Ladies and gentlemen, thank you for standing by and welcome to the Pinduoduo First Quarter 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, at which time, if you wish to ask a question, you will need to press star one on your telephone keypad. I would now like to hand the conference over to our first speaker today, Mr. Victor Tseng. Please go ahead, sir.
Thank you, operator. Hello, everyone, thank you for joining us today. Pinduoduo's earnings release was distributed earlier and is available on our IR website at investor.pinduoduo.com, as well as through GlobeNewswire Services. On the call today from Pinduoduo are Mr. Zheng Huang, Chairman and Chief Executive Officer, and Mr. David Liu, Vice President of Strategy. Mr. Huang will review business operations and company highlights, followed by Mr. Liu, who will discuss financials. They will both be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference contains forward-looking statements made within the meaning of Section 21E of the 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, expect, anticipate, future, intent, plan, believe, estimate, targets, going forward, outlook, and similar statements. 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 is 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.
It is now my pleasure to introduce Chairman and Chief Executive Officer, Mr. Huang. Zheng, please go ahead.
Thank you, Victor. Thanks, everyone, for joining us our first quarter 2019 results discussion. I'm happy to report that we kicked off this year with a strong quarter, thanks to our team's hard work and its strong execution across the board. I also wish to thank our users for their continued support. As I mentioned in my letter to shareholders several weeks ago, Pinduoduo is turning four this year. We are still very much a start-up, but I am confident that our young company will continue to make significant progress this year as our new e-commerce model is well-aligned with the industry evolution and the best interests of all e-commerce participants. By focusing on benefiting all, putting people first, and being more open, we keep delivering differentiated value to our users and merchants.
We will continue to prioritize investments to pave long-term returns such as sales and marketing and R&D at this early phase of our development to build a long-lasting foundation. Our objective is not only to realize our near-term goal of expanding and deepening the relationship with our 443 million annual active buyer base, but also to further strengthen our foundation to achieve our vision of new e-commerce. Let me begin by sharing with you our key financial and operating metrics for the first quarter. Last 12 month GMV ending March 31, 2019 grew 181% year-over-year to RMB 557 billion. On a quarterly basis, our GMV growth surpassed the 21% year-over-year increase in total China online retail sales of physical goods in the first quarter by multiple folds.
This was driven first by a strong increase in annual spending per active user, secondly, by continued growth in our annual active buyer base. Annual spending per active buyer grew 87% year-over-year and reached RMB 1,257 as our users became more familiar with our platform. As we continue to enhance the variety and the quality of our product selection, it is encouraging to see that our users are coming back more frequently because of our clear value proposition. I will also make the distinction again that value for money doesn't just mean cheap. In the run-up to Chinese New Year, some of the unexpected hit products with our lower tier city users were higher priced items such as seafood hampers, cherries, and food processors.
At the same time, we have also been adding users from higher tier cities who find that they can get products of the quality they are looking for, but at a better price. Our user growth continues to be very broad-based, with our annual active buyer base up 50% year-over-year to RMB 443 million, despite the seasonal impact of Chinese New Year in the first quarter. MAU increased by 74% year-over-year to reach RMB 290 million. We're pleased to see such encouraging growth. Our users are multifaceted, as we continue to engage them through fun features that encourage sharing and exploring, we can get to know them better and keep them engaged on our platform. Similarly, our strong value proposition continues to attract many merchants to our platform.
We have become an important channel for many merchants, given our rapid user growth, the potential user scale, and high level of engagement. We have seen increase in our merchants' advertising spend, which coupled with our healthy GMV growth, contributed to the 228% year-over-year increase in our total revenues to RMB 4.5 billion in this quarter. As our platform continues to scale and our advertising products improve, there will be further room for our merchants' advertising ROIs to improve. That said, we will continue to strike a balance between monetization and incentivizing high-quality merchants to join us and to provide better products and services to our users. Our growth depends on the satisfaction of our users. Let me talk about our continuous effort to improve their experience. First, we are a platform designed for and accessible to all.
