Earnings Call: Q2 2021

Aug 24, 2021

I would now like to hand the conference over to your speaker today, Jason Shu. Please go ahead. All right. Thank you, operator. Hello, everyone, thank you for joining us today. Pinduoduo earnings release was distributed earlier and is available on our website at investor.pinduoduo.com, as well as through GlobeNewswire services. On today's call, our Chairman and Chief Executive Officer, Chen Lei, will make some general remarks on our performance for the past quarter and our strategic focus going forward. Our VP of Finance, Tony Ma, will then elaborate further on specific strategic initiatives and take us through our financial results for the second quarter ended June 13th, 2021. Before we begin, I would like to refer you to our safe harbor statement in the earnings press release, which apply to this call, as we will make certain forward-looking statements. This call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures. Now it is my pleasure to introduce our Chairman and Chief Executive Officer, Chen Lei. Lei, please go ahead. Thank you, Jason Shu. Hello, everyone, and thank you for joining our result announcement for the second quarter of 2021. Thanks to our users' trust, our total revenue for this quarter, excluding revenue for merchandise sales, was RMB 21.1 billion. This represents a year-on-year increase of 73%. Our annual active buyers reached 849.9 million for the 12 months ending on June 30. Over the quarter, average MAU increased to 738.5 million, representing 87% of our annual active buyers. Our results this quarter demonstrate our enduring commitment to serve our users as well as their trust in us. We feel fortunate and are grateful for their consistent support, and we will continue to do our best to serve them and all our stakeholders. Pinduoduo takes our responsibility to our users and society very seriously. Without them and their support, we would not be where we are today. This is why we are always there with them and for them in their times of need. After heavy rain struck Henan Province last month, we immediately mobilized our networks of partners to provide relief. Close to 20,000 Duoduo Grocery pickup points at Zhengzhou City helped to distribute emergency supplies to residents living in their vicinity. With Henan's agriculture supplies disrupted by COVID-19 and the rain, we link up Henan's Duoduo Grocery network with neighboring networks, including Shandong and Anhui, to ensure that residents continued to have the supplies they needed at stable prices. As user demand in Henan rose significantly, we also increased our warehousing by 4 times and doubled our manpower there. In addition to these efforts, we contributed 100 million RMB towards the rescue and relief effort. Our support for Henan is in the same spirit as our earlier initiatives to leverage our platform to contribute to society. When COVID-19 disrupted traditional agricultural supply chains last year, we launched our Help the Farmer initiative, connecting farmers directly with consumers across the country. Through our various efforts, we helped over 1.13 million farmers sell over 2.06 million tons of agricultural produce by the end of 2020. This helped farmers reduce spoilage and losses, and consumers get what they needed. As consumers turned to online grocery shopping to minimize contact, existing delivery systems become overwhelmed, resulting in significant backlogs. We responded by launching Duoduo Grocery, a next day sale pickup service that connects local demand and supply. Duoduo Grocery unclogged the backlogs, providing users more affordable and fresher produce in an efficient manner. It has since become an important offering to our users, helping to create and preserve millions of jobs along the entire agri-food value chain in the process. It has also proven its worth as a support network in times of need in Zhengzhou. We will continue to improve it to benefit users, farmers, and their communities. Improving agriculture has been at the front and center of our business from the very beginning. Agriculture touches the daily lives of everyone and has a relatively low digitization rate. With many of our team being engineered by training, we hope to apply technology to agriculture so as to make a large positive impact on society and contribute to the national effort to modernize agriculture and vitalize rural communities. Applying technology to agriculture is the best way for us to achieve our mission, which is to benefit all, to put people first, and to be more open. We are gratified that Pinduoduo serves over 16 million farmers, acting as their portal to a digital economy. Farmers are the bedrock of every food system. To help them thrive is to help our every food system and society at large thrive. We have seen firsthand how online agricultural retail and technology have benefited farmers. We are pleased that farmers and our partners recognize it too, which is why they have spread the word and helped the number of farmers on our platform grow so quickly. We want to bring even more farmers on board and we work with them to improve their lives and livelihoods. This is possible only if it also works for our users and society at large. This is why we are focusing on playing a role in strengthening food security, safety, and technology. Now let me elaborate. First, food security. It's