PDD - Q4 2022

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to PDD Holdings, Inc. fourth quarter and fiscal year 2022 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 that today's conference is being recorded. I would now like to hand the conference over to your host today, Mr. Cheng Peng. Sir, please go ahead.

Cheng Peng (Director of Investor Relations)

Thank you, operator. Hello, everyone, thank you for joining us today. My name is Chen, 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 GlobeNewswire services. Before we begin, I would like to refer you to our safe harbor statements in earnings press release, which applies to this call as we will make certain forward-looking statements. 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 Chief Executive Officer, and Liu Jun, our VP of Finance. Lei will make some general remarks on our performance for the past quarter and our strategic focus. Jun will...

Then take us through our financial results for the fourth quarter and fiscal year ended December 31, 2022. During the Q&A session, Lei will answer questions in Chinese, I will help translate. Please kindly note that all translations provided are for reference purpose only. In case of the any discrepancy between their original remarks and the translated version, statements in the original language should prevail. It is my pleasure to introduce our Chairman and Chief Executive Officer, Chen Lei. Lei, please go ahead.

Lei Chen (Chairman and CEO)

Hello, everyone. Thank you all for joining us on our earnings call for the fourth quarter and the fiscal year of 2022. Let me begin by summarizing our results for Q4 and the full year of 2022. Our total revenue for this quarter was RMB 39.8 billion, which is a 46% increase compared to the previous year. Our total revenue for the past year was RMB 130.6 billion, which represent a growth of 39% year-over-year. In 2022, we focused on strengthening our core capabilities. We invested over RMB 10 billion in research and development last year, which is the highest amount since our establishment. Our goal is to further improve our technological know-how and bring the benefit of digitalization to our users and ecosystem partners.

We will continue to invest in R&D as a long-term commitment to better serve our users and society as a whole. During the past year, we are encouraged to see many of our young colleagues take on more responsibilities and step into bigger roles. These young talents are full of passion and creativity and have demonstrated their ability to take on new challenges, explore different possibilities, and execute our vision with passion and determination. We will continue to provide more personal development opportunities for them to grow as future leaders. As a young company still in the investment stage, we will remain agile and energetic as we move forward, and we are committed to adapting to trends in consumer preferences. My team and I are eager to keep exploring and identifying the right opportunities.

When we find the right opportunities, we will invest and execute relentlessly to create value for consumers and the society. In Q4, we observed rising sentiment among our users. To support consumption recovery, we actively leveraged resources in the Pinduoduo platform. During the promotion season, we stepped up our investment to further improve consumer engagement and build their trust. For example, during the Double Eleven period last quarter, we provided robust coupons and discounts in a simple and straightforward way, making shopping easier and more enjoyable for our consumers. We are also working hard to enlarge the diversity of products on our platform to address our consumers' diverse needs. With efforts of our platform as well as merchants, we saw decent performance across various categories during the promotion season. For example, categories such as mobile phones and cosmetics show encouraging growth among users with different demographics.

The order volume of many seasonal agricultural products more than doubled, which helped to boost consumer awareness of various local agricultural production regions. As the Chinese New Year happened earlier this year, we launched a Chinese New Year promotion in late December to meet consumer needs. We work closely with merchants all over the world to curate more product selections for consumers, and we are happy to see that our efforts have paid off, with many imported produce such as cherries from Chile and the salmon from Norway receiving very positive feedback. We are glad to contribute to supporting consumer confidence. As the consumption continues to recover and consumer sentiment continues to improve, everyone can see the potential and opportunities in this market. As the industry evolved, we noticed a number of recent moves by our peers. I believe healthy competition is beneficial for this industry.

Sometimes when competition intensifies, some companies may take different actions. For us, we will always adhere to our fiduciary duty as a company. Focus on our own sustainable development. Embrace competition, even when sometimes it involves unsustainable practices from peers. We always think about how to better serve our consumers. We are also fully aware that we still have a long way to go before we can fully meet consumers' evolving needs. We are committed to deepening our value proposition of more savings, more fun. We will continue to invest in supply chain to improve supply chain efficiency and satisfy consumers' increasing needs for quality products. In the manufacturing sector, for example, Pinduoduo can quickly gather consumer insights to help manufacturers make more informed decisions on project design and production.

This enables the creation of products that better match consumer needs and passes on the savings to consumers. In the past year, we rolled out multiple initiatives to help manufacturers directly engage with end consumers. Take a manufacturer in the personal care sector as an example. He used our insights to identify opportunities for personalized quality products among the younger generation. As a result, the manufacturer developed personal care products with pleasant features and designs, which received excellent market feedback. This also helped the manufacturers to gradually establish its own brand. Over the past 7 years, we have helped incubate thousands of manufacturers' brands in this way. Our supply chain insights and technology can help manufacturers better position themselves, develop popular products in a rapid changing market, and reduce uncertainty in production.

