Earnings Call: Q1 2021

May 26, 2021

Welcome to the Pinduoduo first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to our first speaker today, Mr. Jason Shu. Please take over. Thank you, operator. Hello, everyone, and thank you for joining us today. Pinduoduo earnings release was distributed earlier and is available on the IR website at investor.pddholdings.com, as well as through GlobeNewswire services. On today's call, our Chairman and Chief Executive Officer, Lei Chen, will make some general remarks on our performance for the past quarter 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 1st quarter ending March 31, 2021. 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. It is my pleasure to introduce our Chairman and Chief Executive Officer, Lei Chen. Lei, please go ahead. Thank you, Jason. Hello, everyone, and thank you for joining our first quarter 2021 result announcement. It has been over a year since the initial break of COVID-19. Since then, we have carefully moved towards normalcy while respecting the necessary precautions and occasional measures to tamp down the flare-up of the coronavirus. After mostly stay in place over the Lunar New Year holidays in February, Chinese consumers finally took a well-deserved break over the May Day holidays, shopping and traveling around the country. With summer approaching, we hope that the global pandemic situation will continue to improve as more people receive their vaccinations. I would like to thank the merchants and logistic partners who work closely with us to serve our users throughout the period. Together, we created another industry first by staying open and serving users over the Lunar New Year. We provided users with cheer by ensuring that they could get what they required over the holiday and easily send presents and care packages to their loved ones back home with just a few clicks on our app. According to the State Post Bureau, the total parcel volume over the period from 11th to 17th February stood at 660 million, growing by 260% over the same period last year. We are proud to have contributed towards keeping up our users' spirits while they kept themselves, their loved ones, and their community safe. Our overarching commitment to serving our users has helped us put yet another strong quarter. Our annual active buyers increased by 35.4 million from the December quarter to reach 823.8 million for the 12 months ending on the 31st March 2021. We continue to build trust and mind share with our users. User activity on our platform continue to increase. Over the quarter, our MAU increased to 724.6 million, representing 88% of our annual active buyers. Total revenues, excluding revenues from merchandise sales, was RMB 17 billion, a year-over-year increase of 161%. Our growing scale gives us both greater capacity as well as responsibility to live out our missions to benefit all. We constantly think about how we can best marshal our resources and reach to catalyze improvements and bring more benefit to society. Our direct access to over 800 million consumers and our understanding of them, as well as our network of over 8.6 million merchants on our platform, makes us uniquely well-positioned to bring top minds from around the world together to develop practical solutions to real-world problems that our users encounter every day. As we work towards our goal of becoming the world's largest agriculture and grocery platform, we must also seize the golden opportunity to transform and modernize the agri-food system. We want to help consumers adopt healthier and more environmentally sustainable diets while improving all the links of the supply chain and cost structure of agriculture industry. Now, let me touch on 2 points. First, we are pursuing partnerships to answer questions on the future of food. We have just entered a research partnership to quantify the impact of plant-based meats on human health. As alternative proteins are a promising component of a more sustainable diet, it is useful to know how they affect us. This is our first research partnership, and it will certainly not be our last. For example, a year ago, we started a project to develop a more portable and low-cost test for pesticide residues. Upon commercialization, that project will improve food safety and quality, thereby benefiting many people. Second, we are rethinking logistics systems and infrastructure. We have a privilege of being the only exclusively mobile commerce players of this scale in the world. This unique characteristics of Pinduoduo has helped us to become world's largest commerce platform by the number of paying users. This singular focus on mobile-only experience came about because we recognized back in 2015 the immense potential of ubiquitous mobile computing to drive trends in consumer behavior and usher in a totally new era of interactivity among users. Similarly, with logistics systems in infrastructure, we are looking at how things can be done with a fresh pair of eyes with no preconceptions. Pinduoduo has an advantage in this area. We originate many parcels, over a third of parcels in China last year, and have expertise in complex technological system design. We are already working on algorithm design, data analytics, and the cold chain logistics development and optimization. We have applied for some patents as well. We hope to roll them out widely in actual operations and help logistic providers achieve higher efficiency and lower cost. As we continue to grow, I believe that we can use our scale for good. As we search for solutions in science