PDD Holdings Inc. Price & Performance (PDD)

Thank you, operator. Hello, everyone, and thank you for joining us today. 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 statement in 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 Mr. Chen Lei, our Chairman and Co Chief Executive Officer Mr. Zhaojiazhuang, our Co Executive Director and Co Chief Executive Officer. As well as Ms. Liu Jin, our VP of Finance Lei and Jiajun 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 fourth quarter and fiscal year ended December 31, 2024. During the Q and A session, Lei and Jiajun will answer questions in Chinese, and will help translate Please note that English translation is for reference only. In case of any discrepancy, 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.

Hello, everyone.

Thank you for joining our earnings call for the fourth quarter and fiscal year of 2024. 2024 is a pivotal year for advancing our high quality development strategy. To drive the sustainable growth, of our platform and supply chain ecosystem. We extended our high quality development mission from a platform to a supply chain through a series of initiatives. Such as fee reductions, merchant support policies, and trust and safety updates. We systematically implemented a measures in platform operations, merchant services, supply chain and logistic innovations, leading our platforms into a new phase of high quality driven growth. We delivered stable results over the past quarter. Our Q4 revenue reached RMB 110.6 billion, up 24% year over year and full year 2024 revenue totaled [indiscernible] growing 59% year on year. Which represents a moderation in revenue growth. As mentioned in previous quarters, our significant ecosystem investment coupled with fast changing external environment and intensified competition landscape with impact short term financials, However, our commitment to ecosystem investments remain unwavering. And we are confident that these efforts will deliver sustainable long term returns. In the second half of 2024, we accelerated our high quality development strategy through several major initiatives. Including a $10,000,000,000 fee reduction program, logistics port measures, to promote e commerce services, in remote regions and a high quality merchant support program.

We are pleased to see that these initiatives have started to bear fruits Among these, the 10,000,000,000 seed reduction program has enabled over 10,000,000 merchants to enhance operation operational efficiency and reduce costs. While a promotion service fee rebate program Erlang, has begun to deliver significant savings to eligible merchants. Our logistics support measures tailored for remote regions drove double digit order modeling growth and extended free shipping to nearly 100,000,000 consumers in this region. The first phase of high quality merchant support program supported a large number of high quality merchants and brands across 1,000 agricultural regions and industrial zones. In their transition towards high quality development. At the same time, we also established the Emerging Rights Protection Committee to formalize communication channels with merchants. We have rolled out upgrades to ask [indiscernible] and introduce a range of improvements and governance measures to address issues such as other dispute [indiscernible] These initiatives aim to enhance the overall business environment for merchants and build a platform ecosystem that benefits all participants. The platform rooted in agriculture we remain committed to supporting agriculture industry [indiscernible] investments in agriculture technology, supply chain innovation, and training for next generation farmers. Over the past year, our long term initiatives such as Pinduoduo Smart Agriculture Competition Global Agriculture Innovation Challenge, Kindudo Academy Growing Competition, and the Agriculture Research Fund, have delivered encouraging results.

For example, the six idolized teams in the fourth Pinduoduo Smart Agriculture Competition achieved breakthroughs in Yale efficiency and energy consumption [indiscernible] with the innovations now being applied in real world setting. In terms of our global business, our mission to provide global consumers with high quality products remain unchanged. Dighted by this vision, we will continue to focus on supply chain accuracy service innovation, and ecosystem development. While observing high compliance standards. Our goal is to build a trusted global platform and shopping environment that serves consumers worldwide. Looking ahead, high quality development will remain at the core of our strategy in 2025. We will continue to focus on a healthy and sustainable development of merchants and supply chain. And thirdly, advance the high quality development strategy one step at a time we will work on strengthening merchant rights protection, stepping up support for high quality merchants, and broadening quality supply on the platforms. In addition, [indiscernible] we aim to accelerate the supply of high quality products to remote regions and in doing so, enhance the product offerings for consumers in less accessible areas. And foster a win win ecosystem for consumers merchants, and the communities we serve. Together, we will drive the sustainable of our platform and the broader ecosystem e commerce ecosystem.

And now, I will hand it over to our co CEO, [indiscernible] to share more about our development plans in 2025. [indiscernible] Thank you, Lei. Hello, everyone. This is Zhao Jiajun, Thank you for joining our fourth quarter and full year 2024 earnings call. Over the past year, we remain focused on advancing our high quality development strategy driving ecosystem upgrades and supply chain transformation to foster a mutually beneficial environment for consumers merchants, industries, and society. Supported by sustained progress of our high quality development strategy and a steady micro economy recovery. We delivered stable performance [indiscernible] quarter four and throughout 2024.

Since last year, we have rolled out a series of initiatives under RMB10 billion fee reduction program. And cultivating a wave of quality supplies through com comprehensive end to end merchant support. Our initiatives have not only empowered merchants, with innovative business models but also drove supply chain upgrades. In addition, our logistics support measures have significantly improved the efficiency and quality of new supplies to the Western region providing consumers in these regions with a more diverse selection of high quality products. In Q4, our quality merchant support program expanded its reach across agricultural and industrial rooms in China. This included areas known for specialties such as [indiscernible] Jinghu maternal infant products, and Boishan Dipashu. By providing comprehensive support throughout the value chain, covering product development, marketing, operations, and supply chain management we have neutraled a new generation of merchants and brands with strong innovation capabilities. These trailblazers are leading their industries beyond homogeneous competition towards sustained high value growth. For example, Huedong County in Guangdong province was the leading production hub for the Chinese women's footwear industry was nearly brought to a standstill due to market shifts.

Last winter, local merchants utilized our platform's data analytics to create a free for line standards tailored for female consumers. Through the transformation of traditional supply chain, a mid sized factory managed to reach a daily output of 15,000 pairs. This not only saved tens of thousands of jobs, but also charged a pack for quality supply chain driven transformation. To amplify this momentum, we strategically allocate the platform traffic resources For example, the 10,000,000,000 program has rolled new campaigns, like 10,000,000,000 consumption vouchers and super double savings. Accelerating branding building for quality merchants, During last year's Double eleven shopping festival, we launched multiple rounds of [indiscernible] offering excessive support to quality supply. In just the first two rounds, the other volume exceeded 61,000,000.

From the consumer side, our ecosystem investment has enriched the lives by delivering a broader range of profitable high quality products. These products span across categories like fresh produce, snacks, beauty, and baby care. Further boosting consumers' satisfaction and trust while also activating new consumer needs. These offerings have gained traction in both urban and rural becoming daily essential for diverse groups and catering to increasingly segmented demands. During the Chinese New Year, our logistics support measures for remote regions drove a surge in orders for seasonal specialty with Western regions witnessing remarkable growth in several trending categories. Our long term investments in high quality development are now bearing fruit The platform ecosystem continues to create value for both supply and demand side, These tangible outcomes reinforce our resolve to deepen investments in ecosystem development In January 2025, we established the Merchant's Right Protection Committee, which I chair. The committee could not coordinate efforts across our platform.

Our goal is to fully understand merchant needs systematically collect feedback, optimize their experiences, and refine service full framework All critical sites towards fortifying our platform ecosystem. Following its launch, we introduced the Pro Merchant initiative such as abnormal order alert, and low price risk warnings. Alongside upgraded services to boost the net merchant transaction These efforts are complemented by granular data and latest tools designed to optimize merchants' return on investment. Recently, the committee has formalized a regular communication mechanism with merchants in the hold [indiscernible] Following extensive consultation with business across sectors, we unveiled four major upgrades including a noncompliance alert system. To intensify protections for merchants' rights. As Chen may emphasize, 2025 will see us redouble efforts to advance our high quality development strategy. We will leverage our digital capabilities and amplify investments across both supply and demand chains At the same time, will accelerate and deliver of high quality products to the Western regions This will help revitalize economic vitality across regions. And build an ecosystem where merchants industries, consumers, and society direct collect collectively. I will now hand over to Jun. She will provide you with an update on our quarter four and full year financial performance.

Thank you, Zhejiang.

Hello, everyone.

Now let me walk you through our financial performance and fourth quarter and fiscal year ended December 31, 2024. In terms of income statement, in Q4, our total revenues increased 24% year over year to RMB110.6 billion, and 59% year over year to RMB393.8 billion for full year 2024. This was mainly driven by an increase in revenues from both online marketing services and transaction services. Revenues from online marketing services and others. Were RMB57 billion this quarter, up 17% compared to the same period. Of 2023. Our transaction services revenue this quarter were RMB53.6 billion, up 33% versus the same period of 2023.

We will move on to costs and expenses. Our total cost of revenues increased 36 from RMB35.1 billion in Q4 twenty twenty three to RMB47.8 billion this quarter. For full year, our total cost of revenues increased 68% to RMB153.9 billion mainly due to increased fulfillment fees and payment processing fees. On a GAAP basis, total operating expenses this quarter increased 19% to RMB37.2 billion. From RMB 31,400,000,000.0 in the same quarter of 2023. On a non GAAP basis, our total operating expenses increased to RMB35.1 billion this quarter, from RMB29.3 billion in Q4 twenty twenty three.