important to secure consumer access to a wide variety of affordable and nutritious food. For this, we need to help our farmers sell better and earn more, so that they can cultivate more efficiently and sustainably. On the supply side, we need to up-skill farmers as we have been doing through Duo Duo Academy and in partnership with local government and agronomic institutes to apply new technology. On the demand side, we need to create awareness of their produce and aggregate demand to them. While China has a diverse selection of unique agricultural products, consumers often do not know about many of them. We want to change this by promoting their rich offerings nationwide. It is in this spirit that we recently launched our third Harvest Festival. Leveraging our Ten Billion program and the fresh sale, this year's edition featured over 1,000 unique quality produce from 400 quality agricultural production regions. Since inception of the Ten Billion program, our zero commission policy for agricultural produce has attracted over 10,000 quality agri-merchants to the program, selling over 20,000 agricultural SKUs. I want to take this opportunity to pledge that we will maintain our zero commission policy for agricultural products to help farmers build a more resilient, efficient, and profitable business. Second, food safety. We want to help improve standards across agri-food systems. On the supply chain itself, we will continue to help build out the agri-focused infrastructure. We are investing to improve demand and supply matching, cold chain integration, and smarter route planning. These efforts will also reduce agriculture's environmental and environmental footprint by cutting resource use and emissions from storage and transportation. We are still at the very beginning of this infrastructure buildup. However, we are confident of its long-term benefit. Third, food technology or agri-food technology. We can only create a vibrant and sustainable agri-food system by seeking solutions from the cutting edge of science and working with farmers to apply these solutions. I would like to highlight the work we are doing in precision farming. Early this month, we launched the second Global Smart Agriculture Competition together with China Agricultural University and Zhejiang University. We challenged teams for around the world to plant tomatoes. Last year, we challenged teams to deliver cost-effective productivity improvements with strawberries. The technology teams performed very well, demonstrating the cost-adjusted benefit of adopting precision farming by producing three times more fruit than the experienced farmers. Two of these teams have since started to commercialize their technology, which will result in real productivity gains for farmers. After last year's successful run, we are stepping up our criteria. On top of cost-effective productivity improvement, teams will need to demonstrate their farming technology can improve a tomato's nutritional profile while exerting less impact on the environment. We welcome all interesting teams with relevant skills to join this competition. First, agri-tech will make agriculture more attractive to the tech-savvy internet native younger generation. We want to help them apply their tech skills in agriculture. To date, we have directly contributed to over 100,000 new farmers returning and working in their hometowns. We will continue to strengthen our training for new farmers, and we are targeting to train another 100,000 of them over the next five years. While we have made headway in our agriculture improvement initiatives, there is still a lot to be done to support our farmers and apply technology to agriculture to make it smarter, more resilient, more sustainable, and benefit all. As China's largest online agriculture platform, we launched a dedicated Ten Billion Agriculture Initiative today, which seeks to face and address the critical needs in the agricultural sectors and rural areas. Commercial values or profits are not a goal. Rather, we strive to facilitate advancement of agritech, promote digital inclusion, and provide agritech talents and workers with greater motivation and sense of achievement. Although the Ten Billion Agriculture Initiative will clearly impact the short-term earnings per share for shareholders, it has already received the support and approval of the board of directors, and it will be personally overseen by myself. We will hold a shareholder meeting to seek the support of majority shareholders. This is an important and challenging task, which we will invest in patiently. All the profits from Q2 and any potential profits in the future quarters will first be allocated towards this Ten Billion program until the total CNY 10 billion commitment is fulfilled. Thank you. Now let me pass the time to Chen. Thank you, Lei. Hello, everyone. Let me begin by providing an update on our progress in improving agriculture by applying technology and elaborate on how we will continue to deploy resources to do so as to achieve our mission to benefit all. I will then discuss our financials this quarter. First, our efforts on digital and technological inclusion on farmers and agri-merchants. We are firm believers in online agriculture retail and have already connected over 16 million farmers. We are committed to do more that for them and bring more farmers on board and into