Earnings Call: Q3 2020

Nov 12, 2020

Thank you, operator. Hello, everyone, and thank you for joining us today. Pingdou Dou's earnings release was distributed earlier and is available on the IR website at inviter. Xinduoduo.com as well as through GlobeNewswire services. On today's call, our CEO, Chen Lei, will make some general remarks on our performance for the Q3 of 2020 and our strategic focus going forward. Our VP of Strategy, David Liu, will then elaborate further on our specific strategic initiatives. Our VP of Finance, Tony Ma, will then take us through our financial results for the Q3 ended September 30, 2020. Before we begin, I would like to refer you to our Safe Harbor statement in the earnings press release, which applies to this call as we will make certain forward looking statements. Also, this call includes discussions of certain non GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non GAAP measures to GAAP measures. Now, it is my pleasure to introduce our Chief Executive Officer, Chen Lei. Lei, please go ahead. Hello, everyone. Thank you for joining us on our Q3 results announcement. Pinduoduo, 25 years old last month, reached another milestone on this incredible journey. This year, we continue to deliver strong user growth and build trust and engagement with consumers. We are facilitating more sales every day with the support of our users, merchants and business partners. For the 12 months ended September 30, 2020, Pinduoduo served a need of 731,000,000 active buyers and generated nearly RMB1.5. During our 5th anniversary campaign early October, the peak daily order volume surpassed 100,000,000, driven by increased demand for agricultural products. Strong consumer activities continued into Q4. We attribute these goals to our continued focus on user experience. We saw better engagement metrics as we offered more selection, more compelling value and more fun and interactive features. In Q3, we observed increase in the frequency of visits, the number of categories visited and average daily time spent. This contributed to our average annual spending per user, increasing from RMB1857 in Q2 to 993 in Q3, despite a net add of another 48,000,000 active buyers. Even with our growth and scale today, it still feels like we just started yesterday. We recognize that Pinduoduo's achievement today benefited from growth and evolution of China's Internet, the development of the retail industry and increased consumption power. We always believe that it is the consumers who make enterprises not other way around. This is why from the beginning, we have built our platform with the principles of people first and benefit all in mind. Over the past 5 years, we witnessed the growing support for the new interactive mobile commerce experience that we champion. Our mobile platform has become a mainstream online shopping app, opening ranks 1st on various app stores. This is because China's Internet space grows more vibrant, consumers have become more sophisticated and want to enjoy the benefits of being served by more than one platform. We are constantly looking out for more options for better value and differentiated experiences. Our mission is clear and straightforward: continue to serve customers and meet their changing preferences. This relentless focus for serving consumers has enabled us to attract more than 700,000,000 users in record time. We also continue to be guided by the principle of being more open. We are committed to being an open and fair platform for our service providers and merchants. We are pleased to see an increasing number of enterprises choosing to work with Pinduoduo. In the past 5 years, more brands have joined hands with Pinduoduo to offer customized designs and value for money SKUs for our users. At the same time, both OEMs have used our platform to gain direct consumer exposure. Some of them have even launched their own brands leveraging on the consumer insight we can get from Pinduoduo. Lastly, and most importantly, Pinduoduo has also become China's largest online platform for agricultural products by enabling direct selling from farms to a dining table. We are mindful that we scale the account's responsibility to improve transparency and to inform our stakeholders of our progress in managing environmental, social and governance matters, we recently issued our first ESG report. Our core social responsibility efforts are guided by the goal of promoting digital inclusion. By bringing more people into a digital economy, we believe local communities can benefit from new jobs and new market opportunities and share in rewards of greater productivity and convenience. As we look forward to the next phase of our journey, we remain steadfast in our vision of offering consumers a greater selection of value for money products through a fun and interactive discovery experience. We continue to observe closely how consumer behaviors are evolving and evaluate how technology could help. We are committed to adapting to trends and pushing for innovation. We are prepared to invest capital and resources in our platform, supply chain and ecosystem to realize this vision. There remains a lot we can do, particularly with agricultural products. Post pandemic, we have noticed that consumer habits of grocery shopping and web market or supermarkets are shifting. Many of our users have shipped to online channels for their daily stables. We saw surge of agricultural products in the first half of the year, not just for fruits and other root vegetables that can be easily transported, also for leafy vegetables and delicate fruits. We started to ask ourselves if more could be done for our users, especially given our familiarity