Pinduoduo Inc

NASDAQ:PDD

Earnings Call Analysis

Strong Revenue Growth and Strategic Initiatives Highlight PDD Holdings' Q1 2024

In Q1 2024, PDD Holdings achieved a remarkable 131% year-over-year revenue growth to RMB 86.8 billion, driven largely by online marketing and transaction services. Revenues from these segments surged by 56% and 327%, respectively. Operating profit on a GAAP basis saw a significant increase to RMB 26 billion. The company continues to invest substantially in strategic areas such as promotions, R&D, and compliance, aiming for long-term value creation. Net income attributable to ordinary shareholders grew to RMB 28 billion, translating to basic earnings per ADS of RMB 20.33. PDD Holdings remains committed to high-quality development and enhancing consumer trust through continuous innovation and strategic investments.

Exceptional Revenue Growth

In the first quarter of 2024, PDD Holdings Inc. delivered an outstanding financial performance with total revenues surging 131% year-over-year to RMB 86.8 billion. This remarkable growth was primarily driven by significant increases in revenues from online marketing services and transaction services. Specifically, revenues from online marketing surged 56% to RMB 42.5 billion, while transaction services soared by 327% to RMB 44.4 billion.

Rising Costs and Strategic Investments

Despite the impressive revenue growth, PDD Holdings faced increased costs and expenses. The total cost of revenue increased by 194%, from RMB 11.1 billion in Q1 2023 to RMB 32.7 billion, driven by higher fulfillment fees, payment processing fees, maintenance costs, and call center expenses. Total operating expenses on a GAAP basis rose 44% to RMB 28.1 billion, while non-GAAP total operating expenses increased to RMB 25.6 billion. The company has made significant investments in strategic initiatives, including promotional campaigns, brand awareness, and R&D.

Profitability and Earnings

Operating profit saw a significant jump, with GAAP operating profit rising from RMB 6.9 billion in the same quarter last year to RMB 26 billion. On a non-GAAP basis, operating profit increased from RMB 8.5 billion to RMB 28.6 billion, resulting in an operating profit margin of 33% compared to 22% last year. Net income attributable to ordinary shareholders was RMB 28 billion, up from RMB 8.1 billion. Basic earnings per ADS surged to RMB 20.33 from RMB 6.13, while diluted earnings per ADS rose to RMB 18.96 from RMB 5.55 last year.

Cash Flow and Financial Position

The company's net cash generated from operating activities was RMB 21.1 billion, a significant increase from RMB 1.3 billion in the same quarter last year. As of March 31, 2024, PDD Holdings held RMB 242.1 billion in cash, cash equivalents, and short-term investments. This strong cash position provides the company with the flexibility to invest in growth opportunities and weather any economic uncertainties.

Focus on High-Quality Development

During the earnings call, the management emphasized their commitment to high-quality development, which involves supporting high-quality consumption, broadening high-quality supply, and fostering a high-quality ecosystem. The company aims to innovate its service offerings to cover more consumption scenarios and engage more top global brands to diversify its product lines. Investment in technology and R&D plays a crucial role in enhancing the shopping experience, supply chain efficiency, and compliance programs.

Competitive Landscape and Strategic Focus

In response to the competitive landscape, PDD Holdings highlights the importance of creating value for users through more savings and better services. The management remains focused on meeting evolving consumer demands for higher quality products and diversified consumption scenarios. They are committed to boosting the supply of high-quality products and improving the overall shopping experience to deepen user trust.

Agricultural Initiatives

Agriculture remains a foundational pillar for PDD Holdings. The company continues to invest in modernizing agricultural supply chains and supporting local farmers. Initiatives such as the Smart Agriculture Competition and the Duo Duo Academy growing competition aim to advance agricultural technology and improve product quality. PDD Holdings is committed to promoting the modernization of agriculture, enhancing supply chain efficiency, and boosting farmers' incomes.

Global Expansion Strategy

PDD Holdings' global business is in its early stages, with a focus on high-quality growth. The company aims to expand supply chain capabilities by connecting with high-quality merchants and suppliers worldwide. Efforts to improve service capabilities and compliance are also emphasized to create a safe and enjoyable global shopping experience. The management is prepared for long-term investments to bring quality products at affordable prices to consumers globally.

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to PDD Holdings Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your host today. Sir, please go ahead.

[Unknown Executive]

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 the Globe Newswire services.