the digital economy. Many farmers are smallholders and may not be digital natives. We will be directing resources to make it simple and worthwhile for them to embrace tech-enabled agriculture. Our platform helps farmers sell effectively online by making China's rich and diverse agricultural produce discoverable and accessible to our 850 million annual users, whose demand we then aggregate. As a foundation, we are committed to keeping our 10 Billion program completely free for all agricultural produce. Further to that, we will be focusing on promoting quality agricultural produce. We have seen encouraging results from our 3rd Harvest Festival last week. This year, presale orders nearly tripled within the same time frame, with our users learning about and trying more special products, including vegetables from Shaoguan, mitten crab from Hongze Lake, and the matsutake mushroom from Shangri-La. We see great potential for Pinduoduo to be the go-to place to discover unique produce and learn and experience China's rich agricultural diversity. We will continue to invest heavily to make this a reality. We will apply C2M to help them cultivate better and build their brands. Our pioneering C2M model was recently recognized by the Retail Asia Awards for helping many export-oriented OEMs to pivot to the domestic market after COVID-19 disrupted the demand from abroad. Through C2M, they tailored their products to Chinese consumers and built strong brands to sell them. We will be applying C2M to agriculture. We're working with farmers to understand their customers better and to tailor their produce and packaging accordingly, thereby increasing demand while reducing waste, environmental footprint, and advertising spend. This will also help users access more fresh produce that are better, fresher, and cheaper. An early example of our work in this area is Tieguanyin tea producers in Anxi. Tieguanyin is a premium oolong tea originated from Anxi, Fujian. Tieguanyin from this area is considered to be the best quality tea within its category. Under the Anxi County tea industry new brand alliance, we partnered with 10 leading Tieguanyin producers in Anxi and analyzed the consumers' preference to provide optimization feedback on size, packaging, and the price of their products. In addition, we help them to establish a new brand image of quality tea is not expensive among consumers. This helped to increase sales significantly. Deepening the human capital pool in agriculture is also key to the long-term success of our efforts. We seek to empower farmers and agri-merchants to grow and sell better through Duoduo Academy and promote new technologies in partnership with local governments and agronomists. We also help to nurture and showcase agri-tech solutions through our Global Smart Agriculture Competition, thereafter encouraging their wider adoption in China. After successful inaugural event in 2020, we launched the second edition earlier this month. We are very honored that China Agricultural University, Zhejiang University have joined us and provided their strong support. We have also put together a judging panel composed of distinguished experts and growers with backgrounds in horticulture, crop modeling, algorithm design, and policy making, reflecting the importance of interdisciplinary collaboration to modernize agriculture to benefit all. We hope that this year's Competition will spotlight ideas and techniques that can be applied by farmers to improve their farming. Second, retooling logistics for agriculture. We will be allocating resources to improve agri-focused logistics for affordability and efficiency and to reduce its carbon footprint. We will make it well adapted to online agricultural retail. We have made good strides in this area, incorporating our route planning technology to our network solutions. At present, our work has already helped to expand the range of delicate fruits and vegetables that can be sold online at affordable prices. With it, our users enjoy more options because more farmers and agri-merchants have joined the digital economy. At the same time, our distribution networks that support these sales have also created many new economic opportunities, catalyzing over 1 million jobs along the way. These improvements have also greened the agriculture supply chain by cutting down carbon emissions through more efficient routing and matching of supply and demand, as well as reducing food spoilage and waste in the distribution process. Well, we are encouraged to see the benefits that our logistics solutions have brought to many stakeholders and the environment. There is still much to do and to accomplish. Nevertheless, we are determined to play our part and are committed to make significant long-term investments in it alongside like-minded partners. It is our strategic priority to modernize the agri-food system to serve all stakeholders better and become more environmentally sustainable. We are committed to invest any profit and resources into realizing it. Our efforts are still in early days, and we will be patient for our investment to show results. Now, let me talk through the financial highlights of the second quarter of 2021. We continue to see healthy user growth in Q2 and are happy with the progress we are making in improving trust and winning mind share with our users. Our annual active buyers for the