with the sector of China's largest online agriculture platform. The more we learn about industry, the more we realize how much more we could do. The current logistic network is optimized to deliver sturdy manufactured goods, but not agricultural products. Today, Pinduoduo can leverage the existing logistic networks to transport certain produce, such as apples and potatoes across China within 2 to 3 days. Some merchants have even found ways to transfer eggs with minimal damage. As a result, we have made it possible for consumers across China to enjoy some agricultural produce in good time and at good prices. However, in July August, when more users started to buy leafy vegetables on our platform, our competitive rate increased significantly. Many packages sustained some damage from heat and pool handling. It was a rough draft that we could not fully meet our users' expectations. We realized that we were only at the very beginning of our press to create new value in China's agriculture supply chain. One of the key factors and a critical roadblock is building a logistics infrastructure just for agricultural produce. Therefore, we decided to be more hand on and launched Duo Duo Maicai channel. We get the localized information of agricultural produce available nearby, identify and source from qualified vendors, curate a list of products to be offered daily, aggregate daily orders, provide requisite fulfillment services to a neighborhood pickup location and handle after sale services. Each step in the whole supply chain and logistic workflow need to be perfectly executed and aligned to ensure great value to our users. Of course, many aspects of Mai Tai's operation do leverage the existing e commerce know how of Pinduoduo. But others require significant development. It is not just about matching demand with supply, but matching demand with the most suitable supply, delivering next day at attractive price to our users. We are committed to drive a new infrastructure build for agriculture products for all consumers and farmers in China. Our management team believes that Maicai is highly aligned with our long term vision for China's agriculture industry. It's something that touched our hearts as we started Pinduoduo with agriculture produce. It's now a natural extension of our mobile commerce platform and integral part of our highly engaged ecosystem. For cities where the function is available, we feature Maicai on our main app. We want to offer our users the option to purchase a curated lecture of SKUs at lower prices and pick them out locally the next day. At the same time, they can continue to enjoy the fun and interactive experience and discover other category of value providing products. The insight we gain from our Ment app enable us to better curate products for Mitek, which in turn provides us a better understanding of what customers value in deciding how to buy their daily essentials and staples. As we invest in infrastructures of agriculture produce, we are also developing technologies and deploying talent to tackle the challenge that Maichai brings. We believe that it will pay off for the long term value of Pinduoduo. As we mentioned last quarter, Pinduoduo is interested in partnership and investment opportunities in the whole value chain and infrastructure of agriculture goods. We are committed to help farmers earn more and consumers save more. We will continue to leverage insight we have gathered for the past 5 years to make agriculture value trends more efficient and to benefit all. And now, let me ask David to share some details on our recent initiatives. Thank you, Wei. Pinduoduo has built one of the world's largest online communities in the past 5 years by focusing on bringing consumers more savings and more fun. As user behaviors evolve, we have also adapted to meet and exceed their expectations. 5 years ago, we started our team purchase model, which led users pin and save together as they browse. 2 years ago, we started our new brand initiative, which enabled capable manufacturers to launch their own brands with products tailored to our users' preferences. And now we are pushing ahead on an even bigger user need, fresh affordable agriculture products. We never choose to do what is the easiest, but what is right. We have made important progress on our new brands initiative this past quarter. We launched the new brands initiative as part of our C2M effort to help capable merchants and manufacturers gain invaluable insights of their target customers, design and manufacture tailor made products for our users and leverage our interactive channels to sell with more accurate prediction of the price and quantity they can potentially achieve. It is a new role into reverse and just in time manufacturing, which can potentially solve inventory and supply chain inefficiencies that have been troubling retail sector for decades. Seeing the results, we started helping these capable and proven merchants and manufacturers to establish their own brands and started teaching them not just about the new channel we have created at Pinduoduo, but marketing tools and tips tailored the increasing number of users we have accumulated. Even though brand making takes time, we hope that with our help these new brands could become national or even global brands one day. China has been the world's factory over the past 20 years. It has largely been following the conventional workflow of receiving orders, making products, contacting quality control and shipping them out to brands globally. Manufacturers do not have full insights of how brands plan their production and sales cycle, which means their revenue and potential are always capped by