We are dedicated to build a platform that is accessible to all merchants and brands, regardless of size. In the agricultural sector, we continue to utilize our resources and technology to promote digital inclusion and generate a positive impact. We devote ourselves to facilitating the adoption of agri-tech solutions. Since 2020, Pinduoduo has hosted a flagship smart agriculture competition for 3 consecutive years, offering a stage for young agricultural researchers and growers to explore practical technology solutions that improve yield, shorten production cycle, and promote sustainability. We also help teams from previous competitions to commercialize their technical solutions on a large scale. By promoting agri-tech adoption, we hope to push forward agricultural modernization. Another key driving force is the training of new farmers. These young new farmers have returned to their hometown after years of experience in large cities.

They are tech-savvy about the latest tools such as live streaming, and they are full of energy and drive. With the help of insights from our platform, they can develop good understanding of consumer needs and play an important role in their local communities. On average, one such new farmers can bring 5-10 other young people into e-commerce, creating around 50 local job opportunities directly or indirectly. Our efforts in supply chain have generated a meaningful positive impact for the society. For example, last quarter, fair weather in winter caused a supply chain disruption, which prompted us to quickly assemble a dedicated team and launch a nationwide campaign with People's Daily. Through our Help the Farmers channel on Pinduoduo platform, we provided dedicated traffic support to help affected farmers to sell their unsold seasonal produce by reaching more end consumers in a short period of time.

Our Duo Duo Grocery teams all across the country also helped play an important role as each team visited various agricultural production regions in their province, sourced unsold produce directly from farmers, and quickly matched it with local consumer demands to sell it. With our team's strong efforts, we were able to sell nearly 15,000 tons of agricultural produce nationwide during this campaign. We are encouraged to see that our supply chain capabilities can create tangible value for the sector and the society. We are proud to receive the FAO 2022 Innovation Award from the Food and Agriculture Organization of the United Nations, which recognizes innovation that creates an impact in the agricultural supply chain.

This award is a vote of confidence in our holistic and proactive approach to agriculture, and it motivates us to keep forging ahead so that more and more people can enjoy the benefits of digital inclusion and technology production in agriculture. Here, I would also like to provide an update on Temu, the new global online marketplace that we launched in September 2022. Temu and Pinduoduo are sister companies under the parent company, PDD Holdings, which has built the sourcing, logistics, and fulfillment capabilities developed to support these various businesses. We strive to create our own unique value with Temu, so we always start from the fundamental consumer need and explore how we can serve them well. Temu will stick to the values of empowerment, diversity and inclusion, integrity, as well as social responsibility.

As we enter the new year, we remain committed to creating value for all stakeholders, therefore, we will remain patient and invest for the long term. Our goal is to further improve the services we provide to consumers and bring more businesses into a digital economy to increase opportunities for local communities and small businesses. Thank you for your continuous support. Now, let me turn it over to Jun to update you on our financial performance.

Jun Liu (VP of Finance)

Thank you, Lei. Hello, everyone. Let me walk you through our financial performance in the fourth quarter and fiscal year ended December 31st, 2022. In terms of income statement, our total revenues increased 46% year-over-year, RMB 39.8 billion in the fourth quarter, and 39% year-over-year, RMB 130.6 billion for the full year of 2022. This was mainly driven by an increase in revenues from online marketing services and transaction services. Revenues from online marketing services and others were RMB 31 billion this quarter, up 38% compared to the same period of 2021. This was primarily due to an increase in merchant activities as a result of improvements in consumer sentiment. Our transaction services revenues this quarter were RMB 8.8 billion, up 86% versus the same period of 2021. Moving on to cost and expenses.

Our total cost of revenues increased 37% from RMB 6.5 billion in Q4 2021 to RMB 8.9 billion this quarter. For the full year, our total cost of revenues decreased 1% to RMB 31.5 billion. Total operating expenses this quarter were RMB 21.8 billion on a GAAP basis, versus RMB 13.8 billion in the same quarter of 2021. On a non-GAAP basis, our total operating expenses increased to RMB 19.3 billion this quarter from RMB 12.3 billion in Q4 2021.

During the past quarter, we devoted more resources to better address user needs, encourage their consumption confidence, as well as step up investments in our long-term focus areas, such as R&D and agriculture. Our total non-GAAP operating expenses as a percentage of total revenues have increased from 45% in Q4 2021 to 48% in this quarter. For full year of 2022, total GAAP operating expenses were RMB 68.7 billion, up from RMB 55.3 billion last year. Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter were RMB 17.2 billion, up 59% versus the same quarter of 2021. We offered various forms of promotions and subsidies and increased advertising spending in Q4 to support consumption recovery.

