PDD Holdings Inc

SWB:9PDA

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen thank you for standing by and welcome to Pinduoduo’s Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the conference over to your host for today’s conference, Mr. Chen Penn [ph]. Please go ahead, sir.

[Chen Penn, Investor Relations]

Thank you operator. Hello, everyone and thank you for joining us today. My name is Chen and I will help host the earnings call. Pinduoduo’s earnings release was distributed earlier and is available on IR website at investor.pinduoduo.com as well as through global newswire 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 contains discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures. Joining us today on the call are Chen Lei, our Chairman and Chief Executive Officer; Liu Jun, our VP of Finance. Liu will make some general remarks on our performance for the past quarter and fiscal year 2021 and our strategic focus. Jing will then take us through our key operating and financial results for the fourth quarter and fiscal year ended December 31, 2021. During the Q&A session, Lei will answer the questions in Chinese and I will help translate. Please kindly note that all translations provided are for reference purposes only. In case of any discrepancy between original remarks and the translated version, statements in the original language should prevail. Now, it is my pleasure to introduce our Chairman and Chief Executive Officer, Chen Lei. Lei please go ahead.

[Chen Lei, Chairman and Chief Executive Officer]

Thank you, Chen and thank you everyone. Thank you for joining us on our earnings call for the fourth quarter and the fiscal year of 2021. Let me first recap our results in Q4 and full year 2021. Our total revenue in the fourth quarter, excluding revenue from merchandise sales, was RMB27.1 billion. This represents a year-on-year increase of 28%. Our annual active buyers reached RMB868.7 million for the 12 months ending on December 31, with RMB733.4 million average quarterly MAU. Our GMV in 2021 was RMB2,441 billion, representing 46% year-on-year growth. Total revenue for 2021, excluding revenue from merchandise sales, was RMB86.7 billion, representing 61% growth year-on-year. 2021 was a year of transition for Pinduoduo. Over the course of the year, during which I took over role of Chairman, we shifted our priority from sales and marketing towards research and development. I am glad to see that this shift is well on track. It will lay the solid foundation for us over the long run. We are grateful for our users’ continued trust and support. To keep up with the evolving and increasingly multi-dimensional preferences, we currently ask ourselves how we can serve them better. As a team with engineering background, our focus has always been to use technology to benefit all. We were fortunate to be early in identifying opportunities to contribute to and increase value in agriculture. Agriculture is a sector that touches everyone’s daily life, yet has low levels of digitalization. Since Pinduoduo’s establishment in 2015, we have been facilitating agricultural modernization and digital inclusion and efficient, resilient, sustainable and vibrant agricultural sector benefits all stakeholders in the value chain and we remain focused on our goal. In 2021, we deepened our agricultural digital inclusion efforts in various ways and they include: one, helping farmers to expand their access to the market; two, advancing the use of smart agriculture and three, encouraging and enable more young and tech-savvy talent into agricultural sector. And now let me elaborate. In a downstream, we continue to bring farmers into a digital economy by expanding their market access. We are working hard to build a platform that effectively matches consumer demand in agricultural production across the country. This enables farmers to ship their fresh and perishable agri-food products directly to consumers, bypassing layers of distribution to deliver in the shorter timeframe. The result is higher income for farmers, lower price for consumers and the fresh produce consumers’ cuisine. Our platform has opened up a market of nearly 870 million users to farmers and agri producers in China directly. We have also provided them with various tools to promote their unique agricultural produce. One commitment that we have is our zero commission policy of agricultural products. We waived sales commissioning and proactively gained more exposure for agricultural products. We plan to continue this zero commission policy of agricultural products. We aim to create a virtual cycle like what we have done for SMEs in the past, in which farmers spend more while consumers get leisure and more affordable produce. To amplify its effectiveness, we launched numerous promotional events. In 2021, we worked with various regions to create a series of agri-focused shopping festivals that introduce consumers across China to different regional strategy. We also collaborated with key partners, such as CCTV to launch live streaming events to promote China’s agricultural heritage. This event not only enhanced user awareness as appreciation of local specialties enable farmers to directly talk to consumers, understand