and logistics, we remain committed to becoming the world's largest agriculture and grocery platform. Our mobile-only and discovery-oriented platform, as well as team purchase model, are well suited for food items and daily essentials. We see strong demand for Duoduo Grocery, which is giving consumers the chance to buy a greater variety of perishables directly from farmers and agri-merchants located in the region. We will continue to iterate our products and make grocery sources around the world affordable and available to our growing number of users. We foresee Pinduoduo becoming an important force multiplier and enabler that can truly make a meaningful difference in the world. At the same time, we remain committed to our social inclusion effort and support for revitalization of rural communities. For any advancement to be truly durable, we must look out for all our stakeholders. It is critical that we partner and empower them with tech. This means that we will keep on helping farmers and agri-merchants operate better and earn more. We will continue to provide training for them to harness the full suite of tools on our platform to optimize sales and benefit from our platform's visibility into final demand. We will help them increase their productivity by working with local government and agronomic institutes to harness new technology. Since the beginning, we have brought approximately 100,000 new farmers back to their hometown, and we have committed to training another 100,000 new farmers over the next five years. We want to be a catalyst in this virtuous cycle. Only when farmers and agri-merchants earn more can they invest in greener agriculture. In building China's first agri-focused infrastructure, our priority remains partnering existing third-party service providers first and foremost on everything from cold chain logistics, warehousing, sorting, and delivery. For Duoduo Grocery, we focus on partnering local community to communities closely. We work with existing shops, including mom-and-pop stores, to serve as our pickup points, enabling them to gain extra income. We also provide courses to them to aid their digital transition. In fact, since the start of Duoduo Grocery, we have catalyzed the creation of millions of jobs up and down the entire supply chain. We hope that the system we build will truly benefit all for a long time to come. This is in line with our core value of benfen or doing the right thing. We hope that this helps you understand better where we are coming from and share our hope for a better tomorrow. Thank you. Let me now hand over to David. Thank you, Lei. Hello, everyone. To echo Lei, our overarching commitment is serving our users. We're laser-focused on understanding our users' constantly changing needs and working with our partners and merchants to fulfill them in a way that is respectful of the community and the environment. With our aim of becoming the world's largest agriculture and grocery platform, we want to help create food systems that are greener, healthier, more inclusive, and more resilient. We develop and assess all our initiatives against those project objectives. Let me elaborate on how this has worked in three key fronts. First, we're gratified by our positive early foray into agriculture-focused logistics infrastructure system. Duoduo Grocery, our next-day self-pickup grocery service, is creating many social benefits. It intelligently connects our users directly to local farmers and increases the variety of fresh produce they can purchase online. It lowers cost by reducing spoilage from storage and transport, and it improves carbon emission, eliminating that from the last mile. Farmers earn more as well. Along the way, we create new economic opportunities within the communities by tapping on existing shops to serve as collection points and through third-party service providers and warehouses that we have built to support it. We're happy that the growth momentum for Duoduo Grocery remains very strong. We continue to see an increasing number of farmers and agri-merchants, as well as pickup points joining our platform. This will only amplify the social benefits that Duoduo Grocery can bring. We have also applied for patents for our proprietary cold-chain logistics network system that is aimed at minimizing the loss and quality degradation of agriculture products and other perishable products in transportation. The system applies novel technologies that can plan routes based on information of collection and distribution points, availability of cold-chain infrastructure, and transit points, among others. It is still early days, but we are optimistic that the solutions we develop and apply will bring very positive impact going forward. Second, we will introduce our consumer-to-manufacturer or C2M revolution to agriculture. We already enjoy a very good partnership with farmers and agri-merchants. More than 12 million farmers sell through our platform. This relationship has deepened with initiatives such as Help the Farmers livestream session last year when COVID-19 struck. We also have longer-term partnerships to plant, operate, and sell better through Duoduo Academy and Duoduo Farms. It is time to elevate this partnership with C2M. Pinduoduo pioneered C2M and, in the process, recast how Chinese manufacturers think of their value in the supply chain. We have helped factories build a new generation of brands that is delivering both quality and value for money to our users. By aggregating demand and spending patterns of over 800 million users on our