On non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 43%, compared with 40% for the same quarter in 2021. For the full year, non-GAAP sales and marketing expenses increased from RMB 43.2 billion in 2021 to RMB 52.2 billion in 2022. Our non-GAAP general and administrative expenses were RMB 360.8 million in Q4, versus RMB 195.8 million in the same quarter of 2021. Our annual non-GAAP general and administrative expenses were RMB 1 billion in 2022 versus RMB 748.4 million last year. Our non-GAAP research and development expenses were RMB 1.7 billion in the fourth quarter, an increase of 34% from RMB 1.3 billion in the same quarter of 2021.

The increase was primarily due to an increase in CapEx and the recruitment of more experienced R&D personnel and several costs. As a technology-driven company, the value we create could not be achieved without our R&D efforts. We need to further grow our R&D capabilities to understand the constantly evolving customer demand and drive innovation to satisfy their needs more effectively. In addition, we continue to leverage our technology background to improve digital technology adoption sectors such as agriculture and manufacturing. It is worth noting that for full year, our annual GAAP R&D expenses surpassed RMB 10 billion for the first time. We aim to continue to step up investment in this area to form a solid foundation for our long-term development. Operating profit for the quarter was RMB 9.1 billion on a GAAP basis and RMB 11.6 billion on non-GAAP basis.

Net income attributable to ordinary shareholders was RMB 9.5 billion for the quarter and RMB 31.55 billion for the full year. In the fourth quarter, basic earnings per ADS was RMB 7.42, and diluted earnings per ADS was RMB 6.52. Versus basic earnings per ADS of RMB 5.26 and diluted earnings per ADS of RMB 4.66 in the same quarter of 2021. Non-GAAP net income attributable to ordinary shareholders was RMB 12.1 billion for the quarter. In the fourth quarter, non-GAAP diluted earnings per ADS was RMB 8.34 versus RMB 5.88 in the same quarter of 2021. That concludes the income statement. Let me move on to cash flow.

Our net cash flow generated from operating activities was RMB 26.6 billion for Q4 and RMB 48.5 billion for the full year of 2022. Compared with RMB 16.4 billion in the same quarter of 2021 and RMB 28.8 billion in 2021, primarily due to the increase in net income and the changes in working capital. As of December 31st, 2022, the company had RMB 149.4 billion in cash equivalents and short-term investments. Thank you. This concludes my prepared remarks.

Cheng Peng (Director of Investor Relations)

Thank you, Jun. Next, we will move on to the Q&A session. For today's Q&A session, Lei and Jun will take questions from analysts on the line. We could take a maximum of two questions per analyst, and Lei will answer questions in Chinese, and I will help translate his 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 two questions at each time. Your first question comes from Joyce Ju with Bank of America. Please ask your question.

Joyce Ju (VP and Senior Equity Analyst)

Thanks management for taking my questions. I have two questions. The first one is, as now Pinduoduo develop into an e-commerce conglomerate with multiple business initiatives globally, how could management actually prioritize different business lines? Can management share more about your latest strategies going forward? Have you shifted your strategy after you have expanded your business lines globally? How do you position yourself in the global markets? My second question is actually related to the revenue. Your online marketing service revenue grew 38% year-over-year last quarter, ahead of the industry growth and peers. At the same time, we have seen this represent a deceleration from the third quarter. How should we understand the growth and how should we actually expand the momentum going forward?

非 常 感 谢.

Lei Chen (Chairman and CEO)

呃 ，Joyce 你 好 。 那 么 首 先 我 来 回 答 一 下 ， 就 是 有 关 这 个 公 司 发 展 战 略 这 个 问 题 。

Cheng Peng (Director of Investor Relations)

Hello, Joyce. Thank you for your questions. I can take your question on strategy first.

Lei Chen (Chairman and CEO)

首 先 呢, 我 觉 得 我 们 的 公 司 呢, 仍 然 处 于 自 身 的 一 个 成 长 期, 还 没 有 达 到 这 个 稳 定 期. 在 服 务 好 消 费 者 的 这 个 方 向 上 呢, 我 们 仍 然 有 很 长 的 路 要 走. 为 了 更 好 地 服 务 消 费 者 呢, 我 们 会 坚 定 地 执 行 我 们 的 战 略, 我 们 的 战 略 呢, 就 是 通 过 研 发 和 技 术 来 创 造 长 期 的 价 值.

Cheng Peng (Director of Investor Relations)

First of all, we are still in our development stage, instead of a stabilized phase. We still have a long way to go, in terms of serving consumers well. To better serve consumers, we will firmly stick to our strategy, which is to create long-term value through R&D and technology.