last 12 months, ending June 30th, 2021, increased to 849.9 million, up 26.1 million from the prior quarter. Our MAU in Q2 reached 738.5 million. This is up 30% compared to the same quarter in 2020. Our MAU as a percentage of our annual active buyers was 87% in the quarter, reflecting continued healthy engagement with our users. In terms of P&L, our total revenues in the quarter ended June 30th, 2021, were RMB 23 billion, up 89% from RMB 12.2 billion in the same quarter last year. Excluding revenues from our 1P trials, our total revenues grew by 73% to RMB 21.1 billion in Q2, 2021. The main driver of this growth was our online marketing services. Online marketing services revenue was RMB 18.1 billion this quarter, up 64% compared to the same period last year, due primarily to continued increase in merchant activities. We have seen merchants spending more and exploring new ways to engage with users, and our users browsing more and discovering more items of interest. We can attribute these at least in part to improvements in the advertising products and analytical tools we offer to our merchants, which have helped them to meet and exceed their ROI targets. We are pleased to see the growing endorsement by our merchants and our users. Our transaction service revenues this quarter amounted to RMB 3 billion, which is up 164% compared with the same period last year. The increase in our transaction service revenue was due to two primary factors. Number one, the increase in our GMV in Q2. Number 2, the service revenues that we recognize in connection with Duoduo Grocery, for which we provide fulfillment and other related services. We also record RMB 2 billion in merchandise sales for our 1P trials in Q2 2021 as compared to RMB 5.1 billion in the preceding quarter. As we have stated from the outset, our 1P business is meant to temporarily meet user demand of specific products which our merchants are unable to fulfill. Therefore, this number may fluctuate from quarter to quarter. Our strategy on 1P remains unchanged, and it will remain a very small part of our business. Now moving on to costs and expenses. Our total cost of revenues increased from RMB 2.7 billion in Q2 2020 to RMB 7.9 billion this quarter. The increase was mainly due to the costs and the expenses attributable to 1P merchandise sales, higher cost of payment processing fees, cloud service fees, and delivery and storage fees. Total operating expenses this quarter were RMB 13.2 billion as compared to RMB 11.2 billion in the same quarter of 2020. Our total non-GAAP basis operating expenses were RMB 12 billion as compared to RMB 10.3 billion in the same quarter a year ago. Our non-GAAP sales and marketing expenses this quarter increased 13% to RMB 10 billion from RMB 8.9 billion in the same quarter of 2020. This was mainly due to an increase in promotion and coupon expenses as we continue to invest in user engagement and mind share. June is traditionally a festival month for online retail. At Pinduoduo, we do not emphasize on shopping festivals, but wish to deliver value for money merchandise across all categories to our consumers every day. At the same time, we have detailed internal ROI guidelines on spending and are committed to make investments that meet such ROI guidelines. As a result, we see moderated growth in sales and marketing expenses in this quarter, consistent with historical Q2 spending. Looking forward, we are committed to make meaningful investment into categories that we think could help strengthen consumer mind share and benefit all in long term. On this front, we will continue to make it free for agriculture products and fresh produce to be featured in our Ten Billion program. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenue excluding 1P trials this quarter was 47% as compared to 81% and 73% for the same quarter in 2019 and in 2020. The reduction in sales and marketing expenses as a percentage of revenue is a reflection of our economics of scale and the consistent efforts to stick to a high standard of ROI guidelines. As we continue to invest into our user mind share and in light of the upcoming festival season, we expect sales and marketing expenses to increase, hence impact the bottom line. On a non-GAAP basis, our general and administrative expenses were CNY 214 million, an increase of 57% from CNY 137 million in the same quarter of 2020. Our non-GAAP research and development expenses were RMB 1.8 billion, an increase of 39% from RMB 1.3 billion in the same quarter of 2020. The increase was primarily due to an increase in the headcount, the recruitment of more experienced R&D personnel, and an increase in R&D related cloud service expenses. To sum up, operating profit for this quarter was RMB 2 billion on a GAAP basis, compared with operating loss of RMB 1.6 billion in the same quarter of 2020. Non-GAAP operating profit was RMB 3.2 billion, compared with operating loss of RMB 725.1 million in the same quarter of 2020. Our non-GAAP operating profit as a percentage of our revenues improved from -6% in Q2 2020 to 14% in Q2 2021. Net income attributable to ordinary shareholders was RMB 2.4 billion as compared to net loss of RMB 899.3 million in the same quarter last year. Basic earnings per ADS was RMB 1.93, and the diluted earnings per ADS was RMB 1.69, compared with basic and diluted net loss per ADS of RMB 0.75 in the same