platform, we create useful insights for manufacturers. They become more responsive to market trends by making what consumers indicate they need to, and want. C2M also cuts down waste and costs of distribution and marketing and provides better price for consumers. Our New Brand Initiative helped many export-oriented OEM partners survive the drought of international demand for their products during the COVID-19 pandemic. Agriculture will similarly benefit from C2M. Agriculture produce is diverse and unique. Much skill and effort go into cultivation. By helping farmers to sell directly to users on our platform instead of via multiple intermediaries, we give value to the uniqueness of their produce, as well as insight over their final demand. We're now focused on helping more farmers to sell better by sharing market insights. Just as we have helped manufacturers, we help farmers more apprised of market information. This enables them to be more responsive to market demand and develop agriculture brands that meet the needs of the market. China is a treasure trove of agriculture and culinary delights. There are plenty of gems hidden in plain sight waiting to be discovered by millions of consumers across the country. We will lend these growers and producers a helping hand to better market their products and develop brand recognition. Third, we're making headway in tapping on science to improve the food system. As Lei mentioned, we are backing a first-of-its-kind study on the health impact of plant-based meat. There's growing recognition that current dietary patterns are neither healthy nor environmentally sustainable. Replacing meat with plant-based alternative is a promising solution to both issues. When completed, the study will help consumers make informed choices on dietary transition and manufacturers refine their products correspondingly. The spirit of this partnership is very much in line with our earlier partnership to develop a more portable and lower-cost test for contaminants on produce, which will help improve food safety and consumer confidence. We will continue to actively look for collaboration opportunities on agri food tech with partners around the world. At the same time, we have also been active supporter of initiatives to apply the most advanced technology in agriculture. We're proud to have jointly organized the first China Agricultural Robot Innovation Competition. The competition, which concluded with an award presentation last week, attracted over 195 participating teams to apply robotics to agriculture. We're proud to have supported this competition, as robotics is at its early stage in agriculture in China, but holds a lot of promise. We're convinced our holistic efforts will bring progress to our food systems and benefit stakeholders, including our users, farmers and merchants, the communities we operate in, and the planet. Even as we place a lot of emphasis on agriculture and food, we have not lost sight of the need to nourish the mind. In April, we launched Duoduo Reading Month. Through our app, users could access classics like Moby-Dick or Notre-Dame de Paris and purchase them at discount. Famous historians and writers joined our live streaming sessions to recommend books to readers. In conjunction with the inaugural China International Consumer Products Expo at Haikou earlier this month, we partnered with CCTV News to bring our 10 Billion Program live streaming studio to Hainan. Through our live stream, users were transported to Hainan and learned about its specialty products, cuisine, and fruits, as well as interesting items to offer at the expo. We'll continue to bring color and new experiences to our users through similar initiatives going forward. Let me now hand it over to Tony. Thank you, David. Now let me take you through our financial results for the first quarter 2021. We continue to see solid user growth in Q1, and are pleased with the progress we have made in building trust and winning mind share with our users. Our annual active buyers for the last 12 months, ending March 31, 2021, increased to 823.8 million, up 35.4 million from the prior quarter. Our MAU in Q1 reached 724.6 million from the prior quarter. This is up 49% compared to the same quarter in 2020. Our MAU, as a percentage of our annual active buyers, was 88% in the quarter, our highest engagement record achieved for any first quarter. According to National Bureau of Statistics, during the Q1, total retail sales in China grew 34%, and online sales of physical goods increased 24% from the same quarter in 2020. The number of express delivery parcels in Q1 grew 75%. The significant growth rate in both online sales and of physical goods and the parcel shipment volume reflected strong recovery in e-commerce activities from the low base in Q1, 2020 due to the business interruption caused by the COVID-19 outbreak. We also saw less pronounced the Chinese New Year holiday related seasonality in Q1 this year, as more merchants stayed open in response to people's input. We collaborated with merchants and logistic service providers to ensure uninterrupted fulfillment and delivery during the quarter. In terms of P&L, our total revenues in the quarter end March 31, 2021, were RMB 22.2 billion, up 239% from RMB 6.5 billion in the same quarter last year. Excluding revenues from our 1P trials, our total revenues grew by 161% to RMB 17 billion in Q1 2021. The main driver of this growth was our online marketing services. Online marketing services revenue was RMB 14.1 billion this quarter, up 157% compared to the same period last year, due primarily to continued increase in merchant activities. We continue to offer better advertising products and analytic tools to our merchants, educate them on how to best leverage these features, and improve their services to their targeted user, and thereby help them meet and exceed their ROI targets. As a result, we have seen merchants spending more and exploring new ways to engage with users, and our users browsing more and discovering more items of interest. We are pleased to see the growing endorsement by our merchants and our users. Our transaction service revenues this quarter amounted to RMB 2.9 billion, which is up 180% compared with the same period last year. The increase in our transaction service revenues was due to two primary factors. Number 1, the increase in our GMV in Q1. Number 2, the service revenues that we recognized in connection with Duoduo Grocery, for which we provide fulfillment and other related services. We also recorded RMB 5.1 billion in merchandise sales from our 1P trials in Q1 2021, as compared to RMB 5.4 billion in the preceding quarter. This 1P trial is meant to temporarily meet the demand of our users on products which our merchants cannot fulfill. Therefore, this number may fluctuate from quarter to quarter. Our strategy is unchanged, and this will remain a very small part of the business. Moving on to cost. Our total cost of revenues increased from RMB 1.8 billion in Q1 2020 to RMB 10.7 billion this quarter. The increase was mainly due to the costs and the expenses attributable to 1P merchandise sales. Higher cost of payment processing fees, cloud service fees, and delivery storage fees. Total operating expenses this quarter were RMB 15.6 billion as compared to RMB 9.1 billion in the same quarter of 2020. Our total non-GAAP basis operating expenses were RMB 14.6 billion as compared to RMB 8.3 billion in the same quarter a year ago. Our non-GAAP sales and marketing expenses this quarter increased 80% to RMB 12.7 billion from RMB 7.1 billion in the same quarter of 2020. This was mainly due to an increase in online and offline advertisement and promotion. We continue to invest in user engagement and mind share, in the first quarter, we had an incentive program for merchants who could stay open and continue dispatching orders during the Spring Festival. We also recently marked the second anniversary of our hugely popular Ten Billion Program, which has steadily expanded over time to cover all categories, including agriculture products and fresh produce. In line with our platform's vision of helping to accelerate the transformation of the agriculture sector, we will continue to make it free for agriculture products and free fresh produce to be featured in this program. At the same time, we will continue to refine and improve the quality of our Ten Billion Program by raising the standard required for merchants to participate. Our 824 million users trust us to deliver great value and quality to them, and we will constantly seek to improve to uphold their trust in us. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenue, excluding 1P trials this quarter, was 75% as compared to 103% and 108% for the same quarter in 2019 and in 2020. The reduction in sales and marketing expenses as a percentage of revenue is a reflection of our economics of scale and our consistent efforts of sticking to a high standard of ROI benchmarks. On a non-GAAP basis, our general and administrative expenses were RMB 161 million, an increase of 36% from RMB 118 million in the same quarter of 2020, primarily due to an increase in headcount. Our non-GAAP research and development expenses were RMB 1.7 billion, an increase of 55% from RMB 1.1 billion in the same quarter of 2020. The increase was primarily due to an increase in headcount and the recruitment of more experienced R&D personnel, as well as increase in R&D related cloud service expenses. On a non-GAAP basis, our R&D expenses as a percentage of our revenues, excluding 1P contribution, was 10% as compared to 17% for the same quarter last year. To sum up, operating loss for the quarter was RMB 4.1 billion on a GAAP basis compared with operating loss of RMB 4.4 billion in the same quarter of 2020. Non-GAAP operating loss was RMB 3.2 billion compared with operating loss of RMB 3.6 billion in the same quarter of 2020. Our non-GAAP operating loss as a percentage of our revenue improved from -55% in Q1 2020 to -14% in Q1 2021. Net loss attributable to ordinary shareholders was RMB 2.9 billion as compared to net loss of RMB 0.1 billion in the same quarter last year. Basic and diluted net loss per ADS were RMB 2.33 compared with RMB 3.54 in the same quarter of 2020. Non-GAAP net loss attributable to ordinary shareholders was RMB 1.9 billion compared with RMB 3.2 billion in the same quarter last year. Non-GAAP basic and diluted net loss per ADS were RMB 1.52 compared with RMB 2.73 in the same quarter of 2020. That completes the profit and loss statement for the first quarter. Our net cash flow used in the operating activities was RMB 3.7 billion compared with outflow of RMB 567 million in the same quarter of 2020, primarily due to an increase in restricted cash outflow due to seasonality, offset by an increase in online marketing services revenues. As of March 31, 2021, the company had RMB 83.4 billion in cash equivalents, and short-term investments. As of the end of April 2021, $756.4 million of our zero percent convertible bonds due in 2024 have been converted into equity. This concludes my prepared remarks. Operator, we are ready for questions. Thank you. Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star followed by 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, you can press the pound or hash key. Once again, it is star 1 to ask a question. We have the first question coming from the line of Thomas Chong from Jefferies. Please go ahead. Hi, good evening. Thanks management, for taking my questions. I have 2 questions. The first question is about monetization. Can you comment about the feedback on our advertising products and how we should think about the monetization rates going forward? My second question is about the 1P business. You said that the 1P GMV contribution to our overall GMV is around, like, 1%. On the other hand, can you also comment about our non-GAAP net margin with and without the 1P business? Also, how about the non-GAAP net margin without our 1P and Duoduo Maicai? Thank you. Okay. That sounds a little bit more than 2 questions, let me try to address one by one. Thank you again for the questions. For the first question, I want to emphasize here, our strategy has always been serving our users well. That being said, we believe that either the growth or the monetization are a natural result of that. We also believe there's still a lot of room to grow from where we are now. Today, we see very strong growth performance in Q1 because of the merchants ROI actually is reflected in our revenue. As you can see, our revenue in this quarter continued to grow, which is a reflection of our merchants' confidence with the platform and with the confidence in the ROI they achieved. What the platform is providing is better design of various tools to help them to understand their target user better, and so that they can leverage, as well as the Duoduo Academy, to gain more insight on how the technology analysis can help them to enhance their ROI. As long as this target can be achieved, naturally, the growth and monetization will follow. On your second question on the 1P business, as I mentioned in the prepared remarks, our 1P business is a temporary measurement to offer products that our consumer want, but for which our vendor cannot offer at that time. This is not a strategic priority for us. The GMV contribution of the 1P business is immaterial compared to the overall GMV of the platform. I guess that's your third question on the margin profile, the 1P business contribution to this does have an impact, but stripping that out, our total platform margin profile will stay more or less the same range over as previous quarters. Got it. Thank you. Operator, next question, please. The next question comes from the line of Natalie Wu from Haitong International. Please go ahead. Hi. Good evening. Thanks for taking my question, and congratulations on a very solid quarter. Just curious, how do you see the update of the competitive landscape change in the coming year, given on the one hand, we've seen several antitrust related regulatory developments lately, and on the other hand, the space seems to be getting more and more crowded with the entry of cross-border players like social content platforms and local live service providers? Just wondering, does any of that affect your internal GMV target for this year? Thank you. Thank you. Let me go ahead and address this question in Chinese, and David will translate into English this evening. First, your question regarding competition. In China, the internet space has always been very competitive. Or it is also true that e-commerce in China is very advanced in terms of development ahead of the rest of the world. Many people underestimate the retail opportunity that comes about and the broad market potential that exists as the experiences improve. Taking agriculture as an example, the digitalization of the industry remains low, and opportunities are abundant for those like PDD that can help drive efficiency and other fundamental changes. 然后呢，就是如果是说我们这个从往前看，就是看过去的几年我们的发展的这个历程，那从2015年呢，其实当时我们就预见到是说这个移动互联网呢，其的确是能够给用户的行为，让用户的行为变得更加的实时和互动。那当时呢，我们就选择了专注于开发一款这个全移动端的产品。那从后来发展的历程可以看到呢，这是帮助我们呢在这个整个电商领域呢，做出了一些巨大的根本上的改变。 Looking back to 2015 when we entered this business, we foresaw that mobile internet would lead to some very fundamental changes to consumer behaviors, making it more real time, more spontaneous, and making that access more ubiquitous. We have decided to focus on the development of an entirely mobile product, and that meant we also had to make some very fundamental changes to the e-commerce product available at the time. 我们看到的消费者的行为呢，是在非常快速的变化的。那我们认为呢，这个我们的用户，我们的消费者呢，总是希望有更多的选择。那为了更好地服务这些用户，这些消费者呢，我们就不需要实时地去关注这个趋势的变化，持续地呢，在技术和商业模式上呢进行投入和创新。 Consumers' behaviors can evolve quickly, and we believe that people always want more, have more choices. To constantly serve our users better, we need to be aware of these constant changes in consumer trends and to invest in technology and business model innovation. 那现在呢，拼多多呢，从规模上来看呢，是中国最大的这个农产品上行的平台啊。那我们觉得我们的规模呢，能够好帮助我们去发挥这样的一个主导的作用，那么推动行业的改变。那么对于呢，我们能够在这个，这个农产品上行领域呢做出贡献呢，这个事情呢，我们整个团队呢也会感到非常的幸运和兴奋。 Today, being the largest agriculture platform in China, Pinduoduo is well positioned to play another leading role in driving some change. The team is very excited about the value we can bring to the agriculture industry. 那回归到刚才你说这个竞争这个问题啊，我个人觉得是说每一家公司呢，其实都有自身的特点和优势，但是归根结底呢，还是要看这个每一家公司呢，能够为消费者带来什么样的独特的价值。那对于拼多多来说，就从第一天开始呢，我们就非常的专注移动的体验，然后专注呢提供高性价比的产品，专注于一种有趣互动的这种购物的过程，以一种用户为中心的一种理念去服务用户，是我们一直坚守的原则。那这个呢，其实也是在我们做各种艰难的决定的时候呢，其实第一考虑的因素吧。 Going back to your question around competition, I believe that each company is unique and ultimately it boils down to the unique value proposition that each player represents to the consumers. For us, we have been focused on delivering value for many products with fun, interactive shopping experiences to our consumers through our mobile only platform from day one. User centric is deeply rooted in our principles, and it's the first thing that we think of when we need to make tough decisions. 那就是整个这个零售这个市场的潜力呢，是非常大的。然后我觉得就是回到就是多多买菜啊，其实呢，我们还处在就是说为消费者提供这种全新购物体验的一个初期。那随着服务的标准和这个消费者体验的提升呢，我们也相信呢，整个这样的一个体验呢，能够触达到更多的消费者，然后呢，市场的规模呢，会进一步的扩大。 The market potential is huge, and we are still in the early days, you know, particularly in early in a business like Duoduo Grocery. As the service standards improves and the consumer experiences improve, we believe this new business model will be able to motivate more consumers and further expand the market, addressable market. 那最后呢，我觉得还是要强调一点啊，就是我觉得这个良性的竞争呢，永远都是对消费者有利的，不管是说就是在B端也好，在C端也好，随着这个各个平台的发展啊，那我觉得消费者肯定是能得到这个更好的服务，对吧？那这个其实也是我们最初这个创立企业的一个初衷。 At the same time, we think healthy competition is a good thing, whether you're talking about the to B side of the business or the to C side of the business. As more platforms develop, the users can get better services. You know, that is really fundamentally why we entered this business in the first place. 谢谢陈雷总，非常清楚，谢谢大家。 Thank you, Natalie. Why don't we move on to the next question? The next question comes from Robin Zhu, from Bernstein. Please go ahead. 谢谢管理层。我有两条问题。一个就是，我们 one pitch 这边现在思路的策略也是希望把更多的品牌载到这个平台上面，然后就是去经营他们的这个商品。我就想跟管理层了解一下，就是这个季度我们在吸引品牌上平台这个方面有没有什么比较值得 highlight 的一些进展，比如说有一些比较大的品牌。然后也请管理层聊一聊，就是说现在公司遇到的一些瓶颈、挑战在哪里，然后公司怎么样地去接下来去克服。第二个问题呢就是关于这个，也是废话率再问一问吧，就是相比比如说去年三季度、四季度，我们的这个 monetization rate 现在具体是什么样的一个趋势，是上升还是下降的一个趋势。 One is on bringing brands onto the PDD platform. You know, what is this progress we shared in Q1, some of the key bottlenecks and challenges that management might want to share. The second question is, again, on monetization rates in Q1 compared to the last few quarters and, you know, and outlook for, you know, how quickly they think this can increase. Thank you. Sure, Robin. Thank you for your questions. Let me speak to the brand question that you raised, and then I will pass it over to Tony to talk about your question on monetization. First and foremost, I would say that, you know, we are making steady progress with brands because we believe our user-centric mentality is very much aligned with how brands' efforts are in terms of looking for new channels to reach and serve their prospective customers. As our user scale and engagement grows, we're seeing an increasing number of brands approaching us to collaborate. Since the beginning of the year, you have seen a number of notable new additions to our platform entering into fairly deep strategic collaborations. You know, this includes brand names on the international side, Adidas, Johnson & Johnson, and Unilever. We have also entered into strategic collaborations with the likes of Midea and Ecovacs. You ask about challenges in terms of working with brands. I think it's really helping them to understand the incremental value that PDD as a platform can bring to brands and how we can work with them to better target and address new users and identify users in a very cost-efficient way and improve their own experiences and their own reach. As example to that, I will point to our efforts with Midea on the C2M side. We're working with them to deliver more value for money quality products to consumers on our platform by developing a co-customized line of washing machines. These are the type of the differentiation and efforts, strategic collaborations that we can invest, and we're investing in brand partners who are working with us to grow their businesses on PDD. Let me actually ask Tony to make some more comments on your question on monetization. Yes. Again, coming back to our vision and our key strategic priority for Pinduoduo is always focusing on the users, how to serve our users better. As you know, the We have 824 million users. In the past few quarters, basically, we're having incremental new users coming to the platform, like around 50 million per quarter, and last quarter is around 35, close to 40. These new users, they need to need time to build their mind share and trust with the platform. What we are focusing now is really helping our merchants by providing them tools and help them to understand better to reach their target first. Our users can benefit from their, the service provided by our platform and the merchant. They can have this fun and interactive experience with us and stay longer time with us. Monetization will be a natural result coming out of this target being achieved. Got it. Thank you. Thank you. Operator, next question. The next. Thank you. The next question comes from Jialong Shi from Nomura. Please go ahead. Good evening, management. Thanks for taking my questions. Congratulations on a very solid quarter. My question is, can you provide any colors to help us understand the size of your community grocery business and its associated loss in 1Q? Earlier this year, we noticed from media several local governments issued warning to community grocery platforms due to the alleged excess of subsidies provided by platform for products sold. I just wonder, after the intervention of the governments, have you guys seen any sort of de-escalation in the competition? Thank you. Okay, let me take the first question. Let me just repeat, the question you raised is on the overall performance of Duoduo Grocery business financially, I guess. Yes First of all, I think we start the Duoduo Grocery business around a little bit more than 2 quarters. This is still a very young business. As previously mentioned by Lei and David in their remarks, Duoduo Grocery is one of our strategic priorities, a very important initiative for us to help to rebuild the agriculture sector, help to bring additional values to our users. To me, this is a long journey, a journey full of challenge and excitement. Up to now, I would say it's too early to tell the business model. There's still a lot of room to improve operationally. So far we have been quite disciplined in our investment in Duoduo Grocery, and we evaluate every decision based against a set of internal ROI targets. We're quite pleased with the progress we have made to date. We will continue to evaluate the necessary investment on a case-by-case basis. One thing we need to highlight here, we will continue to invest in this area. Some of the areas in the remarks, they mentioned things like logistic infrastructure, technology, and also technologies around how to better aggregate the demand in each of the location. All these type of investment, we will invest heavily. John, let me just add up to Tony's comments and around your question around competition. I would say that, look, you know, as we have conceived Duoduo Grocery as an extension of our platform business, our priorities are really focused around how to give our users a more holistic and integrated experiences, whether they decide that fulfillment and the convenience through the Duoduo Grocery makes most sense, or they decide to continue to shop or make purchases for certain items on the overall platform. Whilst the competition in the space continues to be intense, I think it's more important that we focus on serving our users well, and that's certainly what preoccupies us as opposed to looking at what other people are doing. Thank you. Next question, please. Thank you. The next question comes from Alicia Yap from Citigroup. Please go ahead. Good evening. Thanks for taking my questions. Congratulations on the strong set of results. I have two questions. The first one is, when we look at the transaction commission revenue line, is there any change of the payment rate, or is that fair to assume all the incremental improvement in the revenue was mainly due to the fees that you're able to charge for the Duoduo Grocery? Second question is, how many of these new users that you were able to acquire or coming to our platform, is just purely purchasing the Duoduo Grocery produce only, versus the original Pinduoduo platform? Any color you can share would be great. Thank you. Okay. Thank you for your question. Let me go first on the transaction service revenue. Our transaction service revenue increased nearly 180% versus last year, the same period. The rate itself doesn't change. We didn't change the rate. There's 2 factors contribute to this increase. Number 1 is in line with the GMV growth in Q1. Number 2 is the revenue associated with Duoduo Grocery. As for your second question, I will let David comment. Yeah, Alicia Yap, we have not disclosed, obviously, the breakdown of the users between Duoduo Grocery versus our main e-commerce platform, because that's really not how we, management, thinks about the business. With the introduction of Duoduo Grocery, we saw improvement in engagement and purchase frequency among our users. This is because the users' needs in fresh produce and groceries, they now have multiple channels to satisfy those needs, whether it is through the Duoduo Grocery channels or continuing through the main app. From the user's perspective, we are looking at this really as satisfying their needs across different product categories and across different types of fulfillment. This really is meant to be one integrated app. You know, as, you know, the orders mostly are generated through the Duoduo Grocery channel through our app. We don't focus on what percentage of our annual active buyer base uses Duoduo Grocery only, any more than we focus on how they are, you know, specific for any particular product categories. Mm-hmm. Okay, great. Thank you. Thank you. The next question comes from Jerry Liu from UBS. Please go ahead. Hi, management. Thank you for letting me ask a question. Two parts. The first is following up on the service fee. Could we just describe the accounting a little bit, in a little bit more detail? Especially, you know, if we're talking typical, say, RMB 10 or RMB 100 of GMV from Duoduo Maicai, then how does that flow through in terms of the service fee? Is that just the markup for the platform? Secondarily, just wanna ask about the logistics investments. We saw the additional commentary in a separate press release. Where could any of these investments show up this year? Is it still pretty small, or could we see R&D, CapEx or any other forms of investments? Thank you. Okay, I will go with the first question. Actually, I don't get it very clear what your question is. Like I said, it's the transaction service revenue composed of all the transaction service fees we're charging on the main platform, and also including a part coming from the Duoduo Grocery. The portion of the Duoduo Grocery kind of transaction service revenue as a percentage of total numbers are actually small. I'm not quite sure I get what your question on the accounting treatment on this. Probably you can rephrase your question a little bit. Probably, David, you can comment on the second one first. Jerry, maybe if I can just jump in here a little bit. Duoduo