Lei Chen (Chairman and CEO)

呃 ， 那 我 们 呢 ， 多 多 呢 ， 是 一 家 以 技 术 为 核 心 的 公 司 ， 那 么 超 过 半 数 的 员 工 呢 ， 都 是 工 程 师 ， 那 么 很 多 核 - 核 心 的 管 理 层 呢 ， 也 是 技 术 出 身 的 。 那 么 呢 ， 从 为 销 -- 用 户 ， 为 消 费 者 创 造 价 值 的 角 度 来 说 ， 那 么 高 效 地 去 理 解 快 速 变 化 的 用 户 使 用 偏 好 ， 快 速 地 迭 代 服 务 ， 那 么 这 些 呢 ， 都 离 不 开 强 大 的 研 发 能 力 。 所 以 我 们 坚 信 呢 ， 未 来 服 务 好 用 户 的 关 键 呢 ， 是 继 续 加 强 我 们 自 己 的 研 发 能 力 。

Cheng Peng (Director of Investor Relations)

We are a technology-driven company. More than half of our employees are engineers. Also, many of our core management team members are also from a technical background. From the perspective of creating more value for users, many areas such as understanding the rapidly changing user preferences and continuously iterating our services. All these areas are inseparably linked to our R&D capabilities. We firmly believe that the key to serving our users well in the future is to further strengthen our R&D capabilities.

Lei Chen (Chairman and CEO)

那 么 与 此 同 时 呢 ， 我 们 也 会 继 续 地 专 注 ， 呃 ， 用 技 术 呢 来 支 持 农 业 和 制 造 业 。 那 么 在 农 业 方 面 呢 ， 会 继 续 地 通 过 我 们 的 技 术 背 景 ， 那 么 对 整 个 农 业 产 业 链 中 ， 呃 ， 不 同 的 环 节 ， 啊 ， 都 进 行 投 入 ， 带 动 更 多 的 农 产 品 上 行 。 同 时 呢 ， 发 挥 拼 多 多 的 整 个 的 平 台 优 势 ， 让 更 多 的 农 业 研 究 的 成 果 更 快 地 走 向 市 场 。 那 么 在 制 造 业 领 域 呢 ， 我 们 希 望 能 通 过 自 己 的 投 入 ， 啊 ， 帮 助 更 多 的 制 造 工 厂 进 行 实 现 ， 呃 ， 数 字 化 升 级 ， 从 而 提 升 他 们 的 效 率 。

Cheng Peng (Director of Investor Relations)

At the same time, we will continue to focus on supporting the agriculture and manufacturing industries through technology. For agriculture, we will continue to invest in the various links along the agricultural value chain with our technical expertise so that we can facilitate the efficient distribution of agricultural produce. We will also leverage our resources on the Pinduoduo platform to bring more agri-tech solutions to the market faster. As for the manufacturing sector, we will devote more resources and help many more manufacturers as well as factories to go through digital transformation and improve their efficiency.

Lei Chen (Chairman and CEO)

加 强 科 技 能 力 ， 提 升 农 业 和 制 造 业 的 供 应 链 效 率 ， 这 是 我 们 明 确 的 长 期 战 略 。 在 这 个 方 向 上 ， 我 们 的 投 入 力 度 呢 ， 是 不 会 受 到 短 期 的 外 界 因 素 波 动 的 影 响 。 我 们 会 做 出 呢 ， 持 之 以 恒 的 投 入 。

Cheng Peng (Director of Investor Relations)

We have a very clear long-term strategy to strengthen our R&D capabilities and to improve the efficiency of the agricultural and manufacturing supply chains. Our strategic direction, as well as, the investment level, will not be affected by short-term external trends or fluctuations. We will continue to make a long-term and patient investment.

Lei Chen (Chairman and CEO)

有 关 你 的 第 二 个 ， 就 是 我 们 的 增 长 的 一 个 问 题 。 在 过 去 的 一 个 季 度 里 面 呢 ， 我 们 看 到 了 这 个 消 费 市 场 的 韧 性 和 活 力 ， 我 们 对 整 体 消 费 市 场 的 前 景 是 充 满 信 心 的 。 在 包 括 Double Eleven 和 Chinese New Year 的 活 动 中 呢 ， 我 们 与 更 多 的 商 户 和 品 牌 合 作 ， 让 消 费 者 有 了 更 多 的 高 品 质 的 商 品 选 择 。 我 们 也 看 到 很 多 消 费 者 呢 ， 展 现 出 了 不 错 的 购 物 需 求 。

Cheng Peng (Director of Investor Relations)

As for your second question regarding our revenue growth. Well, throughout the past quarter, we saw a strong resilience and also vigor in the consumption market. We are confident toward the prospects of this market. During events such as the Double Eleven and the Chinese New Year promotions, we collaborated with more merchants and also brands, and provided consumers with a broader selection of high-quality products. Many consumers showed a good shopping demand at the same time.