consumers’ preference data which have been in brand building and production upgrades for quality agricultural produce. For instance, we initiated an Orange Festival to promote high-quality orange specialties from 7 major orange-produced areas across the country bringing regional orange varieties to consumers nationwide, benefiting from rising order volume on our platform local orange and agri merchants in Hunan Province which means a large increase in sales. This increase in sales not only improve farmers’ living standards, but also gave them confidence to invest into the future, many of the reinvesting with our partners into developing better products, including in sorting machines and packaging design. Moving upstream, we are advancing adoption of agricultural technology to help growers improve their productivity. A few practical and affordable technologies came out of them in all Smart Agriculture Competition last year, including automated crop monitoring, program dynamic adjustment for changing climate conditions and irrigation. We have several teams to commercialize these technology solutions. Today, these solutions have been applied in major strawberry growing regions across China, such as Liaoning, Anhui and Yunnan provinces. They have helped transitional growers more than double their management capacity. Such progress is inspiring and variable for the entire industry. We regularly organized knowledge-sharing session to encourage the adoption of technology in this sector. Earlier this month, we jointly hosted a sharing section with FAO China or harnessing [ph] smart agriculture to boost food production and security. Representatives from FAO, China Agricultural University, Chinese Academy of Agricultural Sciences, Pinduoduo and the finalists of the smart agriculture competition presented their insights at a webinar. We are honored to work closely with world class partners in agri-food sector, such as China Agricultural University, Zhejiang University, UN FAO, Singapore and Wageningen University. And we look forward to collaborating with more likeminded organizations and individuals in the future. Another important pro of Pinduoduo’s agricultural strategy focuses on encouraging and enabling more young and tech-savvy talent into the agriculture sector. We are glad to see more and more young agricultural entrepreneurs choosing to start their businesses with Pinduoduo. As at end October 2021, over 126,000 young farming professionals, born after 1995, has joined the Pinduoduo platform, up from 85,700 in 2020 and 29,700 in 2019. Most of these young entrepreneurs are well educated. They are digital natives who grew up with mobile technology. Therefore, they are used to buying things online and use innovations like live streaming. At the same time, many of them are motivated by the desire to contribute to the rural communities. To ask you then, we have offered dedicated training programs or necessary know-how to operate their e-commerce businesses. We will devote more resources to support them as we believe we will play a key role in facilitating agricultural modernization and rural vitalization. Looking back on our efforts in agriculture, we are happy with the positive impact that we have generated. But we have only scratched the surface in the field of technology advancement and digital inclusion in agriculture. Therefore, we are stepping up our investment in this sector as a long-term commitment. The focus of our long-term vision may always translate into near-term results, but we will be patient as we do our part to contribute to agricultural modernization. As mentioned last year, I am personally overseeing our RMB10 billion agricultural initiatives, which aims to facilitate advancement of agri-tech, promote digital improvement and provide agri-tech talent with greater motivation and sense of achievement. Profits from this quarter will continue to be allocated to this initiative. Lastly, as a platform that serves over 868 million consumers, we are also showing more social responsibility. In July, we rapidly responded to help with [indiscernible] making donations and launching a portal to support emergency relief distribution. In October, we did a same to carryout emergency disaster relief and post-disaster construction work in [indiscernible]. In December, we contributed towards relief efforts in Xian and work with the local government to maintain necessary provisions as a result of COVID-19 outbreak. To support the rural communities, we launched Duoduo Reading Month. Today, we have donated carefully selected farming books [ph] to rural communities around the country with an organized reading program. We hope that this effort will broaden the horizon of the youth and contribute to a better future to the community. As we step into another year, we remain laser focused on our goals and we will continue to do our best to serve all our stakeholders. And I would like to thank you all in advance for your continued support. And now, let me pass the time to Jim. Jim has been with us since 2017 and has been recently promoted to VP of Finance as part of our plan to grow more young generation leaders. And Jing, please?

[Jing Ma, Vice President, Finance]

