value, with great service satisfaction. Since the start of 2023, our main focus has been high-quality development. The results from this quarter offer concrete evidence that our strategy is starting to bear fruit. This gives us more confidence that we are on the right path, and that our investments are laying the foundation for continued quality growth. A cornerstone for achieving high-quality growth is our commitment to research and development, which is the lifeblood of innovation. Over the past 12 months, our R&D expenditure exceeded CNY 10 billion, with Q2's R&D spending hitting a new high, reflecting our dedication to investing in the future.

We will continue to increase our investments into R&D, as innovation represents the future engine of growth for the company. As a company with its roots in agriculture, we have been firsthand witnesses to how technology can transform and drive farming practices. Through technological advancement, we have optimized the matching of demand and supply, helping farmers to sell their products and consumers to get fresher produce. A key driving force behind our emphasis on agriculture is our belief in social impact of innovation. This has motivated us to support talent cultivation, promote the adoption of practical and cost-effective technology, and transform scientific research into tangible, commercially viable solutions. For the past three years, our annual Smart Agriculture Competition has been a platform to advance precision farming. We partnered with leading agronomic institutes, including China Agricultural University, Zhejiang University, FAO China, and the Shanghai Academy of Agricultural Sciences.

The latest iteration involves the use of compact spaces, like shipping containers, for vertical farming. Aspiring teams challenge themselves to come up with cost-effective ways to growing and marketing high quality greens. With our help, many teams have turned their innovations into real-time applications. For example, a pioneering team from our inaugural competition deployed 40 cutting-edge systems, empowering farmers to boost their yield by 30%. They achieved this while at the same time reducing overhead costs related to labor, fertilizer, and plant protection. A team from this year's event is in the process of utilizing an algorithm that moderates nutrient combination with the aim to make it easy for more people to use. Our diverse projects aim to bridge the gap between research and real time- real-world application. We have supported the creation of many agritech demonstration hubs.

These centers of excellence serve as fertile grounds to combat academic learning with hands-on experience. By giving budding scientists the platform to validate their research under real-world conditions, we envision speeding up the digital transformation of agriculture to the collective benefit of society. We also strive to help push the boundary of agritech through our support for fundamental research. In May, to further accelerate the pace of innovation, we made a donation of CNY 100 million to China Agricultural University. As a part of our 10 Billion Agriculture Initiative, this contribution established a dedicated research fund aimed at addressing critical needs in agriculture. Additionally, we have partnered with FAO China to start a three-year research program that focuses on four key things, namely agriculture modernization, precision farming, sustainability, and health nutrition.

Here, I'm happy to announce the appointment of Professor Ivonne Rietjens as an independent director to PDD's board. Professor Rietjens, with her long-standing tenure since 2001 as a professor at Wageningen University, and currently a department head of toxicology, is a well-respected expert in food tech research. Her three-decade expertise in food safety will no doubt be a huge support to our agritech initiative. With her on board, our board of directors now have seven members, and a majority being independent directors. Her appointment not only enriches our board of expertise, but also adds to its diversity. In addition, to strengthen our global footprint and operations, we will set up a Legal and Compliance Committee to build and oversee regional legal and compliance matters, given their complexity and different requirements of each region.

I will chair this committee, which will replace the general counsel role and function. As we stated in our IPO letter, PDD is still a young organization that will continue to adapt, as it strive to be a mature global institution. During this journey, our goals remain the same. We will continue to champion innovation, nurture emerging talents, and constantly seek to bring on the best people to guide us towards our goal of seeking quality development. Now, I will hand over to our co-CEO, Jiazhen, who will go into more details about our quality development.

Speaker 8

Thank you, Chen Lei. Hello, everybody. This is Zhao Jiazhen. In Q2, with various pro-consumption policies, we observed a clear trend of consumption sentiment improvement. To support consumption in this year's June 18 promotion, we increased our efforts. We received positive responses and saw a further increase in consumer demand on the Pinduoduo platform. Riding on the encouraging industry trend, we proactively seized the opportunities to fully embrace high-quality development. Our strategy includes the following aspects....

Jiazhen Zhao (Executive Director and Co-CEO)

第一部分呢，是高质量消费。为了顺应消费提质升级的长期趋势，从价格、服务、消费者权益保护等维度，更好地满足消费者对美好生活的需求。第二部分呢，是高质量供给。我们深入制造业、农业产业带，助力传统产业转型，让优质产品走向全国乃至全球的市场。第三部分呢，是高质量生态。我们积极承担社会责任，优化平台治理能力，通过百亿生态专项帮扶优质商家，实现平台生态的高质量转型。First, high quality consumption.

Speaker 8

To meet consumers' continued growing demand for quality, we strive to better serve consumers with more savings, better services, and upgraded consumer protection. Second, high quality supply.

We go deep in the industrial and agricultural production areas, leverage our tech capabilities to support digital transformation, and bring more quality products to the national and global markets. Third, high quality ecosystem. We show their social responsibilities and further refine our platform governance capability. By supporting quality merchants with our 10 billion ecosystem initiative, we promote a virtuous cycle, which accelerates the upgrade of our platform ecosystem。

Jiazhen Zhao (Executive Director and Co-CEO)

我们很清楚，平台的优质发展需要持之以恒的耐心投入。在过去的一个季度，我们持续让利消费者，扶持优质商家，推动平台生态建设，目前也看到了一些初步的成果，我们的业务也取得了不错的增长。

Speaker 8

We are fully aware that high quality development requires patient investment. Over the past quarter, we have seen some encouraging early results from our efforts in giving back to consumers, supporting quality merchants, and enhancing our platform ecosystem. Our business also delivered decent growth.