Lei Chen (Chairman and CEO)

目 前 ， 在 整 体 消 费 复 苏 的 大 背 景 下 ， 我 们 也 加 大 了 资 源 投 入 ， 那 么 更 好 地 满 足 消 费 者 的 需 求 。 在 四 季 度 中 ， Pinduoduo 发 挥 了 这 个 服 务 用 户 基 础 需 求 的 这 样 一 个 特 长 ， 平 台 上 ， 生 活 类 的 商 品 的 销 量 ， 一 直 在 稳 定 地 增 长 。 另 外 ， 随 着 消 费 者 对 品 质 的 好 货 这 样 的 需 求 的 能 力 增 加 ， 平 台 上 诸 如 像 手 机 ， 美 妆 和 母 婴 的 品 类 ， 我 们 都 看 到 了 很 不 错 的 销 量 增 长 。

Cheng Peng (Director of Investor Relations)

Under the backdrop of consumption recovery, we have also devoted more resources to better fulfill consumer demand. In the fourth quarter, the Pinduoduo platform leveraged its focus on serving the fundamental needs of users. Sales volume of daily essential products on the platform showed steady growth. As consumer demand toward high quality merchandise is growing, categories including mobile phones, beauty cosmetics and maternal and baby care products all had decent growth.

Lei Chen (Chairman and CEO)

与 此 同 时 呢 ， 也 看 到 其 实 我 是 在 行 业 内 的 竞 争 呢 ， 是 非 常 激 烈 的. 作 为 消 费 者 呢 ， 有 不 同 的 平 台 和 购 物 的 形 式 可 以 供 选 择. 我 们 自 身 呢 ， 还 有 很 多 需 要 提 升 的 地 方. 因 此 呢 ， 我 们 的 团 队 会 不 断 地 努 力 ， 加 大 投 入 ， 那 么 继 续 发 展 自 身 的 核 心 能 力 ， 那 么 坚 持 呢 ， 向 消 费 者 提 供 的 一 种 多 实 惠 ， 多 乐 趣 这 样 的 购 物 体 验. 谢 谢.

Cheng Peng (Director of Investor Relations)

At the same time, we are fully aware that the competition in the market is intense, and consumers have many different e-commerce platforms and shopping formats to choose from. We still have a lot to further improve. As a result, our team must continue to work hard and we plan to step up our investment, strengthen our core competencies, and continue to provide consumers with more savings, more fun shopping experience. Thank you. Hi, operator. We can take next question on the line.

Operator (participant)

Thank you. Your next question comes from Kenneth Fong with Credit Suisse. Please ask your question.

Kenneth Fong (Director of Research)

Hi. Thank you, management, for taking my question. I have two questions. First is could management comment on the latest competitive landscape? Specifically, we saw a number of your peers stressed the importance of low price. Do you have any plan or program in response? How do you position yourself to achieve quality growth in such an environment? My second question is about sales and marketing, which we saw an acceleration in sales and marketing expenses of 56% year-over-year to around RMB 18 billion in the fourth quarter. What investment opportunities did you see as consumer sentiment improved? Are you becoming more aggressive in term of investment, or does this just reflect a temporary seasonal hike?

Lei Chen (Chairman and CEO)

Kenneth, 你 好。 我 首 先 回 答 一 下 有 关 行 业 竞 争 的 问 题。 中 国 呢, 应 该 说 电 商 呢, 是 一 个 很 大 的, 非 常 具 有 活 力 的 市 场。 尤 其 是 随 着 现 在, 整 体 的 开 放 放 开 呢, 市 场 呢, 持 续 地 展 现 出 强 大 的 活 力。 相 信 大 家 其 实 都 看 到 了, 目 前 的 行 业 中 呢, 充 满 机 会。 因 此, 我 们 看 到 各 家 电 商 平 台 选 择 加 大 投 入, 我 们 看 到 越 发 激 烈 的 竞 争。 对 我 来 讲 呢, 我 觉 得 这 是 一 种 自 然 的 趋 势。

Cheng Peng (Director of Investor Relations)

Hi, Kenneth. I will first share my views on your question on competition. The e-commerce market in China is huge and it is full of energy. Also, with the optimization in pandemic control measures, it continues to show a strong resilience. I believe, it is easy for everybody to see the opportunities in this market. I think, it is natural and also logical for e-commerce peers to choose to raise spending, which makes our competition more intense as a result.