Thank you, Lei. Hello, everyone. Nice meeting you here. Let me first walk you through our operating results for the fourth quarter and fiscal year ended December 31, 2021. Our annual active buyers for the 12 months ended December 31, 2021 was 868.7 million. This is an increase of 80.3 million from end 2020 or 1.4 million from the 12 months ending September 30, 2021. In Q4, we observed a quarter-over-quarter decline of the MAU. Average MAU in Q4 was 733.4 million. This is 13.5 million increase from the same quarter in 2020 or an 8.1 million decline from Q3 2021. At our current scale, we are approaching the [indiscernible] and do not see it as a meaningful driver of future growth. To us, it is more important to focus on meeting our existing users’ involvement in this and to serve them in the best way that we can. Our GMV for the last 12 months ended December 31, 2021 was RMB2,441 billion, an increase of 46% compared to 2020. Average annual spending per active buyer for the last 12 months ending December 31, 2021, which is the result of GMV divided by the number of active buyers over the same period, increased 33% year-over-year to RMB2,810. We are encouraged by their growing trust and are committed to serve them better. Last year, our platform generated a total of 61 billion orders, an increase of 59% from a year ago. There has been a significant increase in agricultural orders on our platform. In line with the step up forecast and resources on the factor as average order value for agricultural products is lower. This resulted in a decrease in AOV over the same period. Our AOV came down 8% to RMB40 in 2021 as compared to RMB44 in 2020, where average number of orders per active buyer was 70% in 2021, an increase of 45% from 2020. We are glad to see that our investment in agriculture is addressing our users’ real needs. We plan to deepen our efforts in agriculture. Next, I will go through our financial performance in the quarter ended December 31, 2021. In terms of P&L, our total revenue in the quarter was RMB27.2 billion, up 3% from RMB26.5 billion in the same quarter of 2020. This was mainly driven by the increase in revenues from online marketing services and revenue from transaction services, offset by a decrease in revenue from 1P trials. Excluding revenue from our 1P trials, our total revenue was RMB27.1 billion in Q4 2021, up 28% from RMB21.2 billion in the same quarter of 2020. Revenue from online marketing services and others were RMB22.4 billion this quarter, up 90% compared to the same period of 2020. This was primarily due to increased merchant activities, our testament of our platform’s capability to help them reach their target customers effectively and efficiently. Our transaction services revenue this quarter were RMB4.7 billion, up 108% compared with the same period of 2020. The increase in our transaction services revenues was due to: first, the increase in total transaction processing fees as a result of higher GMV; second, more diversified services that we provide to merchants such as fulfillment services. Moving on to cost and expenses. Our total cost of revenue decreased from RMB11.5 billion in Q4 2020 to RMB6.5 billion this quarter. The decrease came mainly from the reduction of 1P trials and decreased several quarters due to one-off rebates offset by increased fulfillment fees. Total operating expenses this quarter were RMB13.8 billion compared with RMB17.1 billion in the same quarter of 2020. On non-GAAP basis, our total operating expenses as a percentage of revenue, excluding 1P, has been declining from 94% to 76% to 45% for Q4 of 2019, 2020 and 2021 respectively. As we observed lower user and top line growth, we proactively controlled our expenses. This resulted in lower operating expenses in the quarter. As we face more competition from existing and new players, we expect relevant expense items to increase in the future. Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter RMB10.8 billion, down 25% versus the same quarter of 2020. As we continue to shift away from our previous forecast on sales and marketing, on top of this, as I mentioned, we further controlled our expenses in the face of slower user and revenue growth. As a result, on a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues in this quarter was 40% compared with 84% and 54% for the same quarter in 2019 and in 2020. Our non-GAAP general and administrative expenses were RMB195.8 million compared with RMB153.1 million in the same quarter of 2020. Our non-GAAP research and development expenses were RMB1.3 billion, a decline of 16% from RMB1.6 billion in the same quarter of 2020. The decrease in non-GAAP R&D expenses was due to a one-off rebate from one of our service providers. We take out the impact of this rebate, R&D expenses will have risen. We do not expect a rebate to recur. As a result, operating profit for quarter was RMB6.9 billion on a GAAP basis compared with operating loss of RMB2 billion in the same quarter of 2020. Non-GAAP operating profit was RMB8.4 billion compared with operating loss of RMB1.1 billion in the same quarter of 2020. Net income attributable to ordinary shareholders was RMB6.6 billion compared with a net loss of RMB1.4 billion in the same quarter of 2020. Base earnings ADS was RMB5.26 and diluted earnings per ADS was RMB4.66 compared with basic and diluted net loss per ADS of RMB1.13 in same quarter of 2020. Non-GAAP net income attributable to ordinary shareholders was RMB8.4 billion compared with net loss of RMB184.5 million in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB5.88 compared with non-GAAP diluted net loss per ADS of RMB0.15 in the same quarter of 2020. To conclude, profitability in the past quarter was mainly attributed to: first, control spending in the face of slow growth; and second, reduction of coals and expenses due one-off rebate. We expect process to fluctuate as we continue to invest in agriculture space, including agricultural technology. As we mentioned in previous quarters, we are also facing more competition. Therefore, we do not expect profitability in Q4 to serve as a benchmark for the following quarters. Similar to previous quarters, proceeds from this quarter will be allocated to the $10 billion agriculture initiative. That completes the profit and the loss statements for the fourth quarter 2021. Our net cash flow provided by operating activities was RMB16.4 billion compared with RMB14.9 billion in the same quarter of 2020. As of December 31, 2021, the company had RMB92.9 billion in cash, cash equivalents and short-term investments. With that, I conclude my prepared remarks.