brands. COVID has forced many of these capable manufacturers to turn back to the domestic market. We see a great market opportunity that these manufacturers could become important brands in the next 10 years. We are happy to see that to date, we have worked with more than 1500 companies, launched more than 4,000 SKUs and generated over 460,000,000 cumulative orders. This quarter, we pledged to provide more marketing support and expand the programs coverage to 5,000 companies. We are targeting to offer 100,000 customized C2M SKUs with aggregate GMV of RMB1 1,000,000,000,000 by 2025. To facilitate that, we plan to continue our investments in technology to enable them. We have created a unique prediction model taking into users changing PNUdo platform in different regions of China. We plan to make it more user friendly to our merchants and manufacturers to take advantage of the insights we have and our company gaming. Further, we are exploring more software services to make it easier for merchants to streamline their operations, such as raw material analysis, inventory prediction, supply chain tracking, partial industrial automation. You would have already seen the reduction in product cycle for apparels. It is possible to have a style or model designed, manufactured and displayed to consumer in just 15 to 20 days. We hope to offer such capability to our ecosystem partners in the future and extend it to other categories. Besides C2M effort, we recently launched a new function, DuoDomeitai. Is another area where we believe will pay off in the long term. We view the entire agriculture value chain in 3 parts, production, transportation and consumption. What we have done in the past 5 years was to connect farmers directly with our users, I. E. The consumption part. No doubt our efforts have created efficiencies, cut unnecessary intermediaries and help farmers earn more and users save more. But we have not addressed other fundamental roadblocks such as the lack of a dedicated agriculture products, farm productivity and food safety. When Pinduoduo started, we operated our own fulfillment network. So we have some experiences in this. But what we need to build now is of a totally different scale. It is an infrastructure build up, leveraging our prior experience, we're working closely with warehousing service providers, delivery fleets to meet the demanding next day delivery requirements. Sometimes we have to even step in, design and manage the warehouse workflow ourselves. We also plan to explore more demand driven, localized coaching options at reasonable cost in order to deliver a better consumer experience. We are already investing in people and warehouse and fleet management systems. When needed, we are willing to invest in key players in the warehousing and coaching logistics sectors to accelerate the improvement of the entire agriculture value chain. With more localized supplies being fulfilled more efficiently, we can meet users' daily consumption needs with better quality produce in shorter time. In addition to logistics infrastructure, we are making bigger R and D investments in product curation, sourcing and demand aggregation to further enhance our understanding of user needs and curation accuracy. We take into account the mode of our consumer engagement from Macai and its impact on pricing and convenience. By improving our ability to predict demand, we can work with the local top distributors of agriculture goods to source directly from upstream farmers cheaper and faster. Over the past 5 years, we have already accumulated substantial insights for agricultural goods, which can give us a kickstart as we fine tune my time. Another important area we have not done enough is in production. As a technology company, popularly than more than half by engineers, we see an important role for technological solutions for food production and have started to explore various investments in agro tech. We believe there's a huge market opportunity for small agriculture to address challenges in food supply, food safety and labor shortages. We are well placed to facilitate the adoption of AgriTek given the demand visibility we have and our access to a vast community of agricultural producers. We will explore the commercial viability of new agri tech solution our potential partners have. To promote interest in innovation, we initiated the Smart Agriculture Competition this year, which gathers top economizing on inputs such as labor. The competition pits 14 AI growers against 4 traditional farming teams in growing strawberries. The winner will be determined based on profitability, reliability, scalability and technical merits of the agri tech solution they have deployed. Through this competition, we hope to inspire more young farmers and researchers to develop localized smart agriculture solutions. By working with the winner to implement their solution onto an actual farm, we hope to demonstrate that they are AgroTek solutions suitable for smaller scale Chinese farms and we plan to standardize the solutions for broader deployment across China. We see a bright future for agriculture in China. We generated RMB136,000,000,000 of GMV in this category in 2019 and expected to hit RMB250,000,000,000 this year. Consumers have come to identify PDD as the go to platform for agriculture goods. Our aim is to lead the industry in innovation and be a driving force of agriculture infrastructure build up. Our efforts in agriculture and the manufacturing sectors seek to create long term structural changes that will improve our users' experience and contribute to the value creation of the industry. They are not the easiest, but they certainly are the right things to do. We believe that our hard work will pay off in the long run. Now let me invite Tony to walk through the details of our Q3 results. Thank you, David. For the 12 months ended September 30, 2020, our GMV increased 73% to nearly RMB1.5 trillion from RMB840 1,000,000,000 a year ago. It's a result of continued growth in our user base and increased spending per user. Our average monthly active users in the 3rd quarter increased by 74,600,000 from the previous quarter to CNY643.4 million or an increase of 50% from a year ago. Our annual active for the 12 months ended September 30, 2020 grew 36% year over year to reach RMB 731.3 million. This represents a net add of RMB195 1,000,000 in the past 12 months. The annual spending per active buyer in the 12 month period ended September 30, 2020, increased 27% to RMB1993 from RMB1567 for the same period in 2019. The increase in annual spending per active buyer was moderated by significant number of new users added, who contributed less than 12 months of purchases to our GMV. Our strategy of investing in user engagement contributed to increase in user activities in Q3 and higher average spending per active buyer. During the Q3, China continued its recovery from pandemic. Consumer behaviors continued to normalize, resulting in pickup in online off line retail activities. Compared to the year over year increase of 22% observed during the high seasonality of Q2, according to MDS data, the value of physical goods sold online in the 3rd quarter grew slower in Q3 at 17% versus a year ago. Pinduoduo's GMV growth continued to exceed the industry and saw in contrast a pickup on GMV growth rate in Q3. For the 9 months ended September 30, 2020, total parcel shipment volume in China continued to grow rapidly at 27.9% from the same period last year. In comparison, the value of physical goods sold online only grew 15.1% during the same period. This suggests the average value per parcel is decreasing, which is consistent with the strong demand we have observed in Q2 and Q3 for lower ticket value items like household necessities agriculture products on our platform. We continued our promotions and support to our users in these categories because they are what many of our consumers needed. These high frequency categories have helped us to accelerate trust building and engagement with our users, which translated to better response and conversion for other promotion activities that we conducted on the platform. Our total revenues in the September quarter were RMB14.2 billion, representing an increase of 89% from RMB7.5 billion in the same quarter last year. The increase was driven primarily by the strong momentum in online marketing services. Our revenues from marketing online marketing services and others was RMB12.9 billion, up 92% from a year ago. Our transaction service revenue increased 66 percent to RMB1.3 billion. We continue to see strong merchant advertising activities in Q3, which will attribute attractive merchant ROI due to higher user engagement on our platform and more compelling advertising products. The implied monetization rate defined as total revenues divided by GMV for the last 12 months ended September 30, 2020, was 3.0%, which is the same as the comparable period last year and up from 2.9% for the 12 month period ended in Q2 2020. Now moving on to cost. Our total cost of revenues this quarter increased 78% from RMB1.8 billion in the same period last year to RMB3.3 billion this quarter, translating to a gross margin of 77%. Total cost of revenues increased mainly due to the increases in bandwidth and server costs, staff costs and other expenses directly attributable to the online marketplace services and other revenues. Our total operating expenses this quarter were RMB12.2 billion as compared to RMB8.5 billion in the same quarter of 2019. Our sales and marketing expenses this quarter increased 46% to RMB10.1 billion from RMB6.9 billion in the same quarter of 2019. On a non GAAP basis, our sales and marketing as a percentage of our revenues was 69% as compared to 89% for the same quarter last year. Our priority this year is to improve user engagement and gain more mind share with consumers. We continued our sales and marketing investment in Q3 towards this priority wherever we saw opportunities that meet our internal ROI hurdles. Users who have been on our platform longer tends to shop more frequently on our platform, purchases across more categories and spend above our annual average spending per user. We attribute the increase in average annual spending per user in Q3 to our efforts in prior quarter to invest and build engagement with our rapidly expanding buyer base. And our investment in our users this quarter will continue to position us well for the long term. General and administrative expenses were RMB368.6 million as compared to RMB436.6 million in the same quarter of 2019. The G and A expenses in Q3 2019 included a certain one off expenses related to our initiatives to alleviate rural property. We did not incur such expenses this quarter, an increase of 60% from RMB1.1 billion in the same quarter of 2019. The increase was primarily due to an increase in headcount and the continuous recruitment of talented engineers and an increase in R and D related cloud service expenses. On a non GAAP basis, our R and D expenses as a percentage of our revenue was 10% in Q3. Technology is fundamental to our operation, and we plan to increase our spending on engineering talent and technological capability going forward. Some of our key R and D initiatives include developing our demand forecasting system for agriculture, database for C2M manufacturers and logistics planning system. As a result, operating loss for the quarter narrowed to RMB1.3 billion on a GAAP basis compared with operating loss of RMB2.8 billion in the same quarter of 2019. Non GAAP operating loss for the quarter was RMB339.8 million compared with RMB2.1 billion in the same quarter of 2019. For the quarter ended September 30, 2020, we record a net non operating income of RMB475.6 million compared with RMB465.2 1,000,000 in the same quarter in 2019. The increase primarily reflects the net impact of higher interest income, offset by loss on fair market value change from long term investment and interest expenses from amortization of our outstanding convertible bonds. We have excluded the fair market value change and the convertible bond amortization in addition to the share based compensation in our presentation of non GAAP metrics. To sum up, the net loss attributable to ordinary shareholder was RMB784.7 million on a GAAP basis as compared to net loss of RMB2.3 billion in the same quarter of 2019. Basic and diluted net loss per ADS were RMB0.66 on a GAAP basis compared with RMB2.0 in the same quarter of 2019. On a non GAAP basis, we record a net income attributable to ordinary shareholders of RMB466.4 million compared with non GAAP net loss of RMB1.666 1,000,000,000 in the same quarter last year. Non GAAP basic and diluted net income per ADS were RMB0.39 and RMB0.33, respectively, this quarter as compared with non GAAP net loss of RMB1.44 in the same quarter of 2019. And those who Maicai is still a young initiative and its contribution to our results in Q3 is immaterial. We operate Mai Tai under a 3P model. We recognize transaction service revenues for facilitating the sales and incurred logistic costs under cost of goods sold and incremental sales and marketing expenses. That completes the profit and loss statement for this quarter. Our net cash flow generated by operating activities in this quarter was RMB8.3 billion as compared to RMB2.6 billion in the same quarter of 2019, primarily due to an increase in online marketing services revenues. Our operating cash flow has been positive on an annual basis since 2017. As of September 30, 2020, the company's cash reserve comprising of cash, cash equivalents and short term investments was RMB45.6 billion as compared to RMB41.1 billion at the end of December 2019. We allocated most of our cash reserve to high liquid short term investments to receive better cash yields and to maintain flexibility to withdraw and deploy capital strategically as necessary. This concludes our prepared remarks. Operator, we are ready for questions. Thank you. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. First question comes from the line of Thomas Chong of Jefferies. Please go ahead. Hi, thanks management for taking my questions. Can you comment about our strategies in community group purchase and how we see the competitive landscape going forward? And how big is the addressable market? Thank you. Hi. Thank you for the question. So first, I want to clarify a misconception now many people have. Duo Duo Maichai is not really a community group business. Yes, it is location based and our customers pick up their purchase from the places close to them. But I believe it is different from prior community buying models we have been seeing in the past 7 years. To us, as I cannot comment on the difference, because we really don't know what others I think are doing, but we can speak for ourselves. So for us, Maicai, I think, is a natural extension of our current business, given our know how of the agriculture sectors and its ecosystem players. And we are doing Maicai because we see we saw this new emerging customer need that our current infrastructure and the platform cannot meet. And we sense a strong need from our users now ever since the first half year of this year, actually they want to buy fresh grocery more conveniently and more frequently. And our existing offering of agricultural produce, I think, cannot meet users' new preferences. It's about fresh and the next day consumption needs. So, as I said, we are not running Meitai as a standalone business. It's an integrated offering with our existing platform. And users actually can choose different services. And service offered can be next day pickup or door to door delivery with 3 to 5 days delivery time. But we think this is a very important need for our customers. So we are committed to invest in the infrastructure to make this happen, to make the whole package about deliver the consumer need from farm to their home faster and cheaper. And in terms of landscape, I think we really think about this in twofold. The first is, for my stand alone, and I do believe that a significant portion of consumers in the future will complete their grocery shopping totally online. And just like this change for buying daily grocery online, I think, is very similar to what we saw 5 to 7 years ago with apparel category. And I think no one today would have even imagined that no one who have imagined that significant number of consumers who are using online shopping to choose to try out, purchase and return clothes. That is exactly what I think today. So in terms of grocery shopping, I think a similar thing happened. The other thought is about this synergy between Maicai and our main e commerce platform. Basically, as Maicai has a high purchase frequency, so our user will have higher engagement with our platform. So they can pick other full spectrum of category of products from our e commerce platform. Thank you. Operator, next question. Thank you. Next question is from the line of Joyce Ju of Bank of America. Please go ahead. Good evening, management. Congrats on very strong results this quarter and thanks for taking my questions. I would like to take this opportunity to get more colors on the your strategic new initiatives, Duodong Maicai. As we all know, like you mentioned in the opening remarks, you guys actually choose the 3P marketplace model to conduct its business. And but we all know like in this business front probably we have seen 1P model, 3P model. Could you elaborate a little bit more in why the platform decide to do so? And is there any like special advantage or like key advantage we have seen like why we particularly choose this model and how we are differentiated compared to other major players or new entrants in this market? And secondly, also, I think lots of like industry experts are kind of comment that this business actually heavily rely on the supply chain, while from our company perspective, like because we typically in a more light business model, so we don't really have like heavy off line investment for infrastructures before. So are we going to spend a lot of money to actually invest for like logistics or supply chain? How big will be the CapEx related? And also on the investment front, also would like to know like what's the plan for the sales marketing budget investment to acquire like new users for this business? Thanks. Joyce, thank you for that question. It's very comprehensive. Let me point out a few things. So first of all, as Lei have mentioned in his remarks, we see Duo Duo Maicai really as a natural extension of our e commerce model and our emphasis on agriculture. What we have seen is that as the country emerged from COVID-nineteen, consumers' behaviors are changing and how they are looking to address their needs for daily groceries are evolving. And what we have seen is that users are now increasingly looking for to be able to buy more things online. They are trying to identify an alternative venue to web markets and supermarkets and they want to deliver that free time to be quick, so next day and also again continue to be great value. So looking at this equation and looking at the use cases that PDDC Commerce platform addresses on a standalone basis, we recognize that there are certain deficiencies. For example, the next day kind of logistic delivery isn't something that PDD's platform to date have been optimized for. So the extension to Duo Duo Maipai for us is very natural. We can't really comment on other players' decision to enter into similar businesses and whether they are more likely more like a community purchase or not. But from our perspective, while we see Doudong Maicai is really addressing this different way of engaging with consumers fulfilling that different type of usage patterns and needs. And again, you are right to point out that we do think that this will require a much better infrastructure tailored specifically for the agricultural produce agriculture products. So we are prepared to go heavy in building or accelerating the development of this agriculture infrastructure. To date, what we have been doing is investing in people. So we have teams on the ground working with 3rd party services provider today. But in some instances, we have been gotten involved in establishing the SOPs for the warehouses to getting evolving the workflows. We are also investing we have already invested in warehouse and fleet management systems and we are looking for ways to continue to optimize that, leveraging the technology platform we have for the main from our e commerce platform. But specifically though, we do think that there will be scenarios where we would need to make certain investments in order to facilitate development of our infrastructure, including potentially a build out of a more localized coaching operation that is demand driven and therefore can be most cost efficient. We are looking to leverage existing services provider to do this, but in some instances, we may need to develop certain test cases and do it ourselves. Let me pause there and let Tony address the question regarding sales and marketing on DuoDuoMai Tai. Yes. As David just mentioned and also Lei mentioned in his remarks, Doudong Maichai to us is a natural expansion from our main e commerce model. So we will budget our sales and marketing investment in Dotomiatai is the same way as we invest in our e commerce platform. And the guiding principle is we focus on the long term ROI we can generate from the business, not instead of the short term profitability. Got it. May I have a like more quick follow-up as just May we get colors like what's the current overlap between like suppliers for our main PVD marketplace and the like in terms of like agriculture or fresh produce like suppliers? Joyce, I'm actually not quite sure what that question is that meaningful. The reason I say this is we offer Duo Duo Mai Tai as an integrated part of our e commerce platform. The merchants who work with us in the Mai Tai scenario can also be merchants online. So it really depends on their capabilities and whether they can work with the localized scenario in Mai Tai. And of course, they can they're more than welcome to continue to dispatch nationwide to working with the delivery forces on our platform. In fact, I will say that the credibility we have as China's 2nd largest e commerce platform by users give us incredible leverage with merchants and we see a lot of merchants looking to work with us in a localized scenario as well. Got it. Thanks a lot. Next question, please. Yes. Next question is from the line of Eddie Wang of Morgan Stanley. Please go ahead. Hi. Thank you management for taking my question and congratulations on the very great results. So, yes, I also have a follow-up question on Godomoite as well. So basically, can you share with us or we understand that we just started business in August, but would appreciate if you can give us more color on how is the growth momentum of the Dotomicai business in the past 3 months? And if you look at this AOV and the ASPR user of this business wise, if you compare I understand that it's much integrated into our agriculture product business, but if compared with the AOV, compared with the user frequency wise, how does Doudomaecai in the past 3 months compare with the users' behavior of the agricultural product purchase? Thank you. Sure, Eddie. Thank you for that. As you rightly pointed out, the dolomai tai is still a very new business for us. So we are also fine tuning our operations. So we're not going to be able to comment on the specifics. But you would note that the Mai Tai function is now available across most of the provinces in China. And we featured an entryway for Maicai on the main app itself very prominently. So we are seeing good momentum, good user pickup and great adoption. Then in particular, I would say that the visibility on the main app is also helping to drive traffic to the mindset business itself. You also asked about the AOV. I think it's fair to say that the Maizetai scenario is catered or is meant to address the daily grocery needs of the consumers on our platform. So naturally, this lends itself to a higher frequency of purchases and engagements on the platform. And it is also true that the AOV today for those orders are lower relative to the AOV, average AOV on our platform today. However, it is compensated by much higher frequency. The way we are looking at the Maesai business is as long as we continue to serve the consumers well, the frequencies will increase and as we build out the infrastructure over time, the AOV will also increase. So we do see a tremendous amount of potential in this business. And for now, we are just focused on providing them the best experiences for the daily grocery needs. Okay. Thank you. Thank you very much and congratulations on the great results. Thank you, Eddie. Thank you. Next question is from Piyush Pumbayi of Goldman Sachs. Please go ahead. Thank Congratulations, Larry David, on super results. When I look at the active buyer number you've attained of 731,000,000, you are not that far away from the market leader. The question now is, after what we've seen thus far, what is the next step you'd like to pursue? And the second question is, we're trying to better understand on the community buying side, what are the profitability levels? So if you go through on a city by city basis, could you just take us through examples of where profitability could be? Or how should we be thinking of the cost side of the equation? I'd appreciate that. Thank you. Okay. So let me first answer your first question. So we currently have 731,000,000 active customers. It's inevitable that the growth will slow down. And that being said, we do see there's still room for us to grow in terms of expand our user base. However, the bigger issue we actually hear is we're still lagging behind all our users' MICE share, therefore, their chat with us. That is the one key area we are focusing on now. And I think I believe this is also one of the reasons we launched Maicai. I think we launched Maicai to meet the changing behaviors and preferences. And I do believe that this is a very key approach for those to win their trust. But if we take a look at a little bit further, and I do think that we are currently at a very critical point about integration of online and offline world. And we do see this structural trend as a result of the high mobile Internet penetration. And this whole process is also expedited by COVID-nineteen pandemic. And our young generation, they're born into this mobile Internet era. And to them, I think there is no such kind of conception of online and offline. All these things are integrated. If you take a look at mobile payment, live streaming, they are both good examples of it. And since the technology and online channels, they typically provide higher efficiency. And I do believe that most of activities will be focused online. And I think in area of e commerce, we will see this shift earlier in the other areas. And we will potentially see that the majority of retail and purchases will be performed online. And we definitely hope to capture this kind of opportunity. But you need to realize that in this new world, this new integrated world, new kind of new type of infrastructure is needed. That's why sort of we are committed to do more infrastructure buildup to help in this integration process. But let's do something which I think will never change, which is I think in order become successful in long run, you really need to constantly meet user satisfaction and meet their expectation. To us, it boils down to 2 factors. 1 is value for money. The other is the fun and interactive experience the user will have. So hope that will answer your first question. I will pick up on the second one. Thank you, Lei. Speak of the profitability on Maikai, I think Maikai to us is long term opportunity, which will help us to address the unfulfilled user needs, which is today, I guess, limited by the agriculture infrastructure. So as long as we committed to invest and keep innovating on this initiative, we're trying to reduce the additional layers in the process, try to cut some of the waste in the process, therefore creating more value for the users. With that, the economic outlook for Mai Tai will be very different from today. For us, the monetization model can be built along the involvement of this journey, which and include advertising, but not limited to it. So in a summary, I think it's too early to tell after only 2 or 3 months operation. And there's a lot to be determined after we haven't rolled out or covered all the cities yet in China. We will keep all the investors informed about our progress. Thank you very much. Thank you. Thank you. Next question is from the line of Natalie Wu of Haitong International. Please go ahead. Hi, good evening. Thanks for taking my Congratulations on very solid quarter. My question is regarding the resources you plan to deploy for the Mai Tai initiative. So we see that you set aside some personnel of your main site to do the Mai Tai business across the cities. So how should we understand your sales and marketing budget planning for that business? Should we understand the mai tai related sales and marketing budget as a purely incremental or should we think that that business is together with the main site, so that incremental budget is actually as the sacrifice of taking that cost of the sales and marketing budget for your main site? Thank you. Okay. Thank you for the question. Like I said previously, we budget ourselves investment in total Mai Tai the same way as we manage our other sales and marketing investment on the main platform. So we evaluate the sales and marketing investment based on our internal ROI metrics case by case basically all the activities or even it's exactly the same. We don't dedicate a certain pack of budgeting for sales and marketing for Mai Tai. It's managed through evaluation on our internal ROI matrix. So that is purely incremental, is that right? Yes. So Natalie, just to add on to what Tony said, we look at individual sales and marketing spend, fairly frankly at a fairly granular level. Even as we can go as deep as on the user base, individual user level, right. So we continue to evaluate every dollar spent and it's a little bit I think the question itself is a little bit misleading in the sense that we do see users not only specifically for Mai Tai, but they will also continue to be a user on the main platform as well. So we are looking at the deployments in our investments and the users across these different functions or features individually and looking at ROI that we're getting from that investment. So it's really more of a bottom up approach as opposed to say we're beginning the year with this fixed budget and now we're going to allocate that budget. Got it. Very clear. Thank you. Operator, why don't we take one last question? Sure. Go ahead. Our last question is from the line of Alicia Yap of Citigroup. Please go ahead. Hi. Good evening, management. Thanks for taking my questions. Congratulations on the strong results. I also my question is also related to the community grocery shopping. Just looking at Intan's competitive landscape, what is your PPD's commitment, right, and the success factors of winning this battle. Just wondering how much of the investment in infrastructure, supply chain that we need to do as well will we consider seeking partnership with other players or leverage the cooperations with the ride sharing players or even the cloud sourcing partner to support our delivery capability? Thank you. Thank you, Alicia. As I mentioned earlier, we Douzou Fan, Mai Tai Fa, so are the core to delivering this type of experiences that we think the consumers deserve or want is to build out and dedicate infrastructure on a localized level for agriculture products. We don't see this type of infrastructure readily available in the market today. We and this is why we are committed to go deeper necessary to build this. Obviously, we will be evaluating what is available and looking to work with partners because we believe being more open, being an open platform, it would certainly be the most efficient to deliver the right type of experiences. So again, we will be informed by how what the consumers' needs and how we can best fulfill that need. And that may mean that we need to invest in certain players to help facilitate or accelerate that deployment. So we will need to continue to do that way the system like that business develops. And in any event, we do think this is very out for the long term to the shareholders. Can I just very quickly follow-up just in case if you indeed need to build out a kind of model, the capital, the structural infrastructure investment, will your profitable quarter this year that we have to be more cautious, it could fluctuate from quarter to quarter that maybe sometime into the future, it could go back temporary to a loss making quarter? Okay. Let me comment on this. As you know, Pinduoduo is still a very young platform. In today's remark, I think both Lei, David already mentioned about all the number of opportunities we are pursuing. And when we speed up on these investments, it's likely to impact on the near term profitability. These investments, we talk a lot about agriculture infrastructure, but there's also talent technology and the continuous investment on sales marketing to further engage with our increasing user base. So we won't focus on profitability on a quarterly basis, But we are very confident all these investments would generate long term value for our shareholders. Okay, great. Thank you. Thank you, Richard. Thank you. I'd now like to hand the conference back to Mr. Jason Seng for closing remarks. Please go ahead. Thank you, everyone, for joining us on conference call today. If you have any further follow-up questions, please feel free to reach out to the IR team. Thank you, and have a great day. Thank you. Ladies and gentlemen, that concludes the conference for today and thank you for participating. You may now all disconnect.