quarter of 2020. Non-GAAP net income attributable to ordinary shareholders was RMB 4.1 billion, compared with net loss of RMB 77.2 million in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB 2.85, compared with non-GAAP diluted net loss per ADS of RMB 0.06 in the same quarter of 2020. That completes the profit and loss statement for the second quarter. Net cash flow provided by the operating activities was RMB 7.4 billion, compared with RMB 5.5 billion in the same quarter of 2020, primarily due to an increase in online marketing service revenues. As of June 30, 2021, the company had RMB 92.2 billion in cash equivalents, and short-term investments. As of the end of July 2021, $773.7 million of our 0% convertible bonds due in 2024 have been converted into equity. With that, I conclude my prepared remarks. Operator, we can take questions now. Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Eddy Wang from Morgan Stanley. Please ask your question. Thank you, management, for taking my question, and congratulations on the strong earnings. I have 2 quick questions. First is about the consumption. Can you share some of your view or, you know, the so far what have you witnessed for the consumption in China in the third quarter? Because I think some of the e-commerce, leading e-commerce players have indicated that the consumption could quite be, yes, a little bit weak. Another, you know, leading e-commerce platform report yesterday actually indicated very strong, resilient consumption. I just want to check what you have seen, you know, on the consumption side, especially, you know, for the third quarter to date situation. This is the first question. The second question actually is about your profitability. I think if I remember correctly, you know, this is the first time that we have see very meaningful, you know, profitability for PDD on quarterly basis. The, you know, the non-GAAP net margin is 18%. That's very impressive. Given that our business model has been, you know, more and more mature, should we expected that the profitability pattern in this quarter, you know, to be, you know, more stable going forward, and is more, you know, expected going forward? Yeah. Thank you. Okay. Thank you, Eddy, for the question. Let me try to answer these two questions. Regarding your first question on the consumption, I think before we go to the third quarter, let's just recap what happened in Q2. I think in general with the COVID-19 pandemic under control in Q2, it is natural to see offline retail actually rebounded faster. At the same time, in 2020, the second quarter represent a much higher base as online retail grow faster due to the COVID-19 related stay-at-home measures. We are encouraged to see the continued and normalized growth in Q2 this year, considering Q2 is usually a busy quarter for e-commerce players. In the past quarter, we continue to see this healthy improvement in our user engagement and growth on our platform. Our revenue in this quarter grew 89% year-over-year as a whole. If we take out the 1P merchandise sales, the increase 73% year-over-year. I would say the growth is still very strong. Coming to your question on the 3rd quarter, Q3, I think we are still small compared to some of our peers in this sector, so we might not be a good parameter of the overall market growth. We're more focusing on ourselves because our growth is fueled by two main drivers. One is the user growth and as well as the mindshare. As we stated in the remarks, our user base has already reached 850 million, this growth will be inevitably slowed down. We should shifted the focus, really on serve, how to serving our users, better and, steadily building, and getting strengthened on the mindshare with, the platform. We see there's still much room to build, further build and strengthen the trust that our user have in us. Such a progress will take time. Coming to your second question on the profitability, our profit in this quarter was mainly attributable to the operating leverage from the sales and marketing expenses, as I just stated in the remarks, due to the seasonality. It is a unique quarter, as Q2 is typically a low season for us, with less sales and marketing spending. We do not think that this quarter's profitability should be an indicator or a reference for our future investment in user mindshare and as well as the agri-focused infrastructure. We are seeing more investment coming in the coming quarter. As we invest more into agriculture, we do not expect the profitability to continue. Thank you. Let me just add one more comments on this. We will keep maintain the zero commission policy on our agriculture produce to help more farmers and agri-merchant, and this type of investment will continue. Thank you. Thank you, Tony. Thank you. Operator, we can take the next question, please. Certainly. Your next question comes from the line of Natalie Wu from Haitong International. Please ask your question. Hi, good evening, Lei Chen, Tony, and David. Thanks for taking my question. Congratulations on another solid quarter. I have two questions on my side. Firstly, last quarter, we touched on your views regarding the competitive landscape. Given that recently we've noticed that your peers spending more aggressively and new players like Douyin are also gaining traction in e-commerce. Just wonder if you can elaborate more on the latest