During the fourth quarter, we continued to invest in the platform ecosystem through a range of initiatives including fee reductions merchant support policies, and trust and safety updates Our total non GAAP operating expenses as a percentage of total revenues was 32% in compared to 33% same quarter twenty twenty three. For full year 2024, total non GAAP operating expenses were RMB 122,000,000,000, up from RMB90.3 billion in 2023.

Looking into specific expense items. Our non GAAP shows in the marketing expenses this quarter. Were RMB31.1 billion, up 19% versus the same quarter of 2023.

During Q4, we continued to give back to consumers through promotional campaigns while keeping up our investment in marketing, to strengthen our platform's visibility. On a non GAAP basis, our sales and marketing expenses as a percentage of our revenue this quarter [indiscernible] 28% versus 30% for the same quarter in 2023. For the full year, non GAAP shows and maximum expenses in place from RMB79.8 billion to RMB109.1 billion in 2024. Our non GAAP G and A is expenses were RMB $998,000,000 in Q4, versus RMB $674,000,000 in the same quarter of 2023. Our annual non GAAP G and A expenses were RMB2.8 billion in 2024, versus RMB1.8 billion last year.

Our research and development expenses for RMB billion in the fourth quarter on a non GAAP basis. And RMB3.8 billion on a GAAP basis.

We are committed to advancing the core technology capabilities of our platforms. And we continue to increase our investment in R and D. Laying a solid foundation for our high quality development strategy and driving ecosystem upgrade and supply chain transformation. On a GAAP basis, operating profit for the quarter was RMB25.6 billion. [indiscernible] RMB22.4 billion in the same quarter of 2023. Non GAAP operating profit was RMB28 billion, versus RMB24.6 billion in the same quarter of 2023. Non GAAP operating profit margin was 25% this quarter compared with 28% for the same quarter of 2023. For the full year, non GAAP operating profit increased from RMB65 800,000,000.0 to RMB118.3 billion in 2024.

Net income attributable to ordinary shareholders was RMB27.4 billion for the quarter. And RMB112.4 billion for the full year. In the fourth quarter, basic earnings per ADS was RMB19.76 and diluted earnings per ADS was RMB 18.53. Versus base earnings per ADS of RMB 17 and diluted earnings per ADS of RMB 15.83 in the same quarter of 2023. Non GAAP net income attributable to ordinary shareholders was RMB29.9 billion, for the quarter and 122.3 billion for the full year.

In the fourth quarter, non GAAP diluted earnings per ADS was RMB20 .15. Versus RMB17.32 in the same quarter of 2023.

This quarter, we delivered stable financial results supported by the Resolute execution of our high quality development strategy. Looking ahead, we will continue to prioritize investments in platform ecosystem as the cornerstone of our long term value creation strategy. That completes the income statement. Now let me move on to cash flow. Our net cash flow generated from operating activities was RMB 29.5 billion in Q4. And RMB121.9 billion for the full year of 2024. Compared with RMB 36,900,000,000.0, in the same quarter of 2023. And RMB 94,200,000,000.0 in 2023. As of December 31, 2024, the company had RMB331.6 billion in cash, cash equivalents and short term investments. Thank you. This concludes my prepared remarks.

Thank you, Jun. Next, we'll move on to the Q and A session. Today's Q and A session Lei, Jiajun and Jun, take questions from analysts on the line. We could take a maximum of two questions from each analyst. Lei and Jiajun will answer questions in Chinese, and will help translate. Operator, we are open for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to cancel your request please press 2. Participants are requested to restrict the number of questions to two at each time. Your first question comes from Joyce Du from Bank of America. Please go ahead.

I will translate my question. First, we noticed that over the past two quarters, the company has taken several major initiatives initiatives in platform ecosystem development and merchant support. As management just mentioned, the company plans to further increase investment in these areas. How should we think about the long term goals for platform ecosystem development and how this will drive the platforms further growth? My second question is on top of supply side and merchant ecosystem investments, could management also share what has been done on the consumer side recently? For example, when new initiatives were launched during the past fourth quarter e commerce peak season? And what will be the strategic priorities for consumer side in the future? Thank you.