Lei Chen (Chairman and CEO)

我 们 也 关 注 到 了 近 期 的 一 些 行 业 动 态. 我 们 认 为 呢 ， 每 个 公 司 在 竞 争 中 会 制 定 出 不 同 的 战 略. 正 如 我 刚 才 在 讲 话 中 提 到 的 ， 我 们 相 信 呢 ， 良 性 的 竞 争 对 于 消 费 者 来 讲 ， 对 于 整 个 行 业 来 讲 都 是 有 利 的. 有 的 时 候 呢 ， 随 着 竞 争 的 激 烈 呢 ， 也 会 出 现 不 同 程 度 的 异 化. 我 们 将 始 终 保 持 本 分 的 精 神 ， 立 足 自 身 的 发 展 ， 勇 敢 地 呢 ， 去 面 对 这 样 的 竞 争 ， 甚 至 在 某 些 时 候 的 异 化.

Cheng Peng (Director of Investor Relations)

Also, we have noticed the recent moves in the industry, and we saw that different companies may form different strategies in face of competition. As I have mentioned in my remarks, we believe that healthy competition is beneficial to consumers and entire industry. When competition intensifies, sometimes peers reaction could go in a different direction. We will always keep our duty in mind, focus on our own healthy development and embrace industry competition, even when sometimes it involves unsustainable practices from peers.

Lei Chen (Chairman and CEO)

那 么 对 于 我 们 自 身 来 说 呢 ， 我 们 相 信 服 务 好 消 费 者 是 创 造 长 期 价 值 的 关 键 所 在 。 那 我 们 会 继 续 地 坚 持 ， 啊 ， 为 消 费 者 呢 ， 提 供 多 实 惠 ， 啊 ， 多 乐 趣 的 购 物 体 验 。因 此 呢 ， 我 们 的 团 队 呢 ， 也 在 从 自 身 的 定 位 出 发 ， 去 探 索 啊 ， 如 何 给 消 费 者 带 来 更 多 的 价 值 。 那 么 我 们 将 延 续 重 ， 重 研 发 的 方 向 ， 更 高 效 地 去 理 解 消 费 者 新 的 需 求 和 偏 好 ， 那 么 提 升 他 们 的 购 物 体 验 ， 从 而 增 强 消 费 者 的 信 任 。

Cheng Peng (Director of Investor Relations)

For us, we believe that serving our consumers better is the key to creating long-term value. We will continue to provide consumers with a more savings, more fun shopping experience. Therefore, we start from our own unique value propositions. Our team and I are exploring how to provide more value to consumers. Toward this end, we will continue to focus on R&D so that we can better understand the new needs and preferences of consumers, improve their shopping experience. In this way, we can increase consumer satisfaction.

Lei Chen (Chairman and CEO)

啊 ， 那 么 我 们 也 充 分 地 意 识 到 呢 ， 呃 ， 我 们 仍 然 有 很 多 需 要 提 升 的 地 方 。 那 么 因 此 呢 ， 会 进 一 步 地 加 大 投 入 ， 那 么 尤 其 是 在 农 业 和 制 造 业 领 域 ， 那 么 通 过 提 升 供 应 链 效 率 ， 效 率 ， 那 么 从 而 为 呢 消 费 者 呃 ， 创 造 更 多 的 价 值 ， 进 一 步 优 化 这 种 多 实 惠 、 多 乐 趣 的 需 求 。 那 么 以 上 是 我 对 啊 行 业 竞 争 的 看 法 。 那 么 有 关 这 个 营 销 费 用 的 呢 ， 可 以 请 Jun 来 回 答 一 下 ， 谢 谢 。

Cheng Peng (Director of Investor Relations)

At the same time, we are fully aware that we still have a lot to improve. As a result, we will further step up investments, especially in the areas of agriculture and manufacturing sectors, as well as improve our supply chain efficiency, so that we can create more values for consumers and deepen our more savings, more fun propositions. This is my view on industry competition. As for your question on sales and marketing expenses, I will leave it to Jun to answer your question. Thank you.

Jun Liu (VP of Finance)

Hi, Kenneth. This is Jun. Let me take the question on sales and marketing expenses. Well, during the past quarter, we saw consumption recovery trends continue. Given this background, we offered various types of promotions and subsidies to support consumption, as I just mentioned in my remarks. These offers are reflected in the financial number. You can see that our sales and marketing expenses in Q4 increased. Actually, we always carefully evaluating ROI for every investment for all of our projects. We hope to allocate resources to places that can generate long-term, high quality development. When we see good opportunities that can create value, we invest firmly. Thank you.

Cheng Peng (Director of Investor Relations)

Hi, operator. We can go to next analyst on the line.