competitive landscape dynamics. How do you think this will affect your strategy? Secondly, regarding the CNY 10 billion investment program into agriculture you just announced, just wondering if you management share a bit more color on this program. How will this impact your company's financial statement looking forward? Thank you. Natalie, Thanks for your question, Natalie. Let me address your question. I believe your first question is related to the competitive landscape. If we were to look at e-commerce as a whole, this is a fairly large industry. As you mentioned, we think the rise of players like short video e-commerce is not really surprising given they have a huge user base, high usage frequency, and they also have very high user consent. Based on our sort of operating observation, we are seeing the competition is becoming more intensified. There are more and more platform companies that's joining e-commerce, that's entering e-commerce, and not only specific to the short video sites, but we expect more players to enter this field. Consumer demands actually are very multidimensional and constantly evolving. six years ago when we first started, we chose to build a mobile-only platform that's around our Pin model. This is a model that we built that was quite distinct from the other players. If you were to ask, is this model still the most innovative one that meets consumers' demand? We are also constantly discussing this, and I think you may observe this from the decelerating trend of our user growth. As you know that we have been undergoing management transition in the past couple of months, and the new management is asking the question about whether our team can adjust with the maximum speed to meet these evolving needs of our users. Also, will our current model still be relevant maybe five, seven, or even 10 years later? We are working really hard on this, there will be many challenges and most unforeseeable difficulties. I would also like to add that the Chinese market is extremely dynamic and vibrant. In this world's largest consumer and retail market, the emergence of new business models actually do demonstrate the appeal and innovation potential of this market. 不管怎么样，我觉得我们还是要坚守我们自己的这个普惠、人为先、更开放的原则，然后呢，我觉得服务好我们的消费者可能还是竞争中最重要的因素。 Regardless of the competition, I think it's really important for us to stick with our principle of benefit all people first and being more open. At the same time, we should continue to be user-centric and focus on the needs of our consumer. This, in the end, will be more important than the competition itself. 关于你的第二个问题，就是有关我们农业领域的百亿农研这个专项。那我可以先讲一讲大概的我们的一些思路，然后Tony会提供一些更多的细节。 On your second question regarding the 10 billion agri initiative, let me first give you some color on this, and Tony will follow up with more details. 拼多多目前呢，已经是这个中国最大的农产品上行的这样的平台，我们这一次呢，是专门设立了一个100亿的这个农业科技专项。 Pinduoduo is China's largest online agriculture platform, and we launched a dedicated CNY 10 billion Agriculture Initiative this time. 这个百亿农研专项，其实是指在面向农业和乡村的重大需求。不是以商业价值和盈利为目的的，核心是助力推动农业科技的进步、科学技术的普惠，以及进一步提升农业科技工作者和劳动者的前进动力和获得感。 We hope this initiative will seek to face and address the critical needs in the agriculture sector and rural areas. Commercial value or profits are not the goal, but rather we strive to facilitate the advancement of agri-tech, promote digital inclusion, and provide agri-tech talents and workers with greater motivation and a sense of achievement. 那这个专项呢，我们觉得还是会显著地影响这个股东短期的每股盈利，我们有幸也获得了董事会的支持和批准，我也会亲自担任这个项目的一号位，去管理这个项目。 This initiative will clearly impact the short-term earnings per share for shareholders. We have received the support and approval of the board of directors, and I personally will be leading this project. 那我们接下来呢，会进一步的提请这个股东大会，以争取到这个大部分股东的支持。我们觉得呢，这是一项重要有挑战性的工作，那么我们会长期耐心地投入。 Next, we will convene a shareholder meeting to seek the support of majority shareholders. This is a very important and challenging task, which we will invest in patiently. Tony 可以来说一下，就是有关财务方面，就是对我们的影响吧。 I think let me add some color onto this, Natalie, on your question on the impact on our financial statement. I think as Li mentioned in his remarks, basically the idea is to reinvest the profit of this quarter and any future potential profit into this 10 billion agri initiative. In terms of the areas of interest of this investment, we are identifying like 3 key pillars, namely food security, food safety, and agri-food technologies. This investment will certainly have an impact on the bottom line in the medium to long term perspective. In terms of which line will be affected in the PNL, it really depends on the nature of the spending. It could be hit on the research and development expenses or intangible assets when the software or technology is capitalized, or it could be sitting in our balance sheet like a long term investment. All right, operator, we can take the next question. 谢谢大家。 Thank you. Thank you. Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question. Hi, good evening. Thanks management for taking my 2 questions. The first question is about the online marketplace take rate's outlook, as well as the measures to support the merchants in coming quarters. My second question is about the competitive landscape in the online grocery space. Can management share about the recent developments as well as the business trends for Duoduo Maicai? Thank you. 那Thomas，我先来回答一下第二个问题吧，就是有关这个多多买菜的这个竞争的问题。 