Jiazhen Zhao (Executive Director and Co-CEO)

下面我来为大家介绍一下，我和团队在高质量发展 的多个方面正在切实执行的具体举措。

Speaker 8

Now, let me walk you through some specific measures that my team and I are actively implementing under our high quality development strategy.

Jiazhen Zhao (Executive Director and Co-CEO)

首先是高质量消费。我们正在强化提供多实惠加好服务的能力，并将它转化为消费者能感受到的好体验，加强消费者对平台的信任，进一步激发平台消费潜力的释放。

Speaker 8

First, for high quality consumption, we are working hard to deliver more savings and better services so that we can give good experience. This improves consumer trust in our platform, which in turn stimulates spending.

Jiazhen Zhao (Executive Director and Co-CEO)

在过去的二季度，我们继续拿出真金白银，加大小贴力度，消费者喜欢什么，我们就补贴什么，真诚地回馈平台用户。如我之前提到的，在今年的六一八活动中，我们积极为消费者发放福利，覆盖了包括数码、家电、美妆、生鲜、服饰等多个品类的商品，激发了全域消费的热情。

Speaker 8

In Q2, we continue to promote a wide range of merchandise of consumers preference. As mentioned, during this year's June 18th promotion, we increased our efforts to give back to consumers. The promotions cover a full range of product categories, including electronics, cosmetics, fresh produce as well as apparel. This stimulated full category consumption demand.

Jiazhen Zhao (Executive Director and Co-CEO)

在夯实多实惠的同时呢，我们也在提升好服务的能力，增进消费者对平台的信任。例如，我们在六一八活动期间升级了物流售后等服务体系，为消费者提供买贵必赔、假一赔十、送货上门等全方位的服务保障，确保用户安心买，放心的退。我们也一直与知名保险公司以及众多知名品牌合作，商品品质保证保险，针对货物对保或者质量问题，为消费者提供快捷安心的保障。

Speaker 8

In addition to solidify more savings, we continue to provide better services, which increase consumers trust in our platform. For example, during June 18th, we upgraded logistics and after sales services such as price protection, 10x compensation for counterfeits and door-to-door delivery. These measures make sure consumers can buy with confidence and return with ease. We also cooperate with established insurance companies and brands to offer quality guarantee insurance, which covers situations such as inaccurate product descriptions or product quality issues.

Jiazhen Zhao (Executive Director and Co-CEO)

今年六一八活动结束之后呢，我们坚持，坚持从消费者需求出发，针对某些品类，品类持续开展，天天都是六一八的活动，提供优质优价的产品和服务，激活消费者在拼多多平台尝试新品类的消费潜力。而随着消费者对平台的信任感、认同感与日俱增，我们也欣喜地看到，拼多多已经成为多个品类国内外品牌商家触达消费者的主要阵地。

Speaker 8

After the June 18th promotion, we remained focused on addressing fundamental consumer needs and continued with our Everyday June 18th approach. We provided quality products and services at good prices, unleashing demand potential to explore new product categories. As our platform continues to gain trust and recognition, we are delighted to see that a growing number of brands across multiple categories have started to cooperate with Pinduoduo as the primary channel to reach consumers.

Jiazhen Zhao (Executive Director and Co-CEO)

落实高质量发展的另外，另外一个重要的方面呢，是推动产业和数字的经济协同发展，加强数实融合，让优质产品走向全国乃至全球市场，实现高质量供给。

Speaker 8

Another crucial aspect of high quality development is the co-development and integration of the digital economy and the traditional industries.

...So that more quality products can reach the national and global markets. This is what we call high quality supply.

Jiazhen Zhao (Executive Director and Co-CEO)

拼多多以农产品起家，农业是我们实现高质量发展的重要立足点。在推动农产品上行的过程中，我们发现科技创新是农业产业高质量发展的重要环节，只有加强农业科技创新，才能提高农产品的品质和附加值，更好地满足消费者对于高品质、安全、健康农产品的需求。

Speaker 8

Pinduoduo has deep roots in agriculture, which will continue to be a focal point in our pursuit of high-quality development. As we bring more agri produce to market, innovation is the key to enhancing quality and creating added value. It is crucial to meet consumers' growing demand for high-quality, safe and healthy agricultural produce through innovation and the adoption of agritech.

Jiazhen Zhao (Executive Director and Co-CEO)

在第二季度呢，我们举办了冠名多多垂直农业挑战赛，暨第三届多多农业科技大赛的决赛，也启动了第二届的拼多多杯科技小院大赛，积极参与前端的农业科技创新与普惠，希望通过技术手段提高农业生产的质量与效率，同时在平台侧加大了对科技农产品的扶持力度，加速农业科技转化，提高农产品的市场竞争力。

Speaker 8

In Q2, we launched the third Smart Agriculture Competition and second Pinduoduo Cup Growing Competition. Through these initiatives, we actively engaged in AgriTech innovation and support technology adoption in agriculture. Our vision is to further improve the quality and efficiency of agricultural production through technology. At the same time, we are stepping up support for products enabled by AgriTech on our platform to accelerate how research findings translate into products.