Hi, Joyce. This is Chen Lei. Let me take your question regarding our platform ecosystem. The second quarter of twenty twenty four, in line with the overall direction of high quality development of our platform ecosystem, we have rolled out a series of initiatives that's centered around the protection of merchants' rights. For example, measures such as the $10,000,000,000 fee reduction program, and high quality merchant support program, have been effective in lowering the operational costs for merchants. By leveraging our platform's digital technologies and resources, we are also enabling manufacturers to invest in their product innovation also technology. While at the same time broadening their marketing access. [indiscernible] initiatives are deepening our long term efforts in building a stronger ecosystem and also extend that into the supply side. Driving meaningful supply chain upgrades. Which is central to our strategy of pursuing high quality development. We are noticing that in certain industries, some merchants are facing homogeneous competition. Which squeeze profits businesses and also undermines innovation and investments.

We, as a platform, [indiscernible] merchants and consumers We have launched a series of policies to support high quality suppliers. By cutting fees and streamlining operations we are encouraging merchants to invest more in their products and services. This is leading our platform onto a new stage quality driven growth. As the supply chain evolves, and modernizes, more high quality merchants and products have been emerging. This gives consumers greater variety higher quality, and a smoother shopping experience bringing real benefits to consumers and creating a healthy ecosystem that benefits all stakeholders in the long run. This is our thought on the [indiscernible] [indiscernible] Hello, this is Chao Zhao. Let me take a look [indiscernible] Our initiatives on the supply side and merchant ecosystem complement our consumer centric strategy. We remain dedicated to serving consumers providing more value and better services which has been fundamental to us. During the promotion campaigns in the fourth quarter, we upgraded our super level savings initiative by layering additional savings on top of the discounted price from our RMB10 billion program This not only provides substantial savings to consumers, but also serves as a new growth engine for brands. Both the number of participating brands and products in the campaign's [indiscernible] high, with total order volume achieving a significant milestone.

For the Double Tough promotion, we further enhanced the program by launching 10,000,000,000 consumption vouchers reinforcing our focus consumer benefits. At the same time, our RMB10 billion supply chain investments have prioritized empowering quality merchants and driven our logistics for measures in remote regions. Sparking fresh trends For example, during the Chinese New Year shopping festival this year, the platform accelerated the flow of Chinese New Year specialty into Western regions offering both traffic support and promotion programs. By investing in both supply and demand, we have seen a surge of quality [indiscernible] In reaching consumer choices with premium options. And fostering a virtuous cycle. Moving forward, we will continue to focus on our long term high quality investment on a consumer side. To build a mutually beneficial platform ecosystem. Thank you. Thank you.

You. Operator, let's move to the next analyst on the line.

Your next question comes from Alicia Yap from Citigroup. Please go ahead. Thank you. So I have two questions. The first one is, the competitions in the e commerce market has been intensifying for some time. Could management share some insights into any recent developments in the competitive landscape and whether there will be any adjustment to the company's development strategies in the futures. The second question is regarding our global business. We noticed that recently, the global business may face some changes in macro conditions and policy. Could management share more these external changes that might impact the company's business and what measure the company plans to take in restaurant? Thank you. We have consistently emphasized that competition is not only inherent to the e commerce industry, but also a critical driver of its continuous advancement. Our major platforms are actively refining their strategies and services to better respond to shifting consumer preferences. A dynamic that underscores the sector's robust and healthy evolution. As industry and technology continue to evolve, e commerce platforms are actively exploring innovative business models and technological applications to elevate user experiences and operational [indiscernible] We're closely monitoring this development and continue [indiscernible] optimizing our platform ecosystem and services to better meet consumer demand.

Under our quality driven strategy. Our strategic investments across the consumer side supply side and platform ecosystem have delivered tangible results demonstrating that the viability of high core development as a sustainable growth pathway. Over the years, we have cultivated a trusted brand reputation and deep consumer loyalty. Which remains our core strength At the same time, we recognize the imperative for profound supply side transformation in the e commerce industry Our current investments in merchant welfare and industrial sustainability will over time improve consumer experience. By safeguarding merchant rights we have service quality and satisfaction. [indiscernible] supply. This in turn will drive the healthy growth of the platform ecosystem. We will continue to strengthen our advantage by making meaningful long term high quality investments By doing so, we aim to deliver an expanding range of premium products and a seamless trustworthy shopping experience for consumers. Thank you.

Alicia, this is Chun Li. Let me Let me answer your question about the global business.

For our global business, as we discussed in recent quarters, changes in the external environment have been accelerating. And competition remains fierce. And in addition, there there may be changes in macro policies that are related to our operations. And in response to this, first and foremost, we will strictly comply with the laws and regulations to ensure full compliance in our operations. And on that basis, we are also proactively communicating with external parties, across the market to continuously refine our services and compliance standards.