[Chen Penn, Investor Relations]

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

[Operator]

[Operator Instructions] Our first question is from Thomas Chong with Jefferies. Your line is open.

[Thomas Chong, Jefferies]

Thanks management for taking my questions. My first question is more about the macro uncertainties that we are facing. How should we think about the impact to the consumers as well as well as to Pinduoduo? And my second question is about our RMB10 billion agriculture initiatives. Can management comment about the progress so far, the P&L impact this year’s KPI as well as our fourth if there will be a step-up in investment going forward. Thank you.

[Chen Lei, Chairman and Chief Executive Officer]

Thank you, Thomas, for your questions. And let me take your questions. You asked about macro-economy. Well, for us, we always look internally and see what areas we can improve through technology. And for us, a big area is agriculture. So there are many aspects and areas in agriculture that one can improve. In production, we can increase yield, reduce the environmental impact and also help farmers get higher and stable income. In terms of consumption through our efforts, we can provide consumers with fresher and more affordable agriculture produce and reduced waste at the same time. In addition, another area of interest for us is in distribution. We can use technology to improve the distribution efficiency of agriculture produce and also strengthen the rural logistics system. In the agriculture sector, along which is so fundamental and crucial, we see so many opportunities. This reflects that we remain confident about the potential of the industry and the future development. But investment in agriculture takes time and the process is gradual. So we have to be very patient in the process. And with that, this naturally brings us to your next question on our RMB10 billion agri initiative. We announced the RMB10 billion agri initiative in Q2 last year. And for this initiative, profitability or commercial value is not the aim. We hope that this initiative can address the critical needs in the agriculture sector and rural areas. As for where we would put our investment in, I hope this initiative can facilitate the advancement of Agritech, promote digital inclusion and also give more motivation and a sense of achievement to agri talent and workers. We really hope the RMB10 billion agri initiative can maximize its potential and impact in the advancement of agritech and digital inclusion. Therefore, we are diligently evaluating different proposals and projects and also take into account of our – and make those evaluations based upon our past experiences in agriculture as well as our technical background. Here, I can also share some examples of our focus areas. Some examples, some of which I have mentioned includes that how to improve distribution efficiencies through technology, how to reduce the transportation time as well as reduce the environmental impact with logistic technology and also how to use technology in production to improve the efficiency as well as quality. To use technology to enable different lengths along the agriculture value chain is really a long-term project that requires long-term dedication and patience. We are still in the early days of this and hope everybody can have more patient – have more patience. As we invest, we also look forward to share with you our progress on the RMB10 billion agri initiative and hope that I have said addressed your questions.

[Thomas Chong, Jefferies]

[Foreign Language]

[Chen Penn, Investor Relations]

Operator, we’re going to take questions from the next analyst on the line.

[Operator]

Our next question comes from Yang Bai with CICC. Your line is open.

[Yang Bai, CICC]

Thank you management for taking my questions. My first question is regarding to the future competitive landscape. I noticed that Pinduoduo always focus more on the value to consumers instead of pressure from competitors. So from your perspective, what is needed or what kind of improvement should be emphasized for the company to make the cut? And my second question is regarding to your branding strategy. For the past 6 years, Pinduoduo was very distinguished from other competitors, especially for your value for money merchandise. However, when it comes to branding, it seems that the past advantage is kind of becoming the bottleneck. So I’d like to know your future strategy how to efficiently help the brand business in Pinduoduo’s platform? Thank you.