Thomas, let me address the second question on competitive landscape for Duoduo Grocery first. 多多买菜这个项目，从上线的第一天开始，我们就强调它是为了满足我们消费者在购物时候的不同的需求，是我们的电商业务的一个很自然的延伸。 From the day that we started Duoduo Grocery, we have been saying that intention behind this business is to meet the diversified needs of our user, and it's a natural extension of our business. 这个项目其实也是我们在农业方面的持续性努力的一部分。 It's also part of our continued effort in agriculture. 那么这个项目呢，从开始呢，就跟其实跟我们六年，这六年来做的这个，这个业务在其实有还不差异的地方，算是一个比较重的业务嘛。那我们的团队呢，也事实上是在这个试错的过程中呢不断地学习。目前呢，还算是一个初级阶段。 We know that this business, the Duoduo Grocery business is quite different from what we have been doing for six years at Pinduoduo. Duoduo Grocery is a heavier operation, and our team is also constantly learning through trial and error, and I think we are still, you know, every day. 那因此我们觉得我们不太会注重这个竞争的问题哈。我觉得这里还核心的问题还是属就整个，整个运营这个是否能够满足消费者的需求，还是要关注消费者的需求，以及我们自己所做的努力是不是到位啊。 I think it's not really necessary or important for us to pay too much attention on the competition right now, but rather we should focus on user demand and how to better serve them and whether our services are meeting their expectations. 就是这里我可以举一个很具体的例子，就是说比如说这个去判断这个履约是不是合格，那么其实呢，作为买菜业务呢，其实这个，这个东西送得太早或者送得太晚，送到提货点呢，其实都会去影响用户的体验。所以说这里呢，其实是有很多的工作是要做的。 Let me give you a specific example. In terms of fulfillment experiences in the business of Duoduo Grocery, whether dropping it off too early or too late at the pickup points for consumers will affect their user experiences. 那么，就是怎么把用户服务得更好，提升我们现在做得不好的地方，这个是我们团队现在每天都在非常关注的，而不是去关注跟其他人的竞争。 How we should serve our users better and to improve in the areas that we are not doing a great job. These are the areas that we as a management are focusing on a daily basis rather than paying attention to the competitions with others. Tony，你可以回答一下这个。 Yeah, sure. Thank you. Regarding your question on take rate, Thomas, our strategy has always been serving our users. We believe that growth and monetization are a natural result of that. Merchant ROI is already reflected in our revenues. As you can see, our revenue this quarter continue to grow, which is an affirmation of the healthy ROI merchants are seeing as they sell more on our platform. We also keep launching new features that merchants can use to help themselves understand their target users better, and therefore enhance their ROI. Specifically on our Ten Billion program, we continue to be committed to delivering the best value for money products through this channel. As we mentioned in the prepared remarks, we are raising the bar on the quality of merchants and products to meet our users' needs. That being said, we are committed to keeping a zero commission policy for agriculture and fresh produce, and in fact, we will increase our investment in agriculture products, and we will see some of the impact in the near future. To give you an example, in Q1 this year, the number of agricultural produce SKUs with more than 100,000 orders exceeded 2,600. In the recent launch, the Chinese Farmers' Harvest Festival, the pre-sales data of quality agricultural produce showed over 200% growth year-over-year on a single day. We are very encouraged by this and are committed to do more. Coming back to your question on the take rate growth, we do not focus on this on a quarterly basis, as we believe monetization is a result of user satisfaction and merchants ROI, and our monetization rate has fluctuated in the past, as you know. Got it. Thank you. Operator, we can take the next question. Thank you. Your next question comes from the line of Robin Zhu from Bernstein. Please ask your question. Thank you. Thanks. Thanks management. Can I just have 2 questions, please? The first one on ARPU growth and cohort growth among your users, especially, you know, any color on where ARPU is now on the platform, excluding the very new users that have joined in, say, the last 1 year, where that now stands, where you think that can go? Second question, you know, we've noticed that the new personal information protection regulations, you know, and some of the platform changes make it more difficult for merchants to grab user information. Just wanted to get your thoughts on how that impacts the merchants reliance on PDD's platform, the merchants demand for advertising tools on your platform, and how, you know, you guys plan to address their needs to capture the direct consumer relationships? Thank you. 我先回答一下第一、第二个问题吧，就是有关这个data protection的问题。那么 let me address the second part of your question relating data protection. 最近出台了一系列针对这种数字安全的策略和法律法规。那我觉得这个，这个其实是对所有这种涉及数据的企业呢，提供了一个，一个可以参照的准则吧。 I think the recently issued laws and regulations around data security and data protection have provided guidelines for all companies dealing with data. 那么我们觉得呢，是说这个是对整个行业中的这个企业也好，平台也好，那么消费者也好，的长期健康的发展呢，是非常有益的。 We think these guidelines are beneficial to the long-term healthy development of companies, platforms, and consumers, within the entire sector. 那么从中短期上来看呢，我会觉得就是根据这个业务形态的不同呢，大家会看到，这些变化呢，会带来这个就是商业模式也好，广告收入也好的一些影响。但中长期来看呢，我们觉得是一个很好的事情。 In the short to medium term, I do think, that we'll see some impact from these changes depending on the different model, whether that's, advertising that you mentioned. In the longer term, we think these measures are beneficial. 但是一直以来，我们其实都是非常严格地按照中国的相关数据安全标准来要求自己的。随着监管和行业对数据安全标准不断完善，我们继续会按照最高的标准来要求自己。我觉得要为这个平台上的用户、商家提供一个安全的、有效的购物环境。 As you know, we have always been strictly compliant with China's data security standard. As regulators and the industry as a whole continue to raise the bar on data security and data protection, we will also keep holding ourselves to the highest standard. This is to help provide to our users and merchants a safe and efficient shopping environment. 最近，我知道在不同的部门，也在有不同的政策细则，我们也在加紧地学习这些政策细则。我会根据相关的法律法规，来调整所有跟数据相关的业务环境。 We are currently working diligently to master the detailed policy requirements, and we'll adjust our operational processes related to data accordingly. Robin, let me come to your question on the ARPU. First, let me clarify, as we continue to improve our product offering and the user experience, users on our platform tends to trust us more and therefore support us more. This is a function of our user gaining greater familiarity and building more trust with our platform. We are also working to increase the breadth and depth of our product selection across all product categories and price points. We believe that as we provided users with more options and keep meeting their demands, the ARPU will naturally increase. You put it very right. We have an enormous number of new users coming, less than 12 months. This is actually our key task, and it's a challenge for us as well to understand the needs of these new users. It takes more time for the new users to get familiar with our platform, build their mind share with the platform. Even for users more than 2 years, 3 years, their demands are also evolving. Putting the user needs at the heart of our strategy, and to fulfill their experience providing the better service, and therefore we will continue to invest in the coming quarters when the high season is coming, be it sales and marketing spending or other investments, these are our priorities to come. Not just the ARPU as a KPI itself, is the focus. Thank you. Operator, we can take last question. Thank you. Your last question comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question. Thank you, Lei, Tony, for taking my question. When I look at your CNY 10 billion initiative of where you're talking about spending your profits on agriculture modernization as well as the rural vitalization, and I look at that in combination with the fact that your customer growth numbers are now reaching that point where further growth is going to be harder and harder, and the visible profitability in the second quarter. Are we at that point of time where the business model outside the Ten Billion initiative is at that stage where the continued profitability is inevitable, and it's gonna be hard to hide away from, and that CNY 10 billion is gonna come out from further profits? Or is that CNY 10 billion going to be over and above the profitability that the business is likely to generate? Between the lines, did I read you right when you said that sales and marketing spend is likely to rise in the third and the fourth quarter, potentially taking away or eating away profitability in the next couple of quarters? I wasn't sure I understood fully. If you could just elaborate to the extent you can, I'd be grateful. Thank you. Thank you, Piyush Choudhary, for the question. I think in general, it's about the overall agriculture investment you're talking about. The COVID-19 has really challenged the whole current logistic and distribution network and surfaced some of the pressing issues. There's demand for a new logistic network that could better support the distribution of fresh produce and agricultural product. This is a complex system that requires innovation and then some trial and error. To give you some color, let me give you some questions that we keep asking ourselves in the management when think of the improvement in this sector, which obviously is the number 1 priority, strategic priority for us for now. Examples like how can we use technology to reduce the waste and the environmental footprint? What type of route planning can cut the food waste and transportation emission? What kind of transportation and storage condition could ensure longer shelf life and better preservation of nutritional value of the agriculture produce? What technology might be needed to realize such conditions? This is a huge wide space that requires patience and long-term investment. There's a lot of areas we are looking at for the moment, and we are at the very beginning of it. I think in Lei's remark, we mentioned the Ten Billion agri initiative. Actually, profitability and any commercial KPIs are not being considered. We are only at the very beginning of this stage. We are very committed to invest into the future and into this sector for a long-term period of time. Thank you. Could I just ask the scale of the grocery in the quarter, or give us a feel for agriculture in terms of importance, either percentage of GMV or any other metric you could share with us, that'd be great? Thank you, Piyush Choudhary, for the question. As you know, at end of Q4 last year, we adopted the market practice. We stopped disclosing any GMV. I'm not in a position to share this number. All right. Thanks. Okay. Operator, thank you so much. This concludes the earnings call for this season. Thank you so much for everyone joining. Have a good day. Thank you all. Thank you. This concludes our conference for today. Thank you for participating. You may all disconnect.