Pinduoduo started when the mobile internet was equally accessible to all. As such, Pinduoduo as a platform is conceived to serve all. We work hard to increase the income of farmers and manufacturers while providing savings to the urban population. Our fast growth and sizable user base across all parts of China is a testament to our differentiated value proposition for all participants of the platform. Second, we are working hard to better understand and serve our users. Born in the mobile internet era, Pinduoduo bypassed the PC era's search-based e-commerce model, which was oriented around a product index. Instead, we put users first. We try to understand the interests, connections, and trust between our users, so we can develop a more holistic view of them as individuals. This allows us to identify suitable recommendations more efficiently. At this stage, we're just uncovering the tip of the iceberg here.
As the complexity of matching large-scale dynamic user needs across a variety of products and prices is amplified by how user preferences can be further influenced by the actions taken by other users and the social network they are in. Each and every engagement with our users provides opportunities for us to improve and better serve them. We will continue to devote unwavering focus on this and invest in our big data analysis, machine learning, and distributed AI technologies to capture these opportunities. Another example of how we continuously improve our services to users is the introduction of our own e-waybill system, which provides greater transparency on order shipments and help us resolve delivery issues more efficiently. This system is now connected to all the major logistics providers in China. Within a short period of time, we have become the second-largest e-waybill system in China.
As I mentioned in the shareholder letter, we will continue to maintain an open policy whereby merchants can choose to use any e-waybill system, as we believe that ultimately, user satisfaction, including merchant satisfaction, is the most important KPI for the whole team. Third, we continue to enhance the shopping experience through affordable quality products and interactive features. People who are unfamiliar with our platform sometimes question how products on our platform can be so affordably priced. The differentiation is such that unlike other platforms, with simply bringing offline sales online, we enable merchants to offer lower prices by aggregating the collective needs of our users. This Pin team purchase model transforms demand that would be otherwise scattered across different SKUs and time horizons into demand that is in a single timeframe and on fewer SKUs.
Supported by our ability to provide insights into user trends and preferences, we help our merchants better plan and customize their design and the production process, eliminate unnecessary intermediaries, and therefore retain more value. As a result, our merchants are empowered to offer better quality SKUs at more competitive prices. We'll continue to deepen this value proposition with our C2M initiative, with working with more producers and manufacturers in different industries. In addition to our new brand initiative, which now sells a wide variety of goods ranging from electronics to glassware, we are also working with over 100 heritage brands from Shanghai to help them upgrade their product offerings. For instance, Bee & Flower, a hair care brand with over 30 years of history, is marrying their strong production capabilities with our data insights to develop a new line of products to be sold on Pinduoduo.
At the same time, we continue to innovate and launch more interactive features. Take in-app games as an example. We introduced several new games in January. When users complete certain tasks, such as browsing, playing with friends, or making team purchases, they can unlock additional benefits or access special discount coupons. While the dollar value of such coupon is very small, we introduce unexpected fun and excitement into the shopping journey and encourage our users to browse through our mall to discover more categories and more products, increasing user satisfaction. After how we serve our users, I also want to touch on our commitment to the merchants on our platform. We are committed to help our merchants, be them brands or non-branded merchants, to understand and serve their targeted customers better.
For example, we launched new brand initiatives and heritage brand initiatives to help newcomers develop their own brands and existing heritage brands to regain their popularity among our users. We have invested sales and marketing dollars together with these brands to raise their profile and brand recognition among our users. As of the end of April, the monthly sales of the heritage brand has grown close to 2.5x. We take IP infringement seriously, and we are making the necessary investments to improve our existing systems. This is especially important when you consider the number of merchants and SKUs introduced on our platform daily. Apart from working with merchants to create their new brand, we have also partnered closely with both domestic and foreign brands, as well as IP alliances and public authorities to weed out IP infringing sellers and products on our platform.
Not only have we taken down over 45 million IP infringing products from our platform in 2018, we have continuously enhanced our algorithms to identify fake goods and problematic merchants, allowing us to take swift actions. Now, let's switch gears onto other aspirations as we grow our platform. This past quarter, we launched Duoduo Farms. We are collaborating with local governments and stakeholders from the agriculture value chain to help alleviate poverty in many impoverished rural areas in China. We plan to implement 1,000 Duoduo Farm projects over the next five years. Our first stop of this project is Baoshan in Yunnan Province, which is known for its coffee beans. Our goal was to bring good quality coffee beans directly from the source onto our e-commerce platform efficiently. A typical coffee bean distribution chain has at least five layers, each adding 30%-50% of markups.