[Chen Lei, Chairman and Chief Executive Officer]

Thank you, Bai Yang, for your questions. I will share my views on those fronts. As for competition, since the day Pinduoduo was established, we are in this highly competitive space. And China e-commerce space is a huge industry, and it has always been highly competitive. We now see more large platforms entering e-commerce, and they provide different options to consumers. As technology continues to upgrade, consumers’ needs will also continue to evolve, and we expect more engagement formats will emerge and more platform companies will join e-commerce. As you have mentioned in your question, internally, we would focus on users and whether we are serving their needs well. So we target to offer users a unique more savings, more fun and shopping experience. This is our company’s benefit. Indeed, we do not focus too much on competition. But with that said, I think over the past period of time, in terms of understanding and catching up with the rapidly changing user needs and addressing their needs effectively and efficiently, there is still plenty of room for us to improve. Admittedly, many of our competitors have done a better job in some of these aspects and we need to learn from them. Especially under intensified competition, we still need to look into ourselves how to do better, improve our services and raise our user satisfaction. I also mentioned a quarter – a few quarters ago that Pinduoduo cannot always be perfect or be the best. And we will inevitably slowdown as we go through transition in leadership and where we make adjustments. But these are all part of our company’s development. In addition, we have chosen to invest in agriculture, and this is different from a pure Internet technology. In this sector, we need to be more patient with our investment due to its nature. We will continue to invest in agriculture. We see that compared with categories that have been digitized earlier or categories that now have higher online penetration rate. The online penetration rate for agriculture is still very low. And on the existing fulfillment experience, many consumer needs have not been met. This is why we are investing in agriculture without hesitation as well as in core agriculture technology, with the goal to promote agri-tech and digital inclusion. For our company’s mid to long-term development outlook, my team and I are confident. At the same time, in order for our confidence to translate into actual results, we need dedication and hard work from everybody in our team. As for your next question on brand, our platform now has nearly 870 million users and their needs, is continuing to diversify. We hope to satisfy our users’ needs and also give them a better shopping experience on our platform. And in this process, brand is definitely one part that we need to work on. However, store opening does not happen overnight. Instead, it takes time. Essentially, I believe that the ultimate goal for our brands and for us, are the same, that is to serve consumer as well. So, we will continue to be very patient and down to earth to do our parts within our capability and what we should do. In this process of cooperation, we see a trend that brands who sees opportunities first would generate higher returns. And this would, in turn attract more brands to learn more about us and seek collaboration. As for whether more brands would help increase the ARPU or AOV, that is not our core focus. Instead, we focus on our user satisfaction. We will stick to our principles of benefit all, people first and more open. And I believe this would have a positive impact on brands users as well as our platform. Operator, we may now take a question from next analyst.

[Operator]

Our next question comes from Joyce Ju with Bank of America. Your line is open.

[Joyce Ju, Bank of America]

Congrats on the solid quarter and thanks for taking my questions. My first question is, first, we have seen continued leverage and decline in sales and marketing expenses this quarter. Is there any specific reason this quarter, which leads to the – company to further control the sales and marketing spending, or it’s simply an improvement on your sales and marketing ROI? And my second question is, PDD has delivered another quarter of strong profit. Can you share with us how management team are looking at the balance between profitability and growth? Are we seeing a pivot in strategic priority? Also should investors expect future or how should we expect the future profitability trend? And how much was the one-time rebate that contributed to this quarter’s higher profitability?

[Jing Ma, Vice President, Finance]

Thank you for your question, Joyce. Well, for sales and marketing expenses, you may see that we are aptly changing our investment direction based on our past quarter’s results. And during Q1 and to Q3 last year, our expenses showed a consecutive quarter-on-quarter decreases in terms of absolute dollar amount. And in Q4, our selling and marketing expenses decreased by 23% Y-o-Y, which represented 42% of revenues. Well, that is our lowest level in our history. We think it is a strategic shift as Lei just mentioned, we need to focus and invest more in technological development, such as agritech. And meanwhile, with slowing growth rate, we are more cautious, so we have proactively controlled expenses. This is also where we are seeing higher profitability margin in the past quarter. And recent fluctuation in user activities and slowing revenue growth is a reflection that we are not doing validness in terms of satisfying users’ needs. So, our team is working hard to explore how to meet user needs better and quicker. And we think this will require continued investment and definitely, the expense were very likely increase in the future. For second question, which is about profitability, well, I would like to point out that we are not changing our strategy to focus on profitability. This quarter’s higher profit was due to one-off rebate as mentioned before, and controlled spending in the face of slower growth. To further elaborate, first, we are – as we encounter low growth and are concurrently making adjustments, we are taking a cautious approach and proactively controlling our expenses. On top of this portion of this quarter’s profit was due to cost and expense reduction related to a one-off rebate from our service provider. And this one-off rebate has resulted in lower cost and expenses and higher profitability in the quarter. But if we strip out the one-off rebate costs and expenses will be higher than the reported number, and profitability in the quarter will also be lower. And second, as competition intensifies and user demand becomes more diversified, we do expect on continued investment in agriculture and a core technology, which will result in higher expense line items, hence, impacting profitability. And in your question, you also emphasized the rebate well, I think the – the one-off rebates, yes, one-off nature, especially on a case-by-case negotiation with our service providers, we do not expect it will recur in the future. And for the amounts due to confidentiality obligation with the service provider, we could not comment on specific amounts. But what we can say is that it contributed a meaningful portion of this quarter’s profit.