Jiazhen Zhao (Executive Director and Co-CEO)

与此同时呢，我们正在积极利用新技术、新模式，推动各地的特色产业带的数字化转型升级。我们供应链洞察和技术优势，能够帮助制造企业精准触达消费者需求，提升生产环节的整体效率。例如，在上个季度，我们开启了特色产业带直播，深入各个制造业产业带一线，利用直播的形式，生动形象地展示生产工艺与产品特点，让消费者直观地了解产品品质，增强消费者的信任。

Speaker 8

Furthermore, we are driving the digital transformation of manufacturing with new tools and new models. Leveraging our consumer insights and tech capabilities will help manufacturers better understand evolving consumer demand and improve production efficiency. Last quarter, our team went into industrial belt and launched a series of live streaming events to showcase a broad selection of local products to consumers. This helps consumers learn about the products tangibly and enhances their trust in online shopping.

Jiazhen Zhao (Executive Director and Co-CEO)

为了帮助众多的商家拥抱多元化的消费需求，我们也在产品设计、营销推广等领域与他们展开深入的合作，受到了众多商家的欢迎。比如近期我们与某老字号的白酒品牌深度合作，尝试线下快闪店试饮、线上拼单购买的线上线下联动的促销模式，在助力品牌线下触达年轻消费群体、深化消费者洞察的同时呢，也推动了商家在平台上创下了销量新高。

Speaker 8

We are also deepening collaborations with merchants in areas such as product design and marketing, so they can better meet diverse consumer needs. This is welcomed by many merchants. For example, we recently partnered with a well-known liquor brand. Together, we experimented with online plus offline approach, which has offline pop-up shops. This format led to their record-breaking sales on our platform, and at the same time enabled the brand to reach young consumers effectively and obtain valuable consumer insights.

Jiazhen Zhao (Executive Director and Co-CEO)

在向高质量转型的发展过程中呢，高质量生态是孕育平台和各参与方共同健康成长的优质土壤。

Speaker 8

A high quality ecosystem is the foundation that nurtures the sustainable and mutually beneficial growth of the platform and all its participants.

Jiazhen Zhao (Executive Director and Co-CEO)

上个季度，我们建立了百亿生态专项，将平台资源优先向优质商户和商品倾斜。这一专项正带领着平台的中小企业和优质商家提质增效，从而带动平台的整体服务效率与品质的提升。

Speaker 8

Last quarter, we launched the 10 Billion Ecosystem Initiative to support quality merchants and products. This initiative provides incentives for SME merchants and quality merchants to upgrade their service offerings, thereby creating a robust environment to drive up efficiency and service quality of the entire ecosystem.

Jiazhen Zhao (Executive Director and Co-CEO)

我们也大力地推进了平台治理，在食品药品安全、未成年人保护以及商家直播合规等众多的领域开展了深度的优化，对一些商品和店铺进行系统性的治理。

Speaker 8

We also made significant efforts in platform governance in areas such as food and drug safety, minor protection, and live streaming compliance.

Jiazhen Zhao (Executive Director and Co-CEO)

通过百亿生态和平台治理双管齐下，我们希望能够进一步巩固扩大平台生态向好发展的这个趋势和成果。

Speaker 8

We hope to accelerate the positive momentum in platform ecosystem with both the 10 Billion Ecosystem Initiative and our platform governance efforts.

Jiazhen Zhao (Executive Director and Co-CEO)

举个例子，为了促进平价正版图书市场的可持续发展，强化对知识产权的保护，在第二季度，我们联合国内的主流出版社、图书品牌，推出了第五季的多多读书月活动，继续投入亿元级的读书基金进行官方的补贴。...

覆盖了600万册的正版经典的热销图书，大力推动了优质内容直连消费者。截至目前呢，已经有超过2,700家的这个出版社、图书公司、渠道商进入了拼多多。

Speaker 8

For example, we collaborated with major publishing houses and book brands to launch the fifth Duoduo Reading Month. We continue to invest hundreds of millions CNY in coupons in an effort to promote a sustainable online authentic books market and to strengthen IP protection. Our effort covered 6 million copies of best-selling books, connecting quality content directly with consumers. As of today, over 2,700 publishing houses, book companies, and distributors have joined the Pinduoduo platform.

Jiazhen Zhao (Executive Director and Co-CEO)

在高质量发展的过程中呢，我们也积极地履行社会责任，为社会创造更多的价值。本月初，京津冀地区遭遇极端降雨天气，我们在第一时间向中华慈善总会捐赠3000万元，支援京津冀等地抗汛救灾。同时，我们与人民日报的新媒体合作，共同启动了定向帮扶专场活动，帮助受损地区的商户减轻生产和仓储的损失，加速复工复产。此外呢，为帮助涿州受灾的图书商家减少损失，拼多多及时上线了专场图书的销售活动，通过流量倾斜，免除佣金等帮扶的措施，帮助书商减少损失，尽快恢复经营。

Speaker 8

Throughout our journey towards high quality development, we are always looking for opportunities to show the more social responsibilities and create value for the society. Earlier this month, the Jing-Jin-Ji region was hit by severe rainfall. We sprung to action and donated CNY 30 million to support the flood relief efforts. At the same time, in partnership with People's Daily, we launched a dedicated relief campaign to help businesses in the affected regions reduce losses from production disruption and inventory damage, and help them get back to normal operations quickly. Furthermore, to help book merchants in Zhuozhou, we set up a dedicated book selling channel and provided relief measures such as traffic support and zero commission policy to help these merchants reduce losses and resume normal operations.

Jiazhen Zhao (Executive Director and Co-CEO)

我们充分认识到，平台价值的进一步提升，离不开高质量发展的长期战略。加速高质量发展转型与整体的生态质量建设，不仅从长期来看是好事，短期也会收到消费者和商户的正向反馈。我们会坚持做正确的事，持续增加投入，进一步扶持优质商家和中小制造、制造业工厂，推动农业科技普惠，为高质量发展增添动力。

Speaker 8

We are well aware that our value creation is inseparable from our long-term strategy of high quality development. Our focus on high quality development and ecosystem not only lays a solid foundation for the future, but also earns immediate positive feedback from consumers and merchants. Looking forward, we will continue to support quality merchants and SMEs, and to promote digital inclusion agriculture. We will keep doing the right things and keep up our investments in the key areas to speed up our progress towards high quality development.

Jiazhen Zhao (Executive Director and Co-CEO)

下面我把时间交给刘俊，请她为大家介绍一下我们的财务表现。

Speaker 8

Now, I'll hand it over to Jun. She will provide you with updates on our financial performance.

Jun Liu (VP of Finance)

Thank you, Jiajun. Hello, everyone. Let me walk you through our financial performance for the second quarter ended June 30, 2023. In terms of income statements, in the second quarter, our total revenues increased 66% year-over-year to RMB 52.3 billion. Our top line growth was mainly driven by consumption recovery and the early feedback from executing our high quality development strategy. Revenues from online marketing services and others were RMB 37.9 billion this quarter, up 50% from the same quarter of 2022. Revenues from transaction services this quarter were RMB 14.3 billion, up 131% from the same quarter of 2022. Moving on to cost and expenses.

Our total cost of revenues increased 135% from RMB 8 billion in Q2 2022 to RMB 18.7 billion this quarter, mainly due to increase in fulfillment fees and payment processing fees. On a GAAP basis, total operating expenses this quarter increased 41% to RMB 20.9 billion, from RMB 14.8 billion in the same quarter of 2022. On a Non-GAAP basis, our total operating expenses increased to RMB 19 billion this quarter, from RMB 12.9 billion in Q2 2022. In the past quarter, we seized the opportunities of favorable consumption trends by investing firmly and responsibly to support our long-term, high quality development. Our total Non-GAAP operating expenses as a percentage of total revenues this quarter was 36%, compared to 41% in the same quarter last year.

Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter were CNY 16.6 billion, up 53% compared to the same quarter last year. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 32%, compared with 34% for same quarter in 2022. In Q2, we stepped up our efforts during the June 18th shopping festival and throughout the entire quarter to provide more savings to consumers. We also improved our service quality to deliver better services and support consumption. Our non-GAAP general administrative expenses were CNY 370.2 million, versus CNY 164.7 million in the same quarter of 2022. Our research and development expenses were CNY 2.1 billion this quarter on a non-GAAP basis, and CNY 2.7 billion on a GAAP basis, setting a new high.

R&D is fundamental to the high quality development of our platform ecosystem. We will continue to grow our R&D capabilities so that we can understand consumers' evolving demands and serve their needs better. Operating profit for the quarter was CNY 12.7 billion on a GAAP basis, compared with CNY 8.7 billion in the same quarter last year. Non-GAAP operating profit was CNY 14.6 billion, versus CNY 10.5 billion in the same quarter last year. Non-GAAP operating profit margin was 28% this quarter, compared with 34% for the same quarter last year. Net income attributable to ordinary shareholders was CNY 13.1 billion for the quarter, compared to CNY 8.9 billion in the same quarter last year.

Basic earnings per ADS was CNY 9.64, and the diluted earnings per ADS was CNY 9, versus basic earnings per ADS of CNY 7.06, and diluted earnings per ADS of CNY 6.22 in the same quarter of 2022. Non-GAAP net income attributable to ordinary shareholders was CNY 15.3 billion, compared with CNY 10.8 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was CNY 10.47, versus CNY 7.54 in the same quarter of 2022. To sum up, over the past quarter, we delivered solid financial results, and high quality development began to show impact. Looking ahead, we will continue to invest with determination and patience to execute our high quality development strategy. We'll also react positively to competition by deepening our more savings and better services capabilities. That completes the income statement. Now, let me move on to cash flow.

Our net cash flow generated from operating activities was CNY 23.4 billion, compared with CNY 19.4 billion in the same quarter last year. As of June 30th, 2023, we have CNY 179.5 billion in cash, cash equivalents, and short-term investments. Thank you. This concludes my prepared remarks.

Peng Cheng (Director of Investor Relations)

Thank you, Jun. Next, we will move on to the Q&A session. For today's Q&A session, Lei, Jiazhen, and Jun will take questions from analysts on the line. We could take a maximum of two questions per analyst. Lei and Jiazhen will answer questions in Chinese, and we will help translate their remarks for easier reference. Operator, we may now take questions on the line.

Operator (participant)

Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. Participants are requested to restrict it to questions at each time. Your first question will come from Joyce Zhu of Bank of America. Please go ahead.

Joyce Ju (VP and Senior Equity Analyst)

Lei, Jiazhen, Jun Yingchen,晚上好。感谢接受我的提问。我有两个战略相关的问题想请教一下。第一个是刚刚我们有提到，从上季度开始，公司明确了，未来的追求高质量发展的这个战略。刚才的 opening part, Mark 也跟我们分享了很多的进展。想就这一个战略，请管理层跟我们在未来的执行的方向上，能不能再多做一些分享？我们还会看到有哪些方面去做进一步的投入和改变，来推动这种高质量的发展。包括我们内部的话，会有一些什么指标，或者说是这个，具体的，这个侧重。同时呢，也想看一下，就是它对我们公司的这个成长跟这个财务可能会有什么短期跟长期的影响。第二个问题呢，我们理解，农业是我们公司很，很重要的发展战略之一吧，也是我们平台很重要的消费品类。想问一下，农业战略和高质量发展的这两个核心战略之间，它的侧重和协同是怎么样的？未来呢，它又会怎么样地去影响公司的日常运营，还有一些投资的这个，重点。公司会不会就之前的一些投资规模和节奏有一些变化？

谢谢。我自己来翻译一下我的问题。

Speaker 9

My first question is, we note Pinduoduo has started a new long-term strategy of focusing on high quality growth since last quarter. Could management elaborate a bit more on the implementation of this strategy? What business measurements and movements have been being taken, and how this strategy is going to affect company's financial outlook in the near and longer term?

My second question is that we understand agriculture has been Pinduoduo key strategy for a very long time, and it is also a core merchandise category for the platform. How this strategy and how agriculture fit under the company's new strategy of high quality development? What impact will it have on the company's operations and financials? Will company adjust your investment budget and pace in the corresponding areas? Thank you a lot.

Jiazhen Zhao (Executive Director and Co-CEO)

你好，我是赵，我是佳臻，我来回答一下啊，你刚刚问到了这个高质量发展的这个问题。

Speaker 8

Hi, this is Jiazhen Zhao, I'll answer your question on our high quality development strategy.

Jiazhen Zhao (Executive Director and Co-CEO)

近几年來呢，我们已经逐渐完成了这个由快向稳，由营销驱动向研发驱动的这个转型。那从今年上半年开始呢，我们全面地拥抱高质量发展战略，也迈入了这个质量第一的这个发展的新的阶段。

Speaker 8

So over the past few years, we are gradually transition from fast growth to a solid development, from marketing driven to R&D driven. Starting from the first half of this year, we fully embrace the high quality development strategy, and this helps in a new development phase for us, which prioritizes our quality.

Jiazhen Zhao (Executive Director and Co-CEO)

作为一家成长型的公司呢，我觉得我们在这个服务消费者，还有构建良好平台生态方面呢，仍然有许多可以提升的地方。因此呢，修炼内功，实现高质量发展，其实是平台价值进一步提升的这个必经之路。就像我刚才提到的啊，这个执行高质量发展战略呢，它主要是分成三大块的工作。

Speaker 9

We are in the development stage, and there are still many areas to improve in terms of serving consumers well and building a thriving ecosystem. So strengthening our capability and, embracing high quality development is a necessary path to take to further deepen our value. As I have mentioned earlier, implementing this strategy mainly involves three key areas.

Jiazhen Zhao (Executive Director and Co-CEO)

第一部分呢，是这个高质量消费，我们坚持在为消费者，会继续强化这个平台的更多实惠好服务的能力，给消费者呢，带来这个全方位的体验，希望能满足他们日益多元的需求。

Speaker 9

First, is high-quality consumption. We are always consumer-centric. We work hard to strengthen our capability to give more savings and better services, so we can deliver a 360-degree good experience to consumers and meet their diversified demand.

Jiazhen Zhao (Executive Director and Co-CEO)

第二部分呢，是高质量供给，我们也正在发挥自身的这个技术背景和优势，深入供应链，推进制造业和农业的这个技术普惠，希望将更多的优质产品能够直连全国乃至全球市场。

Speaker 9

Second is high quality supply. We leverage our tech expertise and we go deep in the supply chains. We promote digital inclusion in manufacturing and also agriculture sectors. And we hope to directly connect more quality products to the nationwide and also the global market.

Jiazhen Zhao (Executive Director and Co-CEO)

第三部分呢，是高质量生态。我们通过这个百亿生态的专项，大力地扶持优质商户、中小企业和农户，以此呢提升整体平台的这个治理能力。

Speaker 9

Third is high-quality ecosystem. With our 10 Billion Ecosystem Initiative, we are actively support quality merchants, SME, SME businesses and, farmer merchants, and we also enhance our overall platform governance.

Jiazhen Zhao (Executive Director and Co-CEO)

在未来相当长时间里呢，陈磊和我呢，会一起带领团队，持续在这几个方面耐心地投入，努力地提升消费者体验，优化农业和制造业的供应链效率，进一步巩固平台生态向好的态势，做实做细高质量发展。谢谢。

Speaker 9

For the foreseeable future, Lei and I will lead our team together to invest in these areas persistently and also patiently. We strive to enhance consumer experience, optimize efficiency of the agriculture and manufacturing supply chains, and also reinforce the positive trend of our platform ecosystem and execute our high quality development strategy in every single detail of our operations. Thank you!

Lei Chen (Chairman and Co-CEO)

George，你好，我是陈磊。那我来回答一下关于第二个农业战略的问题。那么拼多多呢，是起家于农业的，那我们的发展呢，和农产品的上行呢，是息息相关。那么一直以来呢，我们也在积极地发挥自身的科技背景，来促进农业的科技普惠。

Speaker 10

This is Lei. I'll take your question on agriculture strategy. Pinduoduo started out in agriculture, and our development is deeply connected with the agriculture supply chain. We are proactively leveraging our tech background to promote digital inclusion in agriculture.

Lei Chen (Chairman and Co-CEO)

那么农产品目前来看，整个线上化率还是比较低的，那么农产品的流通效率还存在着很大的提升空间。那么在高质量发展道路上呢，以科技创新来助力农业发展，是我们作为一家科技公司呢，所能发挥的一种独特价值。那么未来呢，农业将一直是我们发展重心之一。

Speaker 10

... online penetration of agricultural produce remains relatively low. There is a lot of room to streamline the agriculture supply chain, and we can create our unique value by using our tech capabilities to facilitate the development of agriculture. Going forward, agriculture will continue to be a major focus for us.

Lei Chen (Chairman and Co-CEO)

那么过去一段时间，我们进一步地加强产学研的深度融合，那么持续地举办各项科技的赛事，那么比如多多农研科技大赛、拼多多杯科技小院大赛、全球农创客大赛等等。那么我们欣喜地看到，拼多多在推进科研成果走向市场的过程中呢，贡献了自己的力量。

Speaker 10

Recently, we continued our efforts in bringing together industry and academia. We hosted several agritech competitions, such as the Smart Agriculture Competition, Pinduoduo Cup Growing Competition, and the Global Agriculture Innovative Competition. We are happy to see our contribution to the commercialization of research findings.

Lei Chen (Chairman and Co-CEO)

那么，正如我刚才介绍的，那么我们这次呢，也迎来了一位新的独立董事，Ivonne Rietjens教授。那么Ivonne呢，自2001年开始呢，就担任了瓦赫宁根大学的终身教授，目前呢，他也是学科的系主任。荷兰是一个农业强国，该大学呢，也是世界公认的顶尖的农业科学研究机构。

Speaker 10

As I mentioned, it is our pleasure to welcome Professor Ivonne Rietjens to join our board as independent director. She has been a tenured professor at Wageningen University since 2001, and she currently serves as the head of the Department of Toxicology. The Netherlands is an agricultural powerhouse, and Wageningen University is a globally renowned institution in agronomics research.

Lei Chen (Chairman and Co-CEO)

Ivonne呢，在这个食品安全领域深耕了数十年，那么她的加入呢，将为我们注入，食品科技领域丰富的专业经验和全球前沿的科研趋势。我们非常期待在Ivonne的指导下呢，为推动农业现代化的转型做出更大的贡献。谢谢。

Speaker 10

Ivonne has decades of experience in food safety. She will bring to our board deep expertise in food technology and cutting edge agritech research trends. With Ivonne on board, we look forward to deepening our contribution in the modernization of agriculture. Thank you. Operator, we can move to the next analyst on the line.

Operator (participant)

Thank you. Our next question today will come from Yang Bai of CICC. Please go ahead.

Yang Bai (Equity Analyst)

谢谢，谢谢管理层。那我的问题是关于这个季度的财务情况的。好，我们看到这个公司，这个季度呢，总收入是同比增长了66%，那广告呢也是同比增长了50%。想请问一下管理层觉得这样的增速主要原因是什么？那公司这个季度有哪些做得比较好的地方值得分享的？以及就是说管理层觉得这个趋势会不会带到下半年。然后我的第二个问题呢，是，公司利润率同比看起来有一些轻微的下降，那这个季度公司主要在哪些方面加大了投入，以及随着行业的竞争更加激烈，管理层如何看待这个对利润率的影响？

Speaker 11

I have two questions on financials. You book our total revenue growth of 66% and online marketing service growth of 60%. What do you think contribute to this?

What are the highlights in the past quarter? And do you think this momentum will continue into the second half of the year? My second question is, we noticed your profit margin decreased slightly year-on-year. What are some of the key areas you are putting resources into? And how should we understand the fluctuation of your profit margin as industry competition further intensified? Thank you.

Jiazhen Zhao (Executive Director and Co-CEO)

你好呀，我是赵佳臻。我先来回答一下这个关于增长的问题啊。

Speaker 8

Hi, this is Jiazhen. I'll take the question on growth rate first.

Jiazhen Zhao (Executive Director and Co-CEO)

总的来说呢，这个季度的增长我觉得是主要来自于两方面的因素，一方面呢是宏观经济向好，另一方面呢是我们高质量发展的战略的初期的良好的反馈。

Speaker 8

So in short, growth this quarter can be attributed to two factors. The first is the positive industry trends, and second is the early positive feedback toward our high quality development strategy.

Jiazhen Zhao (Executive Director and Co-CEO)

首先呢，我们的业务和消费环境是息息相关的，我们也感受到大环境在持续地回暖，平台上的消费者的购物意愿呢也在不断地提升。我们觉得这与这个促消费的各项政策措施推出以及实施是密不可分的。

Speaker 8

Our business is closely tied to the overall consumption market. And we noticed a continued improvement in the macro trends and also our consumers increasing willingness to shop. We think this is inseparable from the introduction and also implementation of various pro-consumption support measures.

Jiazhen Zhao (Executive Director and Co-CEO)

在第二季度中呢，我们把握住了机遇，努力提升多实惠加好food能力，将低价高质的这个商品覆盖到了更多的商品选择，坚定落实我们的高质量发展战略。

... 例如在618活动中，我们加大了补贴力度，先后投入超CNY 100亿的消费券，赞助消费者，帮助激发了全域消费的需求。在618活动之外呢，我们也贯彻了天天都是618的理念，不间断地为消费者提供好价的产品。

Speaker 8

In Q2, we seized opportunities to enhance our capability to give more savings and better services. We expanded our value for money product choices, and also we executed our high quality development strategy with determination. For example, during the June 18th event, we increased our promotions and also invested CNY billions in coupons to give back to consumers. This helped stimulate demand for all merchandise categories. Beyond this promotional event, we also follow through with our concept of everyday is June 18th, and also providing consumers with savings nonstop.

Jiazhen Zhao (Executive Director and Co-CEO)

通过我们的努力呢，提升了这个平台用户的消费热情，这也让商家看到了更多的销售机会。同时呢，我们对优质商家的支持，也让他们更加的愿意投入资源，和我们一起呢共同服务好消费者，因此我们的营收也取得了不错的增长。

Peng Cheng (Director of Investor Relations)

And our efforts improved consumption sentiment, and this in turn generated more sales opportunities for the merchants. Also, our support for quality merchants encouraged them to invest resources and collaborate with us in serving customers well, together. So, as a result, we recorded a decent revenue growth.

Jiazhen Zhao (Executive Director and Co-CEO)

我们觉得呢，营收呢，是平台价值创造的一个自然的结果。那高质量发呢，是我们的长期的战略，我们不会刻意地追求单个季度的增速，因为我们相信，随着我们提供更好的服务，更优的性价比，服务好更多元的消费者需求，建立好更好的生态，平台呢自然地会实现可持续高质量的发展。谢谢。

Speaker 8

We believe that revenue is a natural result of our value creation, and high quality development is our long-term strategy. We do not prioritize growth over a single quarter. We think that if we can better serve the diverse consumer need with enhanced services and better savings, and if we can build a robust ecosystem, I think our platform will naturally achieve a sustainable and a high quality development. Thank you.

Jun Liu (VP of Finance)

This is Jun. Thanks. Let me take your second question. Well, first, we are still in the development phase. Profitability itself is not our priority. As Jason just mentioned, it's a natural result of the value we create. So, with that said, in Q2, we saw decent financial results, showing the early results from our high quality development strategy. In this process of executing our high quality development strategy, we are stepping up investment in many key investment areas. For example, giving back to consumers, supporting SME merchants, investing in agricultural and manufacturing supply chains, and expanding the ecosystem initiative, to name a few. These efforts are reflecting in our financial results.

Also, as competition further intensify, we will react positively by enhancing our more savings and better service core capabilities, and giving back to our consumers and merchants. On our road to high quality development, when we see opportunities to create long-term value, we will continue to exercise financial prudence and invest with determination. Thank you.

Peng Cheng (Director of Investor Relations)

Hi, operator, I think we have time for one more analyst.

Operator (participant)

Thank you. Our next question will come from Ellie Jiang of Macquarie. Please go ahead.

Ellie Jiang (Associate Director)

非常感谢管理层接受我的提问。我第一个问题是关于竞争的。今年以来，我们看到很多友商都是比较注重这个低价方面的一个策略，然后也推出了很多，相关的促销。那同时的话，我们也看到很多友商公布了一些关于，不管是买家，包括活跃商家的一些数据。想请教一下管理层怎么去评价目前竞争对于咱们业务的一个影响，以及说竞争的话是否会影响到我们后续的一个战略的制定？那第二个问题的话是关于Temu这边，我们其实也一直比较密切地去跟踪Temu的发展。那我，我理解这个业务目前还处于一个比较早期的阶段，理解的话，上次，管理层也有说过，在财务方面，这部分的贡献其实不会特别的大。但我想理......

请教一下管理层，是否方便和我们分享一下这个业务最近的一些进展，以及说，近期的一些战略方面的计划。另外，Temu的那个财务数据，是否可以进行一些分享？Let me quickly translate myself. My first question is on the competition. So we're seeing a lot of the competitors putting more emphasis towards the promotions and low pricing categories. Also, we are seeing pretty strong active buyers and merchants data from the peers. How do management evaluate the impact on our operations? Are we feeling more pressure and that would potentially impact our strategy going forward?

And the second question is on Temu. We have seen Temu, you know, in following Temu very closely in the recent periods. We understand that this is still very early stage and might have limited financial contribution, but wonder if management could share with us the latest progress of Temu and talk about the overall strategy, any financial metrics, the management can share. Thank you

Jiazhen Zhao (Executive Director and Co-CEO)

Hello, I am Jiazhen Zhao. Thanks for your question. I'll first share some of our views on this industry competition. Hi there, this is Jiazhen Zhao, and thanks for the question. I'll share some thoughts on competition first. We have noticed the recent changes in this industry. With the warming of the consumer market, consumers have also shown stronger shopping demand. We actually are not surprised. Our competitors will ramp up subsidies. Industry competition is also becoming more intense. But in our view, benign competition starting from consumer demand is actually beneficial to the overall development of the entire industry. We believe this is good for consumers and for the platform.