Information asymmetry throughout the value chain has meant that upstream coffee farmers typically receive only about 1% of the value within the entire value chain. We have cooperated with the local government to create a new farmer development model to enable upstream farmers to capture a greater share of the value created. Our central processing system for agriculture products enables us to utilize the information about the farmers, locations, logistics, production, and growing cycle to match the products with end consumer demand. As of now, we have connected 792 farmers with six of our coffee merchants who purchased 42 tons of raw coffee beans. After processing, these merchants can sell the coffee on our platform at a good price, well below what consumers typically are presented with at retail. Equally important, farmers get paid much higher prices than before.
By better mapping supply and demand, we can help farmers increase their income levels and help users enjoy the same products at more attractive prices. This is a real testimony of our core value of benefiting all. Since this is the first quarter of the year, I'd like to end by emphasizing our continued focus on building long-term intrinsic value for our company. A key part of this equation today is to invest in our users and infrastructure. As a faster-growing platform, we're attracting many new users daily, yet our mind share with them is still limited. Meanwhile, we are onboarding many new merchants with new products while constantly launching and iterating new features. It is imperative to proactively create more engagement with our users so that they can discover what they have to offer.
We believe with each and every good quality engagement, our users will come to trust and rely on Pinduoduo more for their shopping needs. The more our users engage, purchase, and interact on our platform, the more they can help us to grow. We, as a platform, will benefit from this positive net network effect and realize meaningful continuous returns over the long run. As such, our sales and marketing spend is not targeted at driving specific GMV growth in the short term, but rather at building user trust, familiarity, and user habits in the mid to long term. Pinduoduo is just serving a very small piece of the growing CNY 30 trillion total China retail sales market today. I am confident there is a lot of room for us to grow with our differentiated value proposition.
Now, let me turn the call over to our VP of Strategy, David Liu, with over 15 years of TMT banking experience at Goldman Sachs. David will take us through our financials in greater detail.
Thank you, Colin, and hello, everyone. For the March 2019 quarter, we recorded strong results across major operating and financial metrics. Our last twelve months GMV grew 181% over the past year to reach RMB 557.4 billion. Total revenues grew 228% year-over-year to RMB 4.5 billion, up significantly from RMB 1.4 billion a year ago. Our strong revenue growth was driven by our rising GMV and improving monetization rate despite low seasonality from the Chinese New Year holidays. We derived 87% of our total revenues, or RMB 3.9 billion, from online marketing services. This represents a more than threefold increase from RMB 1.1 billion for the same period last year.
Our last 12 months online marketing take rate increased for the sixth consecutive quarter in a row to reach 2.6%. Several factors contributed to the growth of our online marketing services revenue. First of all, we continue to attract more merchants to join and advertise on our platform. The rapid growth in our user base, our traffic volume and GMV leads to strong advertising ROIs for our merchants. Secondly, as our merchants become more familiar with our advertising products and analytics tools, they also become more willing to spend aggressively towards achieving their ROI targets. To give you an example, we introduced a number of new marketing tools this past quarter, including our market trend analysis and keyword trend analysis tools. These tools are designed to help merchants benchmark their ad performance against the industry and to adjust their investments as appropriate to achieve better results.
We have many more features of such nature planned in our pipeline. Lastly, we continue to invest in our merchants through Duoduo University. This is an online program that we launched in July 2018. Over 2 million merchants have accessed the over 1,300 online courses available to date. These courses aim to help merchants enhance their marketing ROI on our platform by showcasing best practices and educating them on our new tools and features. The remainder of revenues come from transaction services, of which commission fees contribute the vast majority. Our transaction services revenue for the quarter grew by 116% year-over-year from RMB 276.5 million last year to RMB 596.8 million.
Our transaction services revenue growth picked up this quarter as we adjusted our level of payment processing support to higher quality merchants. We are pleased to note that despite the gradual reduction in discounts offered to higher quality merchants, we still see a sustained increase in the proportion of such quality merchants in our merchant base. At the same time, we continue to build our other value-added services that we provide to help our merchants grow their business on our platform. Moving on to costs. Our total cost of revenues increased by 174% from RMB 318.7 million in the same period last year to RMB 873.3 million this quarter. Our gross margin was 81% this quarter as compared to 77% a year ago.
Included in our cost of revenues this quarter is a payment rebate of RMB 339.2 million from Tencent. Adjusting for the rebate, our gross profit margin would have been 73%. The increase in our cost of revenues was primarily due to higher costs for cloud services, labor costs associated with our platform operations, customer service and quality control, and merchant support services. These expenses can be quite lumpy and do not directly correlate with the increase in our GMV or revenue. We view these expenses as necessary investments to ensure scalability and performance of our platform over the long term, and we will continue to make such investments throughout the rest of the year. Total operating expenses this quarter were RMB 5.8 billion as compared to RMB 1.3 billion in the same period last year.
Our sales and marketing expenses this quarter increased to RMB 4.9 billion as we continue to invest in driving greater brand awareness and user engagement. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenue was 103%. This quarter, we were one of the sponsors of the CCTV Spring Festival Gala, the biggest annual TV event in China with 1.2 billion viewers and one of the most-watched live shows in the world. We held a series of successful online promotions leading up to the TV event, and together, these initiatives helped to spur user downloads and increase brand recognition and engagement. We continue to build on this momentum throughout the quarter, and we saw user activity on our platform bounce back quickly post-Chinese New Year.
These investment in user engagement helped to stimulate more frequent purchases and drove our annual spending per active user to RMB 1,257, an 87% increase from RMB 674 for March 2018 quarter. Not only do we continue to see existing users upgrade their consumption behavior on our platform, we have observed some newer users actually making higher value purchases earlier in their life cycle when compared to older cohorts. This is a reflection of the improved product selection we have on our platform, and more importantly, it is also a sign that these new users have greater trust and confidence in us. Sales and marketing is an investment that can create meaningful long-term returns for us. We expect our users to grow with our platform and spend more over time.
At the same time, we would like our users to be informed of our products and services improvements and to try them out more frequently. Sales and marketing is a means for us to encourage such activities. That being said, we remain stringent on ROI of our sales and marketing investments. Where the math did not work, we have held off and will hold off from making such marketing investments. We are confident that our investments will pay off. We'll continue to be optimistic but disciplined in sales and marketing for the rest of 2019. Our general and administrative expenses this quarter were RMB 236.1 million, with the increase primarily due to an increase in headcount and share-based compensation expenses. On a non-GAAP basis, our G&A expenses as a percentage of our revenue was 1%.
Our research and development expenses were RMB 667.1 million this quarter, a significant increase from last year as we invested in hiring more experienced algorithm engineers and spent more on R&D-related cloud services. On a non-GAAP basis, R&D expenses as a percentage of our revenue was 12%. As disclosed in our 20-F, we exited 2018 with close to 3,700 staff, with over 50% of them being engineers involved in product development. We expect to continue investing in our R&D capabilities this year and are looking to grow our engineering team by at least 2,000 staff. We plan to enhance our distributed AI infrastructure and invest in core technologies that can help us improve our user experience and product quality. We are also in discussions with various universities and research institutes regarding joint research efforts and research center collaboration.
Operating loss this quarter came to RMB 2.1 billion, compared with a loss of RMB 253 million in the same period last year. Non-GAAP operating loss was RMB 1.6 billion, compared with a loss of RMB 240 million in the same period last year. Net loss attributable to ordinary shareholders was RMB 1.9 billion this quarter, compared with net loss of RMB 281.5 million in the same quarter last year. Basic and diluted net loss per ADS were RMB 1.64, compared with net loss per ADS of RMB 0.64 during the same period of last year. Non-GAAP net loss attributable to ordinary shareholders were RMB 1.4 billion, compared with net loss of RMB 267.9 million in the same quarter last year.
Non-GAAP basic and diluted net loss per ADS were RMB 1.2, compared with RMB 0.6 for the same quarter of 2018. That completes the profit and loss statement for the first quarter. Net cash flow used in operating activities was RMB 1.5 billion, compared with RMB 683.5 million in the same quarter last year, primarily due to an increase in operating expenses. As of March 31st, 2019, the company had a strong balance sheet with RMB 37.2 billion in cash equivalents, and restricted cash. Excluding restricted cash, we had RMB 22.5 billion in cash and cash equivalents. In addition to this amount, we had RMB 6.9 billion in short-term investments.
As such, we remain confident in our ability to make necessary investments this year and to grow in line with our expectations. The encouraging increased engagement by our users and merchants signals to us that our new e-commerce ecosystem derives meaningful value from our platform. We will continue to do what is right for our users and keep differentiating ourselves with our focus on a fun, value-for-money shopping experience. This concludes our prepared remarks. Operator, we are now ready for questions.
Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. We have our first question coming from the line of Grace Chen from Morgan Stanley. Please go ahead.
Thank you. Thank you for taking my question. My question is about sales and marketing strategy. I just want to dig a bit further. It'd be great if the management can share your plan to increase sales and marketing efficiency and also your strategy specifically with coupon and coupon versus branding. Thank you.
Okay, I'll take that one. Well, since last quarter, there are quite a few questions surrounding sales and marketing. The purpose of sales and marketing spending is really focusing on building greater brand recognition and developing strong user engagement. There are two important points I'd like to make about sales and marketing. We view sales and marketing as a discretionary investment from which we expect to realize meaningful long-term value. Second, our sales and marketing investments must meet the strict ROI requirements we set internally. For the investors who haven't read my letter to shareholders, I strongly recommend to read that, 'cause at this stage, although PDD is not small anymore, but it's still early stages.
We are still sort of a startup. We have a large user base and good user retention, fairly decent brand recognition. The brand awareness is not fully cemented in users' brain yet. At this stage, we actually want to spend the money we earned to increase user awareness and also increase the mind share of PDD in users' mind. We added a lot of new users in the past year who are still forming their shopping habits on our platform. We have seen our older cohorts of users spending a few times more than when they joined. Retaining and cultivating existing users on our platform is all the more important as well as attracting new users.
Over time, we hope Pinduoduo will be the platform they think of when they want to browse during their scattered times, and also when they want to want value-for-money products, when they become seasoned users. If you look at our different types of sales and marketing spend, you can see how we are trying to drive towards this goal. First of all, brand advertising help us to build brand awareness, whereas online performance advertising increases our traffic exposure and increases user engagement.
Coupon and promotions are designed to encourage repeat usage habits by getting users to engage with us more often, and sometimes incentivize the users to try different new features as we constantly improve our product and features and the feature offerings. Well, also brand advertising and TV program sponsorships are designed to reach a wide audience, such as the Chinese New Year campaign and the World Cup. It is meant to raise awareness, recognition, and trust of our platform. Third, for the online performance advertising and the coupons and promotions are more targeted and their effect are monitored on a real-time basis. There are a number of factors as we calculate ROI. There are frequency categories, varying interactions with other users, and also number of new users they bring over, a number of inactive users they reactivated, et cetera.
As we measure these over various durations, such as one day, one week, three months, et cetera, we do adjust our spending on these channels on a real-time basis once we see ROI of those channels shift. Overall, I want to summarize, because we are very confident of our long-term earning power, I think at this stage, the best way to use the revenue proceeds is probably to invest in R&D, invest in infrastructure, and also more importantly, invest in user awareness and brand recognition, and also try to cultivate the user behavior in a way that they will choose PDD as their dominant place for shopping and for a lot of the browsing. Sorry for the too long answer, but I'm not sure that it covers all your worries or, well.
Got it. Thank you.
Thanks.
We have our next question coming from the line of Natalie Wu from CICC. Please go ahead.
Hi, good evening, management. Thank you for taking my question. I have two questions here. The first question is that we see quite good online marketing take rate improvement this quarter. Could management share with us some color on drivers of our monetization ramp up? How should we think about the trend for monetization for remaining of the year? That's my first question. My second question, I guess, I have follow-up on our sales marketing spending. What's our sales and marketing plan for the full year 2019? Thanks very much.
Thank you, Natalie. Let me start with the online marketing services take rate question that you referred to. We really view our online marketing service take rate as a reflection of the value that we bring to our merchants. It is ultimately driven by our user satisfaction and our differentiated value proposition. We do not focus at this moment on take rate, but instead we focus on improving our SKU offerings to our customers. We focus on customer service, which we believe will lead to more user interactions within the platform and among themselves. This translates into more exposure for our merchants. As merchants ROI increases with exposure and sales, they naturally want to spend more on our platform. From a results perspective, we have seen our take rate increase over time.
We're still at a very early stage of monetizing our platform, and we will continue to help merchants serve our users better and make money. We want to be mindful, and we will be mindful on balancing between monetization and growth. For now, we'll continue to prioritize growth, but we know that the underlying drivers for monetization remain healthy as we see our merchant base continuing to expand and our merchants becoming more active in marketing as they become more familiar with our platform.
Well, I want to add a little bit to David's answer. Actually, I think the increase you see right now is just a very small fluctuation. I personally, I don't encourage our investors to measure the monetization rate on a quarter-by-quarter basis. Instead, you should just look at this on a longer timeframe, at least for half year or a year, on a yearly basis. For seasonal reasons and our policy exchanges, I mean platform policy exchanges maybe, this kind of small fluctuation, I think, even you can ignore that. Over the long run, I think, in terms of monetization, we are still at a very early stage.
Natalie, I think you also had a question on the 2019 sales and marketing. Given our fast growth, it's very hard for us to give you guidance. We are pleased with the results of our marketing campaigns thus far, and as we have mentioned a number of times, we will continue to make investment as long as we think the expected returns meet or exceed our ROI targets. We believe we're in a good position to do so, as we see our GMV and monetization continuing to grow.
Yeah. I also want to add a few sentences. Basically, if the market is good and we're doing a good job, then you should expect us to spend more. With that, you may see more deficits. If we're doing a mediocre job, then probably, you will see sort of that will be more in line with a lot of expectations maybe. Internally, we do have a very strict metric for every penny we spend. That is really based on a carefully calculated ROI of all the marketing campaigns. That is more based on whether since we're treating a lot of the marketing as investment, the philosophy will be, if there is a good deal, then we'll invest. If the price is too high, then we'll just refrain from that.
With that mentality in mind, it is pretty hard for us to kind of predict or to precisely calculate how much we will spend or budgeting. Okay?
Thank you. Thank you, management.
Ladies and gentlemen, we'd just like to remind you, due to time limitations, kindly restrict your questions to one question at a time. Thank you. We have the next question coming from the line of Alicia Yap from Citigroup. Please go ahead.
Hi. Good evening, management. Thanks for taking my questions, and congrats on solid result. My questions is related to the competitive landscape. Can management share with us how do you see the impact or potential threat from your bigger peer going after more aggressively in growing more new user, right? From the lower tier cities. Have you seen any rising difficulty in retaining a new user that you acquire over the last few months? In terms of what are some of the measure you believe you could be effective to counter the competition, or are you not really worried about the competition? Any colors on that would be helpful. Thank you.
Well, for competition, it is a hot topic last quarter, and even it's continuing this month. I have to say that the competition we see at this moment and a lot of the actions our competitors have taken, for instance, like the forced exclusivity in Chinese, Er Xuanyi, it's unprecedented, I have to say. It is becoming more and more interesting. You rightly pointed out that a very important factor is the user. If we look at our user base and look at our users' behavior and the retention, I think we're very happy about the current status. Not only it's healthy, but I guess the competition even increased users' kind of engagement and support.
Of course, in the short run, the competition, especially some of the forced exclusivity, will have some effect on our merchants in a negative way. In the long run, I don't see any sustainable measures they can take. As a side effect of all these negative movements the competitors are doing, we also see some positive side effect. A lot of the merchants and the brands start to realize how important our platform is. Looking at this in another way, as we grow bigger, the opportunity cost merchants incur by not being on our platform also increases. Merchants, like our users, ultimately want more sales from more channels rather than forcing merchants to go against their best interest.
We think a more sustainable way to stay competitive in the long term is to build up, you know, our intrinsic value by focusing on serving our users well. We don't think China e-commerce has to be a zero-sum game. I also personally write quite a few paragraphs in the letter to shareholders about the recent competition landscape. I think it will continue like this for quite some time. The outcome is also predictable, I think, 'cause I don't think any brand will in the long run go against their fundamental interest. Also, if we, five years down the road, if there is only one de facto e-commerce platform or kind of circulation system in China, that kind of result, I don't think it's acceptable in China, and it's unimaginable.
If not PDD, there has to be some other large scale new e-commerce platform to exist. With that said, I'm participating in this kind of competition, but I'm also observer of this competition. Personally, I'm getting more and more intrigued and getting interested in this kind of thing, because I see a very good sign is that the whole industry, including the larger scale competitor, is actually follows our, a lot of our initiatives. For instance, if we are going to Yunnan and we do the coffee beans and others will follow us and go there and also to buy the coffee beans from farmers. We do new brand initiatives, they will also do. When we launched heritage brand initiatives, almost the whole industry followed us.
This kind of phenomenon is also unprecedented, and it's also encouraging because a lot of our initiatives we're doing today is actually not just purely from our economic incentive. A lot of that is from our social responsibility. As a big platform in China, we do think we should take social responsibility seriously as our first degree necessity. With that, if we go to the farmers, buy coffee beans, and that will lead the way for others to buy coffee beans from them, therefore those farmers get greatly helped, and their income got increased, that is more than welcome. That also shows the value of our platform, and this kind of trend, if they don't change their strategy, I guess will continue also, which is very good for the industry and very good for China as well.
To conclude the answer to your question, I have to point out that China's retail market, physical goods retail market now is already CNY 30 trillion, and it is still growing. The online e-commerce percentage of this CNY 30 trillion market is also growing. Very likely in the future, online, offline will be mingled together. Therefore, the total market we're in is tremendous. We're currently just serving a very small part of that, and it is unlikely to be a zero-sum game. Very likely the current severe competition will lead to two, three, even more very strong companies. Yeah, thank you.
Thank you.
We have our next question coming from the line of Piyush Mubayi from Goldman Sachs. Please go.
Thank you for taking my question. Colin, for a relatively new company, as we approach the one-year anniversary of your listing, could you look at areas where PDD has surprised you on the upside and you've done very well, as well as areas where you still need to address? By that I mean areas such as your bench at this point in time. My second question, if I may slip in one, on your sales and marketing spend, could you detail which channels have proven to be those that are very effective on conversions, for instance?
Related to that, if I look at the magnitude of spend, for the sponsorship of the CNY Gala, should we think of SG&A for the rest of the year based on the 103% of revenue in the first quarter or the 63%, if I exclude the CNY spend based on my estimate? Thank you.
Okay, I will leave the second question to David. For the first question, well, I have to say that we're extremely lucky as a young company, and we have been growing very fast, and we have, we're born in a good age with this model. One thing that surprised me a little bit is that I do see the power of this platform to solve some of the social problems, the existing problems.
I feel very proud of our initiatives and efforts in the agriculture industry, 'cause this is a big area for China, especially meaningful because there are still more than 300 million people, peasants working on the fields directly, excluding the peasants working in the cities building the houses. When we've changed agriculture upstream model a little bit, that does improve the efficiency a lot. Today, with increasing user base and increasing influence of PDD, also the increasing intensity of the competition, I gladly to see basically the whole industry start to study our agriculture efforts and trying to put more emphasis and resources into that area. That is really good, and I feel so happy about that.
One thing that the negative surprise, not a big surprise. I guess I had a sort of pretty good kind of sort of prepared for that. Still, when we are in a position which is not understood, especially for some of the wrong reporting and those kind of things, when you're in a situation, you are misunderstood and cannot stand out to actually explain, that actually personally makes me a little bit sad. That's the fact. That's also kind of the lesson we have to learn and have to grow.
With all that said, I think I already feel very fortunate, and I think the whole team got excited by what we have done, especially when we see the good things happening on the fields, in the fields.
Piyush, in terms of your second question regarding sales and marketing, as you know, we do not give guidance for the full year because the situation that we are in today remains to be quite dynamic. Not only do the opportunities varies from time to time, the pricing of such opportunities also move around. What does not move around really is how we think about ROI in terms of our investment in sales and marketing. As we think about the spending that we make in sales and marketing, we focus now in particular on responses by our users. Looking at the promotions and the coupons that, you know, for example, recently, we have had some very successful campaign that generated excitement and sharing and conversion on our platform.
We will continue to assess opportunities as they arise going forward, the rest of the year. We will, and, you know, you should expect us to remain, continue to remain very disciplined, as we think about our return on investment.
Can I just specifically, should we use 63 or 103 as a thinking point, especially given that CPMs across the industry have pulled back dramatically into the second quarter? Also, if I look at certain data points that are getting released by third-party vendors that track you, it appears that you had a very strong April, and that's why I asked the question, is that same spend translating to much more effective growth in the month of April and hence going forward?
Well, I cannot comment specifically on that. When you talk about the macro environment in advertising industry, I don't think that is fully kind of revealed yet, and it also fluctuates. When it comes to our industry, the e-commerce, I think because of the competition, it's still fairly severe. I don't think those macro numbers that have significant meaning or significantly useful when you do the calculation. Again, regardless what kind of outside macro is, we will just use our internal metric to measure the ROI. Just like you're investing while you are following the value investing policy, it doesn't really matter what the stock price is. You just look at the intrinsic value and the current price.
If the price is good, you'll just buy it. Okay. Thank you. Next question? Shall we move to the next question, sir?
Yes, move on to the next question.
We have the next question coming from the line of Joyce Ju from Bank of America. Please go ahead.
Good evening, management. Thanks for taking my questions. My question is actually related to cost of revenue. First, may we get more colors on the payment rebate from Tencent this quarter? Is this actually a one-quarter event and related to this quarter's expenses only, or this was actually for longer historical period? How should we expect the an implied, you know, payment cost for this quarter or, like, for the rest of the year? Secondly, cost, Colin mentioned that this year company will continue to invest a lot to strengthen the merchant services, which were also related to the cost of the revenue, but not directly correlated to the GMV.
Could you elaborate more in terms of, like, where the investment will be, and how should we expect the amount or the scale of the investment, and how this will affect the, you know, the gross margin for this year? Thanks.
Thank you for the question. First of all, on the question regarding the rebate, the rebate that we receive from Tencent is one-off in nature. I would not say that it is not something we will not, you know, expect in the future, but that is based on, you know, case-by-case negotiation, and is not something that we would expect to be seeing every quarter. Secondly, in terms of cost of revenues overall, our cost of revenues have increased over the last few quarters as we made investments in cloud services and other, you know, building out our team to in order to provide better services to our platform.
One of the examples that we can point to is on the merchant support services, such as Duoduo University, that we are spending a lot of efforts educating our merchants on how to better utilize our platform. At the moment, we are not charging anything for such services, and these are naturally falls into our cost of goods sold, cost of revenues. These investments can be quite lumpy, as we mentioned in our earlier script, because we believe that they actually are necessary to support a longer-term growth of our platform. As such, our gross margin may likely to fluctuate between 70%-80% range, depending on the timing of our investment. I would also point out that the first quarter this quarter is lower.
Our gross margin on adjusted basis is lower because of the Chinese New Year impact. If you think of it as, you know, having the investments against a lower revenue.
Got it.
Hopefully that helps you.
Yeah, sure. Thanks.
Thank you. We have our next question coming from the line of Ms. Monica Chen from Credit Suisse. Please go ahead.
Hi. Good evening, management. Thank you for taking my question, and congratulations on the strong results. Can management just give us more color on your logistic e-waybill initiatives? For example, what's like the so far feedback from the merchants, and how do we expect that help us to improve our logistics efficiency over time? Thank you.
Okay. I will answer that first, and David, you can add, you have something to add. I think we rolled out our e-waybill system in March 2019, and the merchants adoption has been very, very rapid. Although it's only like several months old, the system, since it's online, it's already the second largest in China and probably in the world as well. We can do this, or we have done this in this rapid fashion is because we do have the volume in, first of all, and secondly, the merchants and the delivery companies all welcomes another alternative. Actually, this alternative, it is very important for the long-term healthy sustainability and independence of delivery companies.
It is also very important for the merchants. As for the users, you know, without this e-waybill system, there are merchants who's trying to fake the mailing address or trying to fake the route of the delivery or trying to fake the delivery time or something like that. With this e-waybill system in place, the detection of those kind of misconduct is much easier, and the end-to-end information flow is much clearer than before. It is also a tool against the brushing. It will make merchants much harder to fake orders so that they will no longer be able to sort of brushing out the orders and create fake orders so that they can rank up higher.
With all of that, I think the launching of the e-waybill system has been pretty successful. The team has been working very hard, and the result has been satisfactory at this moment. Thank you.
Thank you. Ladies and gentlemen, I would now like to hand the conference back to our speaker to end the call and for any ending remarks.
Well, thank you for the call, everybody.
Thank you.
We look forward to the next quarter's earnings.
Thank you, sir. Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may all disconnect now.