Before we begin, I would like to refer you to our safe harbor statement in earnings press release, which also 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. Zhao Jiazhen, our Executive Director and Co-Chief Executive Officer; as well as Ms. 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 first quarter ended March 31, 2024. And during the Q&A session, Lei and Jiazhen will answer questions in Chinese I will help translate.

Please note that the English translation is for reference only, and in case of discrepancy, statement 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, executive]

Hello, everyone. Thank you all for joining our earnings call for the first quarter of 2024.

2023 was the first year on our journey towards high-quality development. We are encouraged by the positive feedback from our users and merchants and are more confident in our strategic direction.

2024 is a critical year to deepen our [ access ]. In the first quarter, we benefited from an improving macro demand and achieved steady growth. Our total revenue reached RMB 86.8 billion, which represents a 131% year-on-year increase.

Looking ahead, we will continue to work on the fundamentals of our business through our investments in supporting high-quality consumption, broadening high-quality supply and promoting high-quality ecosystem.

Our proactive transition to high-quality development will inevitably [ face ] challenges and difficulties, but still we've decided to embark on this journey and are determined to executing well because we are seeing a few irreversible long-term market share.

First of all, we clearly see a trend of consumption upgrade, and in response to this, we are innovating our service offering to cover more consumption scenarios, and at the same time, actively engaging with our merchants to broaden our product lines. For example, this year, we are deepening our cooperation with top brands around the world to bring a new product [indiscernible] to our platform.

In addition to meeting consumer demand for more savings and better services, we hope the deepening connections with our consumers and strengthening our platform with [ my share ] in new product categories and among new customer groups.

High-quality consumption will not be possible without strong pricing capabilities. And over the years, we have built a valuable experience across the entire e-commerce pricing. Through technology innovation and investment in research and development, our supply chain know-how is transformed into easy-to-use tools and services to empower our merchants with cost-saving digital solutions. These measures have proved to be effective in terms of attracting more merchants on our platform, broadening our product [indiscernible] and reducing product costs, all of which are essential to support high-quality consumption.

And lastly, an ecosystem that encourages compliant business conduct is the foundation to long-term growth of our platform.

As commerce integrates with digital technology at a record pace, consumers and regulators are holding e-commerce platforms accountable for higher standards. And we are taking the initiative to build an industry-leading compliance program and to leverage our technology capabilities to empower SMB businesses with our compliance know-how. This is to foster a healthy environment that attract quality merchants that are willing to play by the rules and drive out bad actors, thereby creating a positive feedback. When it comes to consumer wellbeing and economic interest, we always stand behind the former. We are focused on building long-lasting trust with our consumers and not on short-term gains.

We also adopt a similar long-term orientation to all aspects of our business. As a company that is still in a growth mode, we will continue to focus on long-term value creation and invest fully into opportunities with great potential.

We are not guided by short-term goals, and this is also reflected in how we manage our global business. Our global business is still in the exploration stage and there's plenty of room for improvement. We are prepared to respond positively to challenges, and we view these as important opportunities to improve ourselves.

We are in this for the long term and will not be distracted by short-term results. With that, we will focus our effort on building our key capabilities. Firstly, supply chain capabilities, we will continue to roll out tailored fulfillment solution in different markets to improve supply chain efficiency and reduce costs. We welcome quality merchants from around the world to join us in providing a rich variety of quality products for consumers worldwide.

Secondly, legal and compliance capabilities. With the goal of building an industry-leading compliance program, we will make [ plenty of ] investments to create a safe and trustworthy shopping environment for our users.

To uphold our compliance centers, we will conduct forward-looking research into laws and regulation in the markets we operate and transform our know-how into tools that can easily assess our merchants.

And thirdly, service capabilities. In response to diverse needs and quality standards of global users, we will keep up our investment in technology and operations to improve overall user experience.

As we bring more value to consumers and merchants around the globe, we are hopeful that our platform will be increasingly recognized and welcomed by local communities we serve. We do not expect this to be easy and we are prepared for investments over the long run.

Finally, I would like to say that we are operating in a constantly evolving industry where competition and opportunities are both emerging at a rapid pace. Competition can be intensified in the past -- has been intensified in the past quarter, which will inevitably increase our expenses and affect some organic growth. On the other hand, new technologies and new markets also offer us tremendous opportunity for growth.

At this moment, I want to read our first shareholder letter when the company went public. We are not a conventional company, and we hope to show you the true colors of our company no matter how bumpy or rough the numbers may seem to be.

Our business does not follow a linear path and our earnings will almost certainly fluctuate. Therefore, we suggest our shareholders not to measure our overall performance with results from a few quarters. Our financial performance may beat or miss market expectations at times, but as long we keep focusing on long-term value creation, ultimately, this short-term fluctuation will convert to our growing intrinsic value.