Operator (participant)

Thank you. Your next question comes from Ellie Jiang with Macquarie. Please ask your question.

Ellie Jiang (Equity Research Analyst)

Thank you management for taking my 2 questions. I have 2 regarding our overseas product, Temu. We saw that you're now introducing Temu to Canada and Australia. We saw exciting commercials being put out on Super Bowl. Can management share with us some latest developments and operational updates? How would Temu differentiate from the more well-established players in the current market? The second question is on the relative impact on the fourth quarter financials. How did Temu's revenue being booked, any operating metrics that management could share regarding the estimated loss levels, order size, or unit economics? Do we have any GMV or growth target for Temu going forward? Thank you.

Cheng Peng (Director of Investor Relations)

Hi, Ellie. Jun, you can take this.

Lei Chen (Chairman and CEO)

嗯 ， Ellie 你 好 啊 。 那 我 就 回 答 一 下 ， 就 是 有 关 这 个 全 球 化 业 务 在 与 就 是 战 略 方 面 发 展 方 向 上 的 问 题 吧 。 那 么 在 Temu 这 个 业 务 上 呢 ， 我 们 是 希 望 呃 ， 能 够 创 造 出 自 己 呃 ， 独 特 的 价 值 。 那 么 例 如 呢 ， 通 过 我 们 在 供 应 链 上 呃 ， 积 累 的 多 年 经 验 ， 那 么 为 消 费 者 呢 呃 ， 提 供 呃 ， 价 格 实 惠 的 精 选 商 品 。 那 么 并 且 呢 ， 通 过 不 断 的 迭 代 功 能 来 提 升 消 费 者 的 购 物 体 验 。

Cheng Peng (Director of Investor Relations)

Hi, Ellie. Let me take your question on our global business. For this initiative, we aspire to create our own unique value. For example, using our supply chain know-how that we have accumulated over the years, we can offer our consumers a curated selection of quality goods at attractive prices. Also, through evolving our product features, we hope to improve consumer's shopping experience. Since we launched this platform in September of last year, it has only been about half a year.

Instead of focusing too much on competitors right now, we actually pay more attention to our own development and product iteration. We see that different markets in different regions, they have many differences. We still have a lot to learn and a lot to improve. We will remain patient, iterate constantly, and strive to create a long-term value. In addition, we also appreciate the support coming from consumers and merchants who have chosen our platform at this early stage of its development. Their support motivates us to do this business well.

They have also given us many valuable advices to improve our services. As for the second part of the question on the financial revenue booking and financial impact of our Temu business, I will hand it over to Jun to further discuss.

Jun Liu (VP of Finance)

Okay. Well, allow me address the question on revenue booking and financial impact of our global business. Well, Temu, well, it's just started out roughly half year ago, and given its early stage nature and financial impact for from this business in Q4, is relatively small. In terms of revenue booking, this business recorded as a three-pay model. We are entering new markets, so we need to understanding customer demand better and experiment how to meet their demand effectively. We are not driven by financial metrics. In fact, the most essential thing for us right now is to build our own unique value over the long run. Over time, financial metrics are just a reflection of the value we can generate.

In terms of future investment and the financial impact, as always, we will continue to carefully evaluate, different opportunities back to our investment discipline and, keep up with our high ROI standard. Thank you.

Cheng Peng (Director of Investor Relations)

Okay. Hi, operator, I think we still have time to take 2 questions from the 1 more analyst.

Operator (participant)

Thank you. Your next question comes from Yang Bai with CICC. Please ask your question.

Yang Bai (Equity Research Analyst)

Hi. Thank you for taking my question. My first question, can management share with us some updates on your total grocery business? We understand that online grocery business is slowing down. And are you still expanding this business or do you focus more on efficiency and cost control right now? My second question is about the profitability. We noticed that your profitability margin decreased from the last two quarters. Given Q4 is usually a strong quarter in terms of the profits. Does that mean that you have shifted focus more to growth? And what opportunities are you spending extra-

那 第 二 个 问 题 呢 ， 是 有 关 利 润 率 。 啊 ， 那 其 实 我 们 注 意 到 四 季 度 呢 ， 啊 ， 多 多 的 利 润 率 较 前 两 个 季 度 呢 ， 啊 ， 出 现 了 一 定 的 下 滑 ， 而 且 考 虑 到 ， 啊 ， 四 季 度 本 身 也 应 该 是 啊 ， 电 商 的 这 样 的 一 个 旺 季 。 那 么 ， 啊 ， 这 是 否 意 味 着 公 司 目 前 呢 ， 啊 ， 将 关 注 更 多 地 ， 啊 ， 转 向 了 ， 啊 ， 增 长 的 这 个 方 向 ， 啊 以 及 我 们 看 到 的 一 些 ， 啊 ， 什 么 样 的 这 种 投 资 机 会 ？ 啊 ， 谢 谢 。