Speaker 8

We notice changes in the industry, and as consumption recovers and consumers show a stronger demand, it's not surprising for us to see peers stepping up on subsidies. Competition is indeed becoming more intense. We believe that healthy competition, which is driven by a consumer-centric goal, can benefit the industry, which includes not only the consumers, but also the platforms as well.

Jiazhen Zhao (Executive Director and Co-CEO)

电商行业呢，一直在飞速的发展。对于我们而言呢，应对行业快速的变化的核心，其实不是关注竞争对手的战略，而是立足于消费者的需求，提升自身的能 力，勇敢地直面竞争。因此呢，我们会将这个竞争的压力转化为增强自身核心能力的这个动力，把精力呢，会放在这个落实高质量发展上。

Speaker 8

The e-commerce industry is always rapidly evolving, and for us, the key to adapting to the rapid changes is not to focus on what our competitors are doing. Instead, it is to stay laser focused on consumer demand and sharpen our own skills, and also to face a competition directly and also bravely. We channel competitive pressure into more motivation to strengthen our core competencies and focus on implementing our high quality development strategy.

Jiazhen Zhao (Executive Director and Co-CEO)

服务好消费者呢，是我们这个价值创造的核心。我们也正在优化提供这个多实惠加好服务的能力。多实惠呢，一直是我们不变的根基。在过去的一个季度中呢，我们加码了补贴。在618大促中呢，我们投入了超过 CNY 100亿 覆盖全品类的优惠券。我们希望呢，确保消费者拼，在拼多多上买到这个丰富的低价好质的产品。

Speaker 8

Serving our consumers well is at the core of our value creation. We are deepening our capabilities of providing more savings and better services. More savings remains very important to us, and last quarter, for example, we invested $1 billion in the 618 promotion to cover all product categories, and make sure consumers have access to quality products at affordable prices.

Jiazhen Zhao (Executive Director and Co-CEO)

同时呢，这个良好的消费者体验需要全方位的努力，可能不仅是这个价格的一个单一的维度。我们延续了这个重研发的方向，快速地理解和更新消费者的这个新的需求和新的喜好。为了让消费者买得放心，我们也全面地升级了物流售后服务，消除消费者线上购物的一些后顾之忧，不断地去提升好服务的能力，改善消费环境。

Speaker 8

And positive consumer experience requires a comprehensive effort. It is not just about price, and we continue to focus on R&D to understand and also adapt to consumers' evolving needs. To help consumers shop with peace of mind, we also work very hard to provide a better services, which includes, for example, upgrading logistics and also after sale support.

Jiazhen Zhao (Executive Director and Co-CEO)

优质的供给呢，这个是实现低价好质的这个深层的支撑。我们也在进一步地这个推动农业制造业数字融合。我们的团队一直活跃在田间地头，在生产线里，在产业带的一线，希望呢，能够引导农户和中小企业在生产种植、产品设计还有物流等多个方面呢，引入标准化的流程，不断地强化高质量的供应能力。我们也推出了这个百亿生态的专项，向优质的商家、优质的商品提供扶持，引导商品品质和服务质量全面的提质增效，推动平台生态高质量地健康发展。

Speaker 8

High quality supply is fundamental to offering a value for money product. We are promoting digital transformation in agriculture and also manufacturing. Our team is active in the fields and also in the factories to help farmers and also SME manufacturers standardize and also improve design, production, as well as logistics. With our 10 Billion Ecosystem Initiative, we also provide support to quality merchants and products, and this incentivizes them to improve product and service quality. I think this in turn promotes the healthy and high quality development of our platform ecosystem.

Jiazhen Zhao (Executive Director and Co-CEO)

我们推出的这些举措呢，得到了这个各方不错的初步的反馈，所以呢，更坚定了我们在落实高质量发展的这个决心。Our strategy is very clear, but doing it well is not that easy. It still needs to have this doing the right thing, doing things right, this long-term proposition. We will, this insist on using Ben Fen to demand of ourselves, to improve ourselves in the process, and thus, create greater value. Thank you.

Speaker 8

We, we see the positive feedbacks from this effort, and this gives us confidence to continue on this path of high quality development. Our strategy is very, very clear, but executing it well is not that easy. It actually requires a long-term commitment, and we will need to do the right things and also do things right. We will continue to stick to our Ben Fen, improve ourselves in the face of competition and create a greater value. Thank you.

Jun Liu (VP of Finance)

Thanks for the question. Allow me to address your second question on Temu. Well, for our global initiative, Temu, is currently in a learning stage. Our key focus right now is how we can apply our expertise to create our unique value. We do not focus on monetization or other financial metrics at the current stage. We hope to leverage our tech background and supply chain know-how to bring quality products at good prices to consumers in various markets globally. And this represents us with both challenges and learning opportunities. Currently, our team is laser focused on understanding and adapting to different cultural preferences, social environments, and consumer demands in different markets, with the aim of creating more unique value.

As we continue to understand and explore the consumer demands from the different markets, we will carefully evaluate the ROI of every investment opportunity and make responsible capital allocation decisions. Thank you.

Peng Cheng (Director of Investor Relations)

Thank you, everybody, for joining us on the conference call today. It's about time. Thank you, and have a great day.

Operator (participant)

The conference has now concluded. We do thank you for attending the presentation today. You may now disconnect.