And now I will hand it over to our Co-CEO, Jiazhen. Jiazhen, please.

[Jiazhen Zhao, executive]

[Interpreted] Thank you, Lei. Hello, everyone. This is Zhao Jiazhen. Thank you all for joining our earnings call for the first quarter of 2024.

This year is a year for consumption promotion. The consumer market in the first quarter has made a good start. Online consumption remained strong, and online retail penetration continued to rise. We proactively responded to the consumption promotion policies and launched a series of promotional activities to meet users' shopping needs during the Spring Festival and other seasonal events.

This further releases consumption potential and benefits merchants. Driven by both macro environment and our effective promotional events, we achieved solid growth in the first quarter. We are confident in the consumer market in China.

As Lei mentioned, this year, we will step up our investment to deepen the execution of high-quality development strategy. High-quality development is our long-term strategy.

Going forward, we will continue to direct our efforts into 3 key areas, which are consumption, supply, compliance and platform ecosystem while offering more savings to consumers. We are also focused on delivering high-quality supply and services to more consumers.

Guided by this strategy, on the consumer side, in the first quarter, we remain committed to putting consumers first. Focusing on more savings and better services, we continue to give back the most tangible rewards to our users. For example, we stepped up our investment in a 10 billion program and partnered with millions of quality merchants during the Spring Festival shopping season and the May Day shopping festival to fulfill consumers' demand for more savings.

As for better services, the consumer goods trade-in program is one of the initiatives driving this year's nationwide consumption promotion efforts. We have been actively working with third-party service platforms to provide users with convenient trade-in services covering mobile phones, electronics, air-conditioners, refrigerators, washing machines, TVs and other categories. Today, we have served more than 10 million customers.

Our trade-in services also extend to popular products under the 10 billion program, which offers consumers attractive discounts. As we make it even easier for consumers to upgrade their consumption, their shopping experience is further enhanced.

In addition, we wanted to make sure that consumers in remote areas could also enjoy the free-shipping shopping experience. So in the first quarter, we upgraded our shopping and shipping services and pioneered free shipping to villages in remote provinces. Our efforts for last-mile delivery [ post ] even closer to the consumers with most now within 2 kilometers radius. Such innovation led to a rapid year-on-year growth of order volume from these regions. We're happy to see that our service improvements are further driving our growth.

On the supply side, we continued our investment to support and grow together with the branded merchants. In the first quarter, we focused on the theme of trending national brands and allocated platform resources such as traffic support to high-quality merchants. This not only ensured the high-quality supply, but also help boost our merchants' businesses.

For example, during the Spring Festival shopping season, a dairy product brand launched a limited edition offering for the year of the dragon inspired by New Year traditions and chose our platform for the product launch. With the support of our platform's resources, the product quickly gained popularity and became a top seller in the dairy category.

Agriculture is our foundation. We are committed to invest in this important sector over the long run. In the first quarter, we continued to support agriculture technology innovation by launching the fourth Smart Agriculture Competition and the second Duo Duo Academy growing competition. This helps to explore new productive forces in agriculture.

At the same time, our agriculture cloud initiative has been steadily advancing in production regions such as Anhui, Hunan, Guangxi and Shandong to bring e-commerce screening and one-on-one consultation to local farmer merchants. In addition, during our Spring Festival shopping season, we collaborated with more than 1,000 quality agriculture production regions across the nation, which not only brought more specialty agriculture products to our platform, but also boost farmers' income.

During the May Day shopping festival, we launched the dedicated live streaming sessions under the 10 billion program for agriculture products with a particular focus on [indiscernible] agriculture specialties, such as blueberries and flowers. We supported the scaling of regional production and the branding of local agricultural products.

The high-quality ecosystem is critical to our transformation to high-quality development. Only a healthy ecosystem with well-designed platform policies can support the long-term sustainable growth of an e-commerce platform.

In the first quarter, we continued to invest in the 10 billion ecosystem initiative and carried out a series of compliance projects. For example, our trust and safety team utilized the technological means to further enhance the efficient automated review of product information on our platform.

As an e-commerce platform serving a vast and diverse consumer base, we also actively utilized our own unique resources to take on more social responsibilities. Since the beginning of this year, we have continued to support the [ Key to Home ] nationwide campaign, caring for the elderly and help lost seniors return home safely.

Around the World Reading Day, we launched the seventh Duo Duo Reading Month and provided direct discount to tens of thousands of book products, enabling more people to enjoy the benefits of knowledge sharing.

Our high-quality development strategy is a long-term massive and complex project. We will bring together the efforts and resources from all ecosystem participants to deepen our execution and create more value for our consumers and merchants.

Now let me hand it over to Jun. She will provide you with an update on our financial performance in the first quarter.

[Jun Liu, executive]

Thank you, Jiazhen. Hello, everyone. Let me walk you through our financial performance for the first quarter ended March 31, 2024.

In terms of income statement, in the first quarter, our total revenues increased 131% year-over-year to RMB 86.8 billion. 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 42.5 billion this quarter, up 56% from the same quarter of 2023. Revenues from transaction services were RMB 44.4 billion, up 327% from the same quarter last year.

Moving on to cost and expenses. Our total cost of revenue increased 194% from RMB 11.1 billion in Q1 2023 to RMB 32.7 billion this quarter, mainly due to increase in fulfillment fees, payment processing fees, maintenance costs and call center expenses.

On a GAAP basis, total operating expenses this quarter increased 44% to RMB 28.1 billion from RMB 19.6 billion in the same quarter of 2023. On a non-GAAP basis, total operating expenses increased to RMB 25.6 billion this quarter from RMB 18.1 billion in Q1 2023.

In the first quarter, we invested decisively in key strategic initiatives such as giving back to the consumers, investing in our service offerings, promoting brand awareness and R&D.

Our total non-GAAP operating expenses as a percentage of total revenue this quarter was 29% compared to 48% in the same quarter last year.

Looking to specific expense items. Our non-GAAP sales and marketing expenses this quarter were RMB 22.7 billion, up 44% versus the same quarter last year. Throughout the past quarter, we continued to give back to consumers over a series of business promotion campaigns, an increase of advertising to promote our brands.

On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 26% versus 42% for the same quarter last year. Our non-GAAP general and administrative expenses were RMB 572 million versus RMB 338 million in the same quarter of 2023.

Our research and development expenses were RMB 2.3 billion this quarter on a non-GAAP basis and RMB 2.9 billion on a GAAP basis, up 16% year-over-year.

Technology is at the core of our high-quality development strategy. We will continue our investment in R&D to provide our users with a more satisfying shopping experience, improve supply chain efficiency and to build a robust compliance program.

On a GAAP basis, operating profit for the quarter was RMB 26 billion versus RMB 6.9 billion in the same quarter last year. Non-GAAP operating profit was RMB 28.6 billion versus RMB 8.5 billion in the same quarter last year. Non-GAAP operating profit margin was 33% this quarter compared with 22% for the same quarter last year.

Net income attributable to ordinary shareholders was RMB 28 billion for the quarter compared to the RMB 8.1 billion in the same quarter last year.

Basic earnings per ADS was RMB 20.33 and diluted earnings per ADS was RMB 18.96 versus basic earnings per ADS of RMB 6.13 and diluted earnings per ADS of RMB 5.55 in the same quarter of 2023.

Non-GAAP net income attributable to ordinary shareholders was RMB 30.6 billion versus RMB 10.1 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB 20.72 versus RMB 6.92 in the second quarter of 2023.

As Lei mentioned, our business does not follow a linear path. This quarter's financial data does not represent the future. Fluctuations are inevitable. We suggest investors not to forecast our growth solely based on results from a few quarters.

That completes the income statement.

Now let me move on to cash flow. Our net cash generated from operating activities was RMB 21.1 billion compared with RMB 1.3 billion in the same quarter last year. As of March 31, 2024, we have RMB 242.1 billion in cash, cash equivalents and short-term investments.

Thank you. This concludes my prepared remarks.

[Unknown Executive]

Thank you, Jun. Now let's move on to the Q&A session. In today's Q&A session, Lei, Jiazhen and Jun will take questions from analysts on the line. We could take a maximum of 2 questions from each analysts. Lei and Jiazhen will answer questions in Chinese and we'll help translate for convenience purposes. Operator, we are open for questions.

[Operator]

[Operator Instructions] Your first question comes from Alicia Yap from Citigroup.

[Alicis a Yap, analyst]

[Foreign Language] Congrats on the strong results. Two questions. First is regarding the domestic competition. So over the past year, we have seen e-commerce platform actively adjusting their strategies in terms of the pricing and service. Can management share your view on how you evaluate the competitive landscape? In such an environment, what would be the strategic focus for Pinduoduo business going forward?