Lei Chen (Chairman and CEO)

Yang Bai 你好。 首先 我 来说 一下 Duo Duo Grocery。 其实 我们 Pinduoduo 呢， 是 从 农产品 起家 的， 那么 农业 呢 是 我们的 长期 战略 之一。 通过 Duo Duo Grocery 这项 业务 的， 我们 用 技术 来 提升 农产品 的 流通 效率， 那么 高效地 去 匹配 本地 的 供给 和 需求。 Duo Duo Grocery 呢， 在 我们 发挥 农业 特色， 那么 创造 独特 价值 的 这个 整个 过程 中 呢， 发挥 一个 很 重要 的 作用。

Cheng Peng (Director of Investor Relations)

Hi Yang Bai. Let me take your question on our Duo Duo Grocery business. Pinduoduo started by selling agricultural produce and agriculture is one of our key long-term strategies. Through our Duo Duo Grocery business, we leverage technology to improve agricultural distribution efficiency and match local supply and demand effectively. This business plays a very critical role of leveraging our unique positioning in agriculture and creating our own unique value.

Lei Chen (Chairman and CEO)

那 么 在 多 多 买 菜 这 项 业 务 中 呢 ， 我 们 看 到 了 那 么 通 过 供 应 链 提 效 ， 那 么 在 农 产 品 的 多 样 化 选 择 和 履 约 效 率 ， 那 么 用 户 体 验 等 方 面 呢 ， 带 来 的 巨 大 的 价 值 。 同 时 呢 ， 我 们 的 多 多 买 菜 的 业 务 呢 ， 也 创 造 出 了 很 多 的 社 会 价 值 。

Cheng Peng (Director of Investor Relations)

In our Duo Duo Grocery business, we have seen the value that we can generate by improving supply chain efficiency in areas such as offering more choices of local produce, increasing fulfillment efficiency and improving user experience. At the same time, the Duo Duo Grocery business also creates positive social values.

Lei Chen (Chairman and CEO)

那 这 里 举 个 例 子 ， 那 么 在 过 去 的 四 季 度 呢 ， 多 多 买 菜 推 出 的 暖 冬 行 动 ， 那 么 帮 助 这 种 应 季 滞 销 的 农 产 品 ， 那 么 直 连 消 费 者 ， 那 其 实 是 我 们 买 菜 的 各 省 区 团 队 那 么 深 入 到 ， 啊 ， 产 区 ， 田 间 地 头 去 采 购 农 产 品 ， 高 效 地 将 ， 呃 ， 本 地 的 农 产 品 呢 匹 配 给 本 地 消 费 者 。

Cheng Peng (Director of Investor Relations)

let me give you a recent example here that in the fourth quarter we launched a dedicated campaign to help sell through seasonal unsold agricultural products to consumers directly. The local teams of Duo Duo Grocery went upstream into the agricultural production regions to source agricultural produce directly and match these products efficiently with local demands.

Lei Chen (Chairman and CEO)

那 么 在 农 业 投 入 中 呢 ， 我 们 仍 然 处 于 早 期 的 阶 段 ， 那 么 看 到 了 很 多 可 以 继 续 通 过 技 术 来 提 升 的 方 向 。 那 么 多 多 买 菜 呢 ， 目 前 所 提 供 的 服 务 其 实 还 有 非 常 多 可 以 进 一 步 优 化 的 地 方 。 因 此 呢 ， 我 们 会 ， 进 行 长 期 的 投 入 ， 那 么 去 创 造 更 多 的 消 费 者 价 值 。 谢 谢 。

Cheng Peng (Director of Investor Relations)

We are still in the early stage in our agriculture investments. We see a lot of areas that can be further improved with technology. For Duo Duo Grocery, we are still far away from the best level of services and there are still a lot to improve. As a result, we will remain down to earth and continue to make long term investments in order to further create values for our consumers. Thank you.

Jun Liu (VP of Finance)

This is Jun. Let me take your question on the profitability. Well, we are in our development stage and we still have many areas to improve and create more value for users. We will continue to step up investment in key areas to strengthen our R&D capabilities, support agriculture and manufacturing both through technology and improve our service offerings to users. Profitability is not our current priority. With that said, we always practice financial prudence for every investment. We carefully evaluate ROI and ask ourselves if it can create long-term high quality development for us. When we seek good opportunities, we will invest firmly. Thank you.

Cheng Peng (Director of Investor Relations)

Okay, thank you everybody for joining us on the conference call today. That concludes the call and have a great day.

Operator (participant)

Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect.