Earnings Call: Q4 2019

Mar 11, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Pinduoduo 4Q 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded. I would now like to hand the conference over to your first speaker today, Ms. Xin Yi Lin, Director of IR. Thank you. Please go ahead. Thank you, Rachel. Hello, everyone, and thank you for joining us today. Pinduoduo's earnings release was distributed earlier and is available on the IR website at investor. Pinduoduo.com as well as through Globe's wire services. Before we begin, I'd like to remind you that this conference contains forward looking statements within the meaning of Section 21E of the U. S. Securities Exchange Act of 1934 as amended and as defined in the U. S. Private Securities Litigation Reform Act of 1995. These forward looking statements can be identified by terminology such as will, anticipate and similar Such statements are based upon management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward looking statements. Further information regarding these and other risks, uncertainties or factors are included in the company's filings with the U. S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward looking statements as a result of new information, future events or otherwise, except as required under applicable law. On today's call, our CEO, Colin Huang, will make some general remarks on our performance last year, on the implication of the ongoing coronavirus outbreak and our outlook for 20 claims. Our VP of Strategy, David Liu, will then elaborate further on our specific strategic initiatives as well as take us through our financial results for the Q4 and the fiscal year ended December 31, 2019. Now it is my pleasure to introduce Chairman and Chief Executive Officer, Colin Huang. Mr. Huang, please go ahead. Thank you, Xinyi. Hello, everyone, and thank you for joining us for our Q4 fiscal year 2019 results announcement. Before we begin, allow me to first extend our deepest condolences to those whose lives have been affected by the coronavirus outbreak and to those waving the front lines to save others, we salute to you. The recent events reminded me of what I wrote at the beginning of our letter to shareholders a year ago. The world is changing at an unprecedented pace. Good and bad change are simultaneously unfolding, many of which are as unexpected, and some may even leave people anxious or in disbelief. 2019 was an important formative year for Pinduoduo. We built out our capacity capabilities, innovated our offerings and continue to invest in our users to enhance engagement and drive scale in our business. Our efforts were well recognized by users with our annual active buyers exceeding 585,000,000 and our monthly active users reaching 482,000,000. Thanks to ongoing support of our users, merchants and partners, we also crossed a new milestone, Our 2019 GMV surpassed RMB1 1,000,000,000,000, representing a year on year growth of 113%. Our order volume also grew 77% year on year to RMB19.7 billion. In 2019, our team expanded to around 6,000 employees as we built out our key internal systems and infrastructure. We continue to execute our open platform strategy to prioritize the interests of our users and to benefit all the participants in our ecosystem. Specifically, we invested in sourcing and supply chain management in C2M and agriculture and in strengthening our IP rights protection, and David will elaborate on these later. I am pleased to note that, as a company, we emerged from 2019 larger in scale and stronger in capabilities. We are better equipped to seize new opportunities, take on unexpected challenges and showed great social responsibility. On such recent challenges is the COVID-nineteen epidemic that is impacting the world now. This has been one of the most intense and trying periods we have experienced as a team. The coronavirus upended lives as we knew and affected everyone in China. Here in Shanghai, we felt a sense of mission to fight the epidemic alongside the rest of the nation As a platform that provides for the daily needs of nearly 600,000,000 people, we showed us great responsibility and pressure as we raised against the clock to stabilize prices, source essential supplies and deliver them to those in dire need. At the onset of the coronavirus outbreak in China, we saw the market for daily necessities and personal protective equipment thrown into serious disarray. Prices surged as demand far outstripped supply. The mismatch was compounded by the Chinese New Year holiday, a time when much of the workforce was away and most businesses were shut. In the face of surging prices, we felt a duty bound to step in and do our part to relieve consumer anxiety and help our business partners. We thought hard about the limited resources we could mobilize to address the situation effectively. And we decided on directly subsidizing these daily necessities and protective equipment to do our part in stabilizing prices. Of course, these subsidies might impact the company's P and L and shareholders' return in the short term. As significant shareholders of PDD, the core management team has thought thoroughly about this since the start of the outbreak and we deeply believe this is something we must do. During this time of crisis, we must fulfill our social responsibilities and prioritize the interests of our consumers, because without them, there wouldn't be Pinduoduo. As such, we remain focused on helping our users get through this difficult time. I believe in the market. I also believe that consumers have their own weighing scales in their hearts. They will be the judge of our conduct during this time. Here, I'd also like to take this chance to thank our team for their exceptional commitment and efforts during the outbreak. Confronted with a previously unknown disease, everybody was scared. We were no different. Yet, in spite of that, our management team stayed focused on their responsibilities, while our staff based in Shanghai returned voluntarily during the holiday to ensure the health and safety of our employees so that all of us could focus on helping others tackle problems brought on by reduced manpower, logistics disruptions, supply shortages, and heightened demand. Our team poured time and energy into supporting the relief efforts in Hubei province and other regions severely affected by the outbreak. We sourced and donated much needed medical supplies and equipment. We also aided agricultural producers in regions affected by the outbreak. We set up a new program to let impacted producers list their agricultural goods more easily on our platform and we recommended their goods to interested consumers. By doing so, we helped ensure that most of our users who are quarantined at home, needing to worry about getting quality fresh produce delivered to their homes. The battle against COVID-nineteen that China is waging is supported by the selfless contributions of numerous ordinary people and SMEs. These people toil silently without any halos and out of the limelight. They even put their own lives at risk. In similar vein, we were glad to see many of our younger team members stepping up during this extraordinary time to lead. They demonstrated their core values of Benfim and a commitment to our platform, driven by their desire to uphold the interests of consumers and merchants, these young men and women choose to return and stand by their stations, working tirelessly when they could have chosen otherwise. They sourced out of stock goods that 100 of millions of users were waiting for at home, procured protective gears for frontline medical teams, coordinated logistics supported for merchants so that orders could be successfully fulfilled and responded patiently day after day to the higher than normal level of user inquiries. The unforeseen challenges from this outbreak accelerated their growth and development. These young men and women will become important future leaders of our organization, and I expect they will continue to take our platform to great heights in 2020 and beyond. I am proud to be able to work and fight alongside our teams. It is this kind of professional dedication that would ensure our eventual return to a peaceful life. What we hope to see is that due to our efforts behind the scene, consumers on our platform can enjoy greater stability in their daily lives and experience more savings and more fun. This is how PDD aspires to be as a company. Seeking the spotlight will never be our goal. During this difficult time, many companies, including Pinduoduo, are likely to suffer economic losses that are yet difficult to quantify. Instead of dwelling on the past, we must look forward. As a company, our most valuable asset is our people. We should all the more commend and reward our team members who have tirelessly labored to create value. As such, we have decided to raise the pay for the vast majority of our staff rather than asking them to bear the short term financial impact stemming from the outbreak. We also plan to grant short term cash bonuses and long term share based incentives to those who went the extra mile to serve others during the outbreak in recognition of their commitment to our values. At the same time, we are compensating those merchants who sacrificed their family time and process to provide a stable supply of goods to tens of millions of families and are looking to further expand this scheme. The ongoing coronavirus outbreak has also prompted us to deepen our support for research in medical sciences. In January, we established our RMB100 1,000,000 fund in collaboration with Zhejiang University to support research into the prevention and control of viral infections and respiratory diseases. The Fund will also support medical resource allocation to hospitals in heavily affected areas as well as reward healthcare workers who have contributed significantly to the fight against the coronavirus outbreak. Now a few words on our 2020 outlook. Today marks 1 month since the resumption of work for most of China. Our merchant operations and the logistics have resumed and are gradually returning to normal. We will continue our subsidies program to support their recovery. The disruption caused by the outbreak will have negative impact on our results for the Q1 of 2020, but our expectations for the long run remain unchanged and even more positive. We have observed of digital services by consumers during the outbreak, which bodes well for the future of e commerce in China. We have seen rising consumer engagements on Pinduoduo, and I am confident that our platform stands better prepared for the future. We plan to continue investing in user engagement throughout 2020 and we remain optimistic that this year will be another year of rapid growth and innovation for our platform. Now, let me turn over to David to share more specifics on our strategy and discuss our financial results. David? Thank you, Colin, and hello, everyone. Let me first recap our key initiatives in 2019 and discuss the relief efforts and measures that we have implemented since the outbreak to support our consumers and facilitate recovery of the SME activities on our platform. From day 1, Pinduoduo has sought to create an open platform that will align the interest of our merchants and partners to serve our users better, offering them an experience of more savings and more funds. Our top priority remains the same, to deepen the trust and engagement with our substantial user base. We did so by first investing in sourcing and offering a broader range of products at compelling value for our users to purchase without hesitation. 2nd, we continue to push for greater efficiency upstream in agriculture and in manufacturing industries through our C2M initiatives to deliver tailored, high quality choices for our consumers. 3rd, we further invested in technology and operations to strengthen our IP rights protection program. We continue to see strong growth in our user base. As we further increase our reach and understand our users better, we have seen how their interests and needs evolve across categories and price points. Improving our capabilities to source attractively priced high quality products and to surface them effectively is a key to elevating the shopping experience on our platform. The innovative 10,000,000,000 subsidy program we launched 2Q last year has become synonymous with our platform and proven effective encouraging users to venture out and try new product categories. This program also encourages our users to share great deals more frequently within their network. In addition, we ramped up our cross border business to offer users popular imported products ranging from electronics to cosmetics and casual luxury directly from reliable and competitive sources. We also partnered with Amazon to open a pop up store during the Black Friday sales to offer 1,000 products directly from its global stores. We continue to explore partnership opportunities and collaborative models to offer our users a more differentiated experience. The investments in developing our supply chain enabled us to respond quickly to the extraordinary circumstances around COVID-nineteen. To support the frontline medical staff, we leveraged our network to source equipment and supplies and donated over 1,000,000 medical masks, 20,000 protective suits, 200,000 pairs of medical gloves and £30 of German imported disinfectants affected cities in the Hubei province. We provided RMB600 1,000,000 in subsidies to more than 80,000,000 orders as of February 1 to stabilize prices of these critical supplies and ease our users and society. During this difficult period, it was even more important that we stick with our merchants to help them overcome the logistical and operational challenges they faced. Hence, we reserved RMB1 1,000,000,000 to fund a subsidy of RMB2 to RMB4 per order for merchants fulfilling orders during the outbreak. At the same time, we are not just content with sourcing what is currently available in the market for our users. Through our C2M initiatives, we are seeking to better align supply chain capabilities with user demand in the market. We launched our new brand initiative in mid December 2018 with a modest goal of helping 100 SMEs build up their brand domestically. Over the course of 2019, we brought over 900 companies into the pilot phase of this initiative to develop, manufacture and price tailor made goods specifically to our users' requirements. 2,200 custom SKUs were created, spanning 20 categories such as household electric appliances, digital and bed linen for over 115,000,000 orders placed cumulatively. Our approach has evolved over time from supporting a single manufacturer to engaging the entire manufacturing belt across China. We have also moved from focusing only on manufactured goods to incorporating agricultural products, a category which has always been close to our hearts. In 2019, GMV for agriculture products on our platform reached RMB136 1,000,000,000, up 109% from the year prior. We connected 586,000 merchants selling agriculture products on our platform with 240,000,000 active users who purchase such goods with over 70% repurchase rate. Last year, about 1500 SKUs received over 100,000 orders as a result of our team purchase model. Our efforts are improving the lives of over 12,000,000 farmers directly. At the beginning of this year, our new brand initiative expanded to cover 130 tea producers in to bring quality affordable tea to the masses. Tea, as you know, is consumed widely in China, but it is often difficult for consumers to ascertain the quality of what they are paying for. We as a platform are well positioned to help set parameters and provide more transparency to the product, which in turn helps expand the market for the producers. More broadly on agriculture goods production, we have been developing technology related to products, logistics and user demand, and we're gaining insights from our machine learning based central processing system. The insights generated help farmers better plan their farming and delivery schedule and ensure our users receive fresh produce at good price. As of the end of 2019, our central processing system covered all of China's counties. We leveraged it during the COVID-nineteen outbreak to source and efficiently deliver more than 100 tons of fresh produce to hospitals in Hubei province. This was a month of supply for 5,000 medical staff at about 4 hospitals. The disruption caused by the coronavirus not only affected farmers' current income, but it also disrupted their farming plans for the entire year. Meanwhile, restriction on travel and activities made it difficult for many urban residents to purchase vegetables and fruits in a timely manner. To alleviate the situation, we launched our Shop the Farmers program on February 10, which enabled consumers to buy fresh produce directly from farmers in approximately 400 agriculture areas, including 230 national poverty stricken counties covering 280,000 SKUs. This online channel helps farmers affected by the closure of their usual offline sales channel to reach a new consumer base. Consumers, meanwhile, get to access a much broader selection than what their local outlets can stock. To continue building our trust with our user base, we invested throughout 2019 in anti counterfeiting technology and grew our platform team in order to send out counterfeit and IP infringing products and to help our users better identify trustworthy merchants. Our improved capabilities not only contributed to better user satisfactions overall, but they also enabled us to exert greater impact during the outbreak and protect our users during this critical time. We initiated an emergency measures on January 22 to inspect disease prevention necessity so on platform around the clock. Between January 23 February 4, we have prevented the listing and taken down over 500,000 products in question and imposed restrictive penalties against over 6,000 merchants in question. Now let me take you through our financial results for the quarter and fiscal year ended December 31, 2019. Our annual active buyers for the last 12 months ending December 31, 2019, grew by nearly 50,000,000 compared to our annual active bias at the end of the last quarter to exceed 585,000,000. Compared to the same quarter in 2018, our active annual buyer base grew by 40%. Our MAU grew by 52,000,000 from the prior quarter to reach 482,000,000. This is an increase of 77 percent from the same quarter in 2018. The growing engagement of our user base is a result of our prior investments. We believe these activities will contribute to long term GMV growth as these users mature on our platform. Our last 12 months GMV for 2019 surpassed the RMB1 1,000,000,000,000 mark, representing 113% year on year growth. Our continued GMV increase was driven by the sustained growth of our annual spending per active buyer, which rose 53% year on year to reach RMB1720. The increase in this average number should be considered in the context of the rapid increase of our active buyer base over the past few quarters. It highlights that our value proposition is resonating strongly with users who are staying on and increasing their spending as they find more that appeals to the needs of our platform. Our total revenues in the quarter ended December 31, 2019 were RMB10.8 billion, up 91% from RMB5.7 billion in the same quarter last year. The main driver of this growth was our online marketing services. Online marketing services revenue was RMB9.7 billion this quarter, constituting 90% of our total revenue. This is up 91% compared to the same period in 2018 and is driven by the rising demand for our advertising products as the user traffic and GMV in our platform continue to expand rapidly. The remainder of our revenue comprised of transaction services revenue, which in this quarter amounted to RMB1.1 billion. This is up 87% compared to the same period the year prior. We continue to offer preferential rates to high quality merchants. And while this affects our monetization in the short term, we believe this will accrue to the long term value of our platform. Moving on to costs. Our total cost of revenue increased 43% from RMB1.4 billion in the same period last year to RMB2 1,000,000,000 this quarter. This translates to a gross margin of 81% as compared to 75% a year ago. Total cost of revenues increased mainly due to higher cost of cloud services, call center and merchant support services. Total operating expenses this quarter were RMB10.9 billion as compared to RMB6.9 billion in the same quarter 2018. Our sales and marketing expenses this quarter increased 54% to RMB9.3 billion from RMB6 1,000,000,000 in the same quarter of 2018. This is mainly due to an increase in online and offline advertisement and promotions as we continue to invest in growing our user engagement and user base. We also leveraged our mega deal and RMB10 1,000,000,000 subsidy programs to feature specific items. When we did this for our Black Friday top up store collaboration with Amazon, we observed not only high conversion for the feature products, but also meaningful traffic increases to Amazon storefronts. On a non GAAP basis, our sales and marketing as a percentage of revenue this quarter was 84%, as compared to 89% in the prior quarter and 103% from the same quarter last year. The variation in our sales and marketing expenses as a percentage of revenue not only demonstrates the potential operating leverage in our business model, but more importantly, underscores the discretion we have in driving our business. 2020 will continue to be an important year of investments for us. In the next few quarters, we expect our sales and marketing expenses to remain fairly dynamic and we will continue to spend when we see opportunities that meet our ROI requirements. General and administrative expenses were RMB346 1,000,000, an increase of 7% from RMB322 1,000,000 in the same quarter of 2018, primarily due to an increase in headcount. Research and development expenses were RMB1.3 billion, an increase 142 percent from RMB525 1,000,000 in the same quarter of 2018. The increase was primarily due to an increase in headcount and recruitment of more experienced R and D personnel 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 9%. To sum up, operating loss for the quarter was RMB2.1 billion on a GAAP basis, compared with operating loss of RMB2.6 billion in the same quarter of 2018. Non GAAP operating loss was RMB1.3 billion compared with operating loss of RMB2.1 billion in the same quarter of 2018. Net loss attributable to ordinary shareholders was RMB1.8 billion as compared to a net loss of RMB2.4 billion in the same quarter last year. Basic and diluted net loss per ADS were RMB1.52 compared with RMB2.16 in the same quarter of 2018. Non GAAP net loss attributable to ordinary shareholders was RMB815 1,000,000 compared with RMB1.9 billion in the same quarter last year. Non GAAP basic and diluted net loss per ADS were RMB0.72 compared with RMB1.72 in the same quarter of 2018. That completes the profit and loss statement for the Q4. Net cash flow from operating activities was RMB9.6 billion, compared with RMB5 point 7,000,000,000 in the same quarter of 2018, primarily due to an increase in online marketing services revenue. As of December 31, 2019, the company had RMB33.3 billion in cash, cash equivalents and restricted cash. Excluding restricted cash, we had RMB5.8 billion in cash and cash equivalents. In addition, we had RMB35 point 3,000,000,000 in short term investments. As Colin mentioned, we expect our Q1 2020 results to be negatively impacted by the coronavirus outbreak, given suspension of commercial activities during March February and a gradual resumption to normalcy thereafter. Our priority as an e commerce platform that serves nearly 600,000,000 users is to help facilitate the recovery of people's lives and resumption of smooth business operations. To that end, we will continue to provide the necessary support to our merchants and users and we look for opportunity to invest our users via sales and marketing to resume our growth trajectory. This concludes our prepared remarks. Operator, we are ready for questions. Thank you. Your first question comes from the line of Mr. Thomas Chong of Jefferies. Please ask your question. Hi, good evening. Thanks management for taking my questions and wish everybody is in good health and stay safe. My question is about the recovery trend across different product categories in the 1st 2 weeks in March. Can management share us about how it trend versus the same period last year? And my second question is about the GP margin. We noticed that the GP margin is over 80% in Q4. So how we should think about the GP margin trend going forward and our investment areas in 2020? And finally, I have a quick question about the sales and marketing expenses. Given the fact that it's going to be quite dynamic in the next couple of quarters, Should we still assume that as a percentage of revenue, there would be leverage on marketing spending? Thank you. Hey, Thomas. Thanks, Alan, for the question. With regard to your question on recovery, I would say that it is too early yet to assess the full impact of the coronavirus outbreak. During this period, our priorities are still with our users, merchants and ecosystem partners. So as discussed, we plan to continue subsidizing the SME merchants on our platform and to focus on improving their user experience. As we noted, we believe the investments today and by standing behind our users will accrue value for the shareholders in the long run. That said, I will note that as we launched at the end of February a 3 day campaign on our 10,000,000,000 subsidy shopping festival on the theme of people returning to work, we have sent a recovery on user consumer demand. So during the first 12 hours of that campaign, we sold over 50,000 iPhones on our platform and 20,000 Mac List 6. That gives us confidence that the longer term demand for the industry remains unchanged. Your second question was with regard to gross margin trends. And I would say that as we continue to move forward with our investments, it will fluctuate from quarter to quarter between 70% to 80%. We will invest as needed and to build infrastructures, and I would not read too much into the patterns. And finally, I think, Thomas, you had a question around sales and marketing. As we have discussed with investors previously, we do not have a quarterly target for our sales and marketing spend. Instead, we make our decisions on sales and marketing spend based on internal ROI hurdles. So if we see an attractive opportunity to spend, we will go ahead and do so. Going forward and for the 2020, as I mentioned, this will continue to be a year of investment for us. And of course, as the scale grow of our platform grows, certain leverage is likely, but I will not I would say that there is no fundamental change in terms of how we are managing the sales and marketing expense. Got it. Thank you. Thanks, Thomas. And operator, before we go to the next question, just a reminder for all the analysts to keep their questions to one question so that we can get around to more people. Thanks. Next question, please. Your next question comes from the line of Jerry Liu of UBS. Please ask your question. Hey, thank you guys. Management, I just want to ask about long term consumer behavioral changes. First of all, during this outbreak period, have you seen any changes in T and D mix, potentially more consumers having enough trust in the platform to buy fruits and vegetables, any kind of new categories? And secondarily, on the supply side, as we've seen some pressure for the merchants, do you see any potential structural changes as we recover from the outbreak? For example, maybe more manufacturers could turn their attention towards the domestic market versus exporting. So just wondering what are some of the long term implications? Thank you. Sure. As the fight against the coronavirus continues in China, I would say that we have seen certain changes in behavior because of the extended period of time that people are staying during inside the homes. And we have seen more users tending to Pinduoduo during the crisis for their daily needs. Our DAU numbers in the Q4 have held out very well have held out well versus the end of last year. And we are doing our best to meet our users' requests and needs. In terms of and I would say that the outbreak has also encouraged more users to conduct more dev activities digitally online and including the purchases of agriculture produce. And last year, as we noted, that agriculture product accounted for RMB 136 1,000,000,000 on our platform, and we are already seeing that trend grow in the Q1. All right. Next question please. Your next question comes from the line of Gregory Zhao of Barclays. Please ask your question. Hi, management. Thanks for taking my question. So on the user side, we see very strong user growth in the past quarter. So I just want to know what's your plan to further improve the user engagement such as like some new functions like live streaming or gaming or some social functions to further enhance the engagement? 2nd one, the take rate. So the implied take ratio vary stable year over year expansion. So just want to understand more about what kind of new advertising products you will develop to improve the monetization? Thank you. Sure. As we have discussed, the priority for our platform is to focus on growing user engagement. So we, of course, are paying attention to different new media or ways of engaging, and we decided to introduce live streaming function for our merchants a few months ago on popular requests. And we will observe how things proceed before pushing monetization of live streaming. I would also say that timing was probably quite apt as homebound consumers during this special time were also more receptive to watching live streaming. Through live streaming, we have sold a variety of goods in agriculture. Live streaming has been surprisingly popular. A recent series of live streaming that we did feature mayors from different agriculture areas, spotlighting local produce and we have seen strong support from our users with 15 tons of passion fruit and over 10 tons of Maple Oranges being sold out in one day. Your second question, I think, was regarding take rates. We do not manage our business towards a specific pay rate target. In fact, over the past few quarters, our priority has been bringing on board high quality merchants who can offer our users a broader range of selection and giving them better value and better experience. As such, we are continuing to offer merchants preferential rates and as activities of users build on our platform, we believe monetization will naturally follow. Your next question comes from the line of Alicia Yap of Citigroup. Please ask your question. Hi, good evening management. Thanks for taking my questions. Can management actually elaborate a little bit when you say Q1 will be negatively impacted? Could you help us frame and think a relatively impact on the GMV terms, the active buyer term and also on the revenue terms, would that be a scenario that we even see a negative GMV growth or the negative revenue growth? Thank you. As you know, we do not give guidance on GMV or on any financial metrics. So I will keep the comments fairly generic. As we have seen a broader so the epidemic, I would say, has a broad impact on across the businesses in China as an industry, and we are no exception. Chinese New Year is a seasonally low quarter for e commerce, and this year, the impact has been prolonged because of lack of labor force and logistics disruption. A number of products were sold out on our platform and it could not be replenished in time and other products were experiencing shipment delays and simply undeliverable. That said, I would note that our platform has been a very fast growth platform. So any setback does not change our perspective in terms of opportunity for the entire year. Okay. Thank you. We would also say that the broader adoption of e commerce during the outbreak is actually a favorable thing for the overall industry and for Bingo as well. Global. Your next question comes from the line of Natalie Wu of CITC. Your question. Hi, good evening. Thanks for taking my question. Just wondering for the RMB9 1,000,000,000 of marketing And it would be great if management can help us understand the evolution of the ratio in the past several quarters. Thank you. Thanks, Natalie, for the question. But as you know, we do not give such breakdowns, And I would just say that we continue to manage our spending on new user apps as well as coupons and subsidies very dynamically based on where we see the market opportunities. Operator, next question please. Your next question comes from the line of Han Joon Kim of Macquarie. Please ask your question. Great. Thank you. I just wanted to understand what your GMV mix by category might look like at the end of last year and then how you might want to see that change this year. I think you talked about agriculture quite a bit. It sounds like it's almost 20% of your mix, but just overall, apart from that, what are some of the categories you want to incubate further this year? Thank you. Sure. So as I mentioned, agriculture GMV was RMB136 1,000,000,000 out of RMB 1,000,000,000,000. So it's really more it's like 13%. That said, overall mix of GMV on the platform has not changed. Apparel and FMCG continue to account for roughly 50% of our And as we look forward, the idea is actually not to target specific changes in category mix, but to increase the depth offerings that we have and we actually see opportunity for growth across all the sectors. Next question please. Your next question comes from the line of Eddie Huang of Morgan Stanley. Please ask your question. Hi, management. Thank you for taking my question. Just a very quick follow-up on the apparel category. So some of the platform have mentioned that they have been increasing inventory of some of the apparel brands. So have you witnessed any potential for more brands addition in terms of apparel our platform to do such destocking in March Q2 this year? Thank you. What I would say is in terms of spending behavior over the course of the Q1 because of the outbreak, Consumers' initial preoccupation were around health related products and devices and that certainly has an impact on their spending behaviors around the discretionary products. However, as China resumes to normal, the pace of recovery starts to pick up. We have seen continued demand across discretionary growth and across different categories. As I mentioned earlier, at the end of February, when we did a 3 day campaign, we sold 20,000 MACLIF VI in the 1st 12 hours. So I think overall, we expect the trends for the whole year continue to be quite positive. The other thing that I would note is a platform that would have around 600,000,000 users now with monthly active users close to 500,000,000. Brands are approaching us more and more so to participate and take advantage of our ecosystem. Ecosystem. Thank you. Next question. Your next question comes from the line of Piyush Mubay of Goldman Sachs. Please ask your Mr. Mubay, your line is now open. Hello. You've crossed the magic 1,000,000,000,000 GMV figure in record time in 2019. What categories ramped up in the year? What would be the areas of focus for 2020 category wise? And how has the lower tier versus higher tier mix changed for the last year? And how should we think of this all of these parameters through 2020? Thank you. Sure. Thanks, Piyush. We do not give specific breakdown between different sectors, I will comment generally in terms of trends. As our user base continue to grow, our user distribution from a population perspective have not changed necessarily. However, what we have seen is because of the trust that we are building with our user base, we are gaining more confidence in consumers are shopping with greater ease on our platform and we continue to observe that they have more and more needs that we can address as a platform. So moving forward, I would say that it is about, again, increasing the diversity of the product that we have, the breadth of product we have across all the categories. And it is about increasing their frequency of purchase on our platform, which accrue to an increasing our average order value. Specifically, I would say that because of the behaviors that we are seeing, we do see growth in electronics and beauty categories, given the interest that we see in Tier 1 and Tier 2 cities. Thank you. And could I ask another question? I know you said one only. Yes. But particularly, when I look at the pace of your active bio addition, if you continue the pace of the last 2 years on average, in 10 months you would have caught up with a market leader and you'd have over 3 quarters of a 1000000000 active buyers. At that point of time, how does the business change for you? China is a very large market and as you know, e commerce penetration is only around 25%. So frankly, I think we are not so preoccupied with what our competitors are doing or where we are, but in terms of how can we be doing things better on our own platform. As we stand today, I think it is again about continuing to build trust with our users, continue to increase the engagements and continue to create a unique, fun and interactive experience for them. Charlie, Colin wants to add. Yes. Well, I think it's an interesting question and it's a very good observation. It's true that if we continue this pace, then the user base will be very similar, even surpassing the major competitor. So on the other hand, I think it is really a question that we should ask the other part of you. I mean, even today, there are still a lot of press release that are talking about lower tier city users. But when we are looking at 1,000,000,000 user base, what's the difference between lower tier and upper tier? So, it's kind of interesting to me that people are still dividing the users between lower tier cities and up tier cities. And as you rightly pointed out, very soon, the question itself of low tier and 1st tier cities will be meaningless. So at that point in time, it's not your question is valid to us, but it's also a question valid to all the players in the market. And together with this very unusual time during the coronavirus. A lot of the user behavior has been changing. So I would say it's going to be a very interesting time in the next 2 years. Thank you. Next question please. Your next question comes from the line of Joy Xu of Bank of America. Please ask your question. Good evening, management. Thanks for taking my question. I actually would like to get more colors in terms of the impact from coronavirus. I know you have mentioned that from the demand side, couple of categories suffered kind of like demand shock. But just want to know from the supplier side or the supply chain side, what you have observed, like for your merchants, what kind of challenging they are facing? And you mentioned Pinduoduo is going to invest to help these small merchants to recover their business. What the platform has done? And what's the, like, new initiatives ahead? And also just for financially, should we recognize those kind of investment or support for SME merchants in the revenue side, I. E. Take rate or they will actually impact our gross margins for the next couple of quarters? Thanks a lot. Thank you for that. So in terms of impact to the merchants on our platform, we would note that because of the prolonged suspension of travel in China, the ability to return to work, the ability to start to fulfill orders and start to manufacture has been impacted for most of the players in China, and this is particularly felt for the small and medium enterprises. Hingoldoy as a platform has the unique ability to help and support these SMEs to return to their normal operations. And as I mentioned earlier, we have reserved an RMB 1,000,000,000 to fund a subsidy of RMB 2 to RMB 4 per order for merchants fulfilling orders through this time period. And you should, from a modeling perspective, expect this to be a hit to the take rates. Your last question comes from the line of Binnie Wong of HSBC. Please ask your question. Hi, good evening, management. Thank you for taking my questions. So I think following on just basically, if you see that our customer base, our trailing 12 month active users is already catching up with our close competitor. And in terms of the ARPU, right, the annual spending per active customer, of course, we're still at a gap of about maybe, say, point 8 or maybe 1.7 of it? And how are we seeing that we can go deeper into the customer wallet? Is this through because I think in terms of category expansion, we are probably also quite rich already. So or maybe you think there's further room to increase the categories or there's further room in terms of upselling? And how are we achieving that? Thank you so much. Thank you for that question. First of all, I would note that we added almost 2 times of users as our close competitors in the Q4. And that has an impact to our ARPU, which would take time to catch up. So as the users mature on platform, we do expect to see that their annual spending to increase over time. And in terms of strategy for us in the near term, it's going to be continuing to engage the users to increase their interactions and to help build their trust continue to build their trust with our platform. Colin, I think you wanted to say something? Yes. My answer will be really short. I think it's just a matter of time. With that said, please don't overestimate our speed to increase that, but I also think that you shouldn't underestimate our potential to increase that in the long run. So yes, the answer will be it's just a matter of time. Just wait and see. Yes, thank you. So we have reached the end of our Polly and David, and thanks, everyone, for joining us on the conference call today. If you have any further follow on questions, please feel free to reach out to the IR team. Thank you, and have a great day. Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may now all disconnect.