Second question is related to compliance. I think we noticed on the recent earnings call management spent quite a bit of time talking about compliance-related matters. Obviously, market is also paying close attention to the work that you are doing in this area. Can management explain a little bit more about the efforts you have made so far and what goals you wanted to achieve?

[Lei Chen, executive]

[Interpreted] This is Chen Lei. Let me take your question. And regarding your first question on strategy and competition, as for competition, we find that consumers are getting used to making purchases from different platforms. And before they decide on which platform to choose from -- to shop from, consumers compare the overall shopping experience across different platforms in a few areas. For example, on product selection, pricing and also on services. And given this trend during the first quarter, we are seeing that our industry peers have significantly stepped up their efforts.

And we welcome healthy competition. And in response to competition, we always put our consumers first. Our survival depends on the value we create for our users. And with our continued investments over the years, we are very pleased to see that our value proposition of more savings and better services is being increasingly recognized and accepted by our consumers. But at the same time, we also realize that consumer demand is constantly changing and we must do our best to keep up with it.

And currently, consumer demands are becoming more [ irrational ] and also more diversified and this means, in addition to offering more savings, we are also expected to meet consumers' needs for higher quality products and also more varied consumption scenarios. And therefore, on top of deepening on more savings and better services capabilities, we also work on boosting the supply of high quality products on our platform. And by improving the overall shopping experience, we hope we can further deepen our user's trust in us.

And regarding your second question on compliance. As our business grows, consumers and regulatory bodies are holding us accountable for ever-higher compliance requirements and also the merchants doing business with us. And in order to create a trustworthy shopping environment for our users, compliance is an area where we're committed to improve and where we have invested significant resources over the past few quarters.

Major regulatory framework around the world are evolving and new laws and regulations are being introduced. And therefore, we see combined capability as an important aspect of our high-quality development strategy and also compliance capabilities as one of our core capabilities of our platform.

And during last quarter's earnings call, we also communicated that with a learning mindset, we are actively engaging with regulatory bodies in various countries. And during this process, we are proactively strengthening our compliance capabilities. We are also investing heavily in researching and understanding the regulations of each market, and we have dedicated teams to apply these research findings to all aspects of our business.

And our initiatives in the compliance area not only cover those regulations related to our platform's own operation. For example, data-related regulations. But it also includes those related to merchant operations as well. For example, product compliance and consumer protection. And at the same time, we are also providing the necessary incentives for our small- and medium-sized merchants to conduct their businesses in a more compliant and high-quality manner, which benefits the sustainable development of our platform ecosystem.

And the growing high-quality merchant base will bring more quality product offerings onto our platform. And while compliant operations and a healthy ecosystem are fundamental to long-term development of our platform, both of which will support us in better satisfying consumers' diverse needs for high-quality consumption and thereby forming a virtuous cycle. This is my view on compliance matters. Thank you.

[Operator]

Your next question comes from Yang Bai with CICC.

[Yang Bai, analyst]

[Foreign Language] I have 2 questions. The first one is about the growth. The company delivered a decent top line growth for this quarter. Please, can the management share your thoughts on the growth potential of the business. Is there still room to grow? How should we think about this growth rate going forward?

And my second question is about the global business. Could the management talk a bit more about your latest thinking around the strategy of your global business? How would this business look like in 5 years?

[Jun Liu, executive]

This is Jun. Thank you for your questions. I will take your first question about the growth. Well, rather than being upset by short-term financial results, we have always focused on long-term investments and creating long-lasting value. And in the long run, we still see many areas to improving the consumption market.

The consumption market actually offers plenty of opportunities for platforms and merchants. And in addition to the potential of the overall consumer market, we also see that the online retail industry is growing quickly. E-commerce infrastructure continues to improve and new e-commerce models continue to emerge. We are actively innovating and exploring new models to create greater value for our consumers.

In the long term, we believe there's still large potential in online retail penetration. We will keep improving our services to consumers.

From the merchant side, we are also improving the scale and the value of our services. We continue to allocate resources to support high-quality merchants who are willing to do business properly. By doing so, we hope to grow together with the merchants and further broaden the selection of quality products on our platform. A positive feedback loop is achieved when these factors work together.

In such a rising industry, we need to keep our hats on and focus on execution faced with more competition. Our constant focus is to deliver more value for our consumers and merchants. We believe that the value we create for consumers and merchants will ultimately be reflected in our financial results. Thank you.

[Lei Chen, executive]

[Interpreted] This is Lei. Let me take your question on the global business strategy. First of all, our global business is still quite new and we are working very hard to grow the business in a high-quality way, while at the same time, still learning more about new business models. And we are a company that focuses heavily on execution, and after setting a strategic direction, we'll do our best to achieve it.

And as we communicated in the past few quarters, looking ahead, we will continue to focus on expanding our supply chain capabilities, our service capabilities and compliance capabilities. And in terms of supply chain, our goal is to further expand and deepen our supply chain to connect with high-quality merchants and high-quality suppliers around the world and to further broaden the product offerings on our platform.

At the same time, we'll improve the efficiency of the supply chain to make it easier for merchants to sell their products and also to lower their cost of doing business. Therefore, we can -- consumers and merchants worldwide will be able to benefit from this.

In terms of service capabilities, we are exploring different fulfillment solutions to improve efficiency and also to serve more diverse consumption scenario. In addition, we are also leveraging our technology capabilities to improve our customer service and the overall shopping experience.

And as for compliance, we have talked about it earlier on this call that this is the key to the high quality and sustainable development of our platform and it is also the foundation for creating a safe shopping environment for our users, and we will continue to invest firmly in this area.

And finally, the purpose of us doing all these investments is always to bring more quality products at affordable prices to consumers worldwide and to offer them a safe, enjoyable and unique shopping experience.

[Operator]

Your next question comes from Kenneth Fong from UBS.

[Kenneth Fong, analyst]

[Foreign Language] I have 2 questions, the first is on profitability. The company can still achieve profitability growth in the first quarter despite intensified competition. We are also seeing good operating leverage in terms of sales and marketing expenses. Does it mean the company is slowing down the investment in marketing? More broadly, can management talk about your plan in resources allocation?

And my second question is on agricultural strategy. Regarding agriculture, could management share how you think about the growth potential of agricultural product category? And also how do you evaluate your key competitive advantage in this area?

[Jun Liu, executive]

Thanks for your question. This is Jun. Let me first answer your question about profitability. Well, regarding profitability, we mentioned in our prepared remarks that the company's business does not follow a linear path. it will beat market expectation in some quarters and miss expectation in others. We suggest investors not to forecast our future growth completely based on results from few quarters.

We always focus on the long-term growth of the company's intrinsic value and will not [ smooth out ] short-term financial data.

In business execution, while we're compelled to return of investment in different markets and make prudent plans for resources allocation, we will not increase or decrease in expense items solely based on a preset budget. The company's investment in each quarter depends on the specific investment opportunities we see in the market.

Currently, we are still in a growth phase. If we see value-creation opportunities in the future, we will investment [indiscernible]. These investments marked bring fluctuations to short-term profitability, but will help us grow intrinsic value in the long run. This is our view on profitability. Thank you.

[Jiazhen Zhao, executive]

[Interpreted] This is Zhao Jiazhen. Let me take your question on agriculture. Agriculture is our foundation. We started our business with retailing of agriculture products. We have been investing in agriculture for many years, and we initiated the new model of group purchase for agriculture products. We have also innovated many agricultural solutions such as the direct delivery of agricultural products from the place of origin and our Duo Duo Grocery, building up a platform that connects local supply to local demand.

Agriculture is a challenging industry. With low product standardization and decentralized supply, storing and transporting agricultural products can be quite difficult. Currently, the online penetration rate of agriculture products remains relatively low, and there is still plenty of room for improvement in digitalizing farmers' operations. Therefore, we have taken it upon ourselves to invest in this industry and dive deep into transforming the agricultural supply chain. Throughout this journey, we have accumulated a lot of valuable experience and enhanced our team's capabilities.

Agricultural products are now a very important high-frequency category, and Pinduoduo has always been a full category e-commerce platform featuring agriculture products.

We're still making firm investments in agriculture. In the fourth Smart Agriculture Competition launched last month, we focused on AI planting and encouraged participants to explore optimization and commercialization of agriculture production. Our agriculture cloud initiative also continued to bring digital solutions to farmers in various agricultural production regions. We will continue to invest in diverse aspects of agricultural production and supply chain in the future.

Through continued investment in agriculture, we hope to promote modernization of the agricultural industry and enhance the quality and efficiency of the supply chain. At the same time, we help farmers increase their value and income, create local jobs thereby supporting the overall revitalization of rural communities. Thank you.

[Unknown Executive]

Thank you, Jiazhen. And also thank you, Kenny. Thank you all once again for joining us today, and it's about time. And if you have any further questions, please reach out to our Investor Relations team. Thank you, and have a great day.

[Operator]

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]