[Chen Penn, Investor Relations]

We have time to take questions from one more analyst.

[Operator]

Our last question comes from Ken Fong with Credit Suisse. Your line is open.

[Ken Fong, Credit Suisse]

Hi. Thank you, management for taking my questions. I have a question on the online market service revenue, which in Q4 recorded a slower growth rate of only 19% compared with the previous quarters, what’s the reason behind? Is this mainly due to a slower GMV growth or due to the change in take rate policies? And have we carried out more merchant support measures in the recent quarter that also depressed our take rate. And as an investor, how should we think about the growth outlook for first quarter and in the next few quarters? Thank you.

[Chen Lei, Chairman and Chief Executive Officer]

Kenneth, let me take your question and offer some insight on our revenue growth and then Jing will supplement with some insights on take rates. First of all, for us to reach our current scale, investors should not expect continuous and ultra high growth. As for our future growth, I believe we need a strategic upgrade. And we also went through adjustment last year to focus more agriculture and core technology in order to pursue a long-term, high-quality development. For example, we are looking to how to apply our core technology to improve the efficiency and reduced waste in agriculture so that consumer can get affordable and high-quality produce. And farmers at the same time can increase yield, enjoy improvement income and benefit from digital inclusion. We believe our focus in agriculture and investment in core technology creates long-term value. We are fortunate to have nearly 870 million customers who choose to leaving us to serve our user as well, address their constantly changing needs and improve their satisfaction level is our long-term focus. So, in the past year, we have seen many different platforms entering e-commerce as well as new e-commerce formats. As I have said, we need to learn from them and also improve our services. It also serves as a good reminder for us to iterate and promote more young talent to our management team and to keep up with the market development. For these adjustments to show results, it takes time. And in the process, our growth rate may be affected. As we develop, you may see that our business cycle and financial reporting cycle do not necessarily correspond smoothly to each other. So, we do not recommend investors to use one quarter of results to predict the next. Jing may help supplement with some insights on take rate.

[Jing Ma, Vice President, Finance]

Okay. Thank you, Kenneth. As you mentioned about SME, so before I answer your question about the take rate, I would like to talk more about SME. As we started Pinduoduo, with corporate principles of benefit all, people first and more open. In addition, agriculture is our core and many agriculture merchants are SME merchants themselves. So, we have always been looking for ways to support SME merchants and the products. And for take rate, well, it’s not a metric that we focus on. In the past three quarters, as you already know, that we continue to implement the zero commission policy on agriculture products. We actively extend support to agriculture merchants and SME merchant and offer more exposure and traffic to agriculture products. All of this would affect our take rates that were – we have done and our students. And in the long run, our revenue and monetization depends on how much value we create. As we – as our user experience and use user main share improve, our platform could provide more value to merchants and merchant with find investments on our platform more attractive as a result. But I think if the percentage of our agriculture products with increases the monetization rates unlikely to grow as it impacts our scale. But our user well is our number one priority. As mentioned before, agriculture is Pinduoduo’s core and strategic direction, and we will stick to it.

[Ken Fong, Credit Suisse]

Thank you. Very clear.

[Operator]

Thank you. I would now like to turn the call back over to Chen Penn for closing remarks.

[Chen Penn, Investor Relations]

Alright. Thank you everybody for joining us on the conference call today. If you have any further questions, please feel free to reach out to the IR team. Thank you. Have a great day.

[Operator]

This concludes today’s conference call. Thank you for participating. You may now disconnect.