However, these external changes taken together will inevitably bring some challenges to our global business. And despite the changes in the external environment, we remain very committed to delivering high quality products to the global consumers. This will not change. We will stay focused on our business investing in supply chain improvements service quality and platform ecosystems while ensuring high quality growth and upholding compliance standards. By doing so, we strive to further deepen our core strengths supply chain efficiency and operations capabilities. That we have accumulated over the years. [indiscernible] Furthermore, we will continue to explore new business models experiment with innovative localized supply chain solutions deepen our market presence, introduce new product categories and services, and to build a more robust and sustainable platform infrastructure for the long run. Our commitment to high quality sustainable development applies equally to our global business. Beyond offering high quality products at affordable prices, we aim to meet global consumers' rising expectations of us. As highlighted in previous quarters, we implemented merchant support policies and trust and safety updates across the supply chain and platform ecosystem [indiscernible] innovative high quality merchants at the same time we firmly regulate merchants who violate platform rules and harm consumer interests.

These efforts have started to yield positive results. And we committed to executing them for the long term.

At the same time, as a growing e commerce platform, we are aware of the rising attention our global consumers are paying to corporate social responsibility. We are actually seeking opportunities to utilize our technology called capabilities and platform resources to create greater value for the communities we serve. We have launched several initiatives in global corporate social responsibility and have a few new ideas for the future. Our team is dedicated to exploring this area and taking concrete steps towards becoming a responsible corporate citizen on a global scale. There is much more we can do and our team is very excited about the opportunities ahead. [indiscernible] And through the long term investments and consistently doing the right things, we hope to strengthen our core competitive advantages and build long lasting trustworthy relationship with merchants and global consumers. This is my thinking on the global business. Operator, I think we have time for one more analyst.

Thank you. Your next question comes from Kenneth Fong from UBS. Please go ahead.

Thank you management for taking my questions.

We noticed that the company's revenue growth has slowed in the recent quarters. And profit have been fluctuating. So how should we think about revenue and profits trend in the near term? And my second question is in the past two quarters, management has talked about taking on more social and platform responsibility. And this topic can also be mentioned by management today. So can management share more about what company hopes to achieve with platform responsibility in the long run, and how to balance that with this. Duties to shareholders? Thank you.

Kenneth. Is Jane. Let me take your first question regarding [indiscernible] And profits. Well, regarding these cards, financial performance, as mentioned earlier in the prepared remarks, external uncertainties and intense competition have impacted our short term revenue growth. And at the same time, our increased investments in merchant support and platform ecosystem development may create fluctuations in profitability. We expect the fluctuations in revenue growth and profits when we began this investment as part of building a high quality platform ecosystem and achieving sustainable growth Short term ups and downs won't shake our confidence in long term goals. We believe that owing through sustained investment and optimization can we create a healthy e commerce ecosystem. Currently, our efforts have already received positive feedback from merchants And supply side optimizations are driving new consumption trends on the consumer side. Which has started to foster a virtuous cycle. Going forward, we will keep focusing on our high quality development strategy, investing gradually and patiently to ensure long term sustainable development. Thank you. Hello, Ken. Let me take your second question. Over the past few quarters, we have noted that a assessing the company's performance solely to the short term financial performance or capital [indiscernible] does not fit where we are at our development stage.

As a global company in the new era, we're embracing innovation adapting to change and taking on more social responsibility in the regions where we operate. This aligns with our long term accountability to shareholders. And reflects [indiscernible] For example, our recent focus on supporting quality merchants has provided comprehensive support across product [indiscernible] Marketing, operations and supply chain. We have fostered a group of quality merchants with products and tax capabilities empowering independent entrepreneurs to streamline their operations while driving the transformation of the supply chain.

Additionally, our logistic support measures tailored for remote regions has spurred double digit order growth in Western China and extended nationwide free shipping to nearly 100,000,000 consumers in remote areas. This strategy unlocks new opportunities for merchants to grow their orders in West China. Not only expanding business opportunities for merchants but also benefiting consumers across different regions. In every culture, we remain committed to supporting the agricultural industry through sustained investment in agricultural technology supply chain innovation and training for next generation farmers. These efforts, along with our current support for quality merchants, promoting agricultural modernization improving supply chain efficiency, while at the same time boosting farmer incomes and generating local employment. Overall, the e commerce industry is shifting towards quality, service, experience and innovation rising high standards for platforms, Our focus on merchant strike support for quality merchants and supply chain reforms both cost driven and tailored to the growing demand and e commerce platforms. And in the long run, building an inclusive ecosystem that creates value for all participants will set us up for sustainable growth and long term returns. Thank you.

You, Zhaojun, and thank you all for joining us today. We look forward to speaking with you next quarter. And thank you, and have a great day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. Participation. You may now disconnect.