Grocery, as you know, in providing the Duoduo Grocery service, what we as a platform are offering incrementally is fulfillment and other transaction-related services. For this, we do charge the merchants participating on our platform a service fee. That fee is included or is being categorized as part of transaction services revenue. There isn't actually anything complicated from an accounting perspective per se, and the cost associated with that is booked under cost of goods as part of the cost of goods sold. Coming back to your question around logistics and investments over the long run. Look, I mean, we are looking at logistics as really as a result of how consumer purchasing behaviors and fulfillment requirements have evolved over time, right? If you take a step back and look back to the rise of e-commerce in China, it was quite hard for anybody to imagine China today will have an infrastructure that can serve or service, you know, handle 300 million daily parcels efficiently. While the current system, what we have today, can cope with the scale, we do think the next wave of efficiency gains is gonna come from a more flexible system, right? More technology, more efficiency-driven, that, you know, can help reduce the needs, for example, multiple shipment needs or how to leverage the current infrastructure such that we can deliver a greener logistics experience. As we look at how the consumer experiences are changing and, you know, the new fulfillment methods and better technologies are becoming important, and this is an area where we are innovating. From the investment perspective, you know, I think for the time being, you will see us reflecting this mostly in R&D. You'll also see us looking at our Duoduo Grocery infrastructure that we have today and looking at where we need to bulk up in terms of ability to better provide for user experience. One example I can give you is that we have rented additional sorting facilities for fresh produce as a way to improve the service experiences that we can offer to our users. That will be that when that would result in higher cost of goods sold from a fulfillment perspective. But more specifically, though, we are looking ahead. We're looking at the long term, where, how we can invest, and we're looking at technology. We've been investing as they mentioned, that, you know, working on algorithms, data analytics, and on coaching logistic development and optimization. We'll continue to focus on innovation in the space to better serve our consumers. Okay. Thank you, guys. Operator, why don't we take one last question in the interest of time? Certainly, sir. The last question comes from Piyush Mubayi from Goldman Sachs. Please go ahead. Thank you for taking my question. If I look at DDG and, look at the scope of the business, could you take us through, what the footprint is now? Could you take us through and give us the feel for what the investment line has been? If I look at the investment line, that's been bobbing around quite a bit, and it's hard to discern how much of that is, going into, PP&E, how much is going into other areas of investment potentially because it's one line. If you could help us better understand where we are, if you could also dwell on the overall impact of DDG on the business, in particular, looking at sales and marketing spend in the recent quarter, which as a percentage of revenue excluding 1P seems to have risen after 2 or 3 quarters of holding steady. Those are my three questions. Thank you. Yeah, Piyush, thank you for that question. I think your question generally revolves around Duoduo Grocery. I will say this, you know, as I mentioned on the last quarterly call, our service is now available nationwide across all the 300 plus major cities in China. From a footprint expansion perspective, we have a footprint that we find sufficient and necessary. We are adding to that, you know, gradually as the infrastructure on a local basis become more mature and can provide for the type of consumer experiences that we want. Your question then around investment, I believe you are referring to the investing cash flow line. There, maybe Tony can comment, if I or correct me if I'm wrong, but most of the investing you see in there is actually more from a cash management investment perspective as opposed to investment in hard capital assets. There are some of that infrastructure required in association to Duoduo Grocery, but most of the investment to date has been really in build-out of the operations, which is reflected in the cost of goods sold as opposed to in capital assets and in PP&Es. I think Qixi asked the last question you asked was around sales and marketing expenses. I would encourage you to look at this really over a longer term basis, right? Obviously, the number in the first quarter, first quarter being typically the weaker seasonality quarter. Of course, this year, because of the staycation in China, the seasonality is less pronounced. If you look at this quarter versus, you know, the same quarter last year, the year before, sales and marketing intensity as % of revenue, excluding the 1P, is coming down, right? I do think you need to take that in seasonality into account. We are seeing the efficiency from a sales and marketing perspective for us to continue to improve, and this is being done so in a way that's also inclusive to Duoduo Grocery as we think about these businesses quite holistically. I realize I didn't specific comment on your question on Duoduo Grocery's impact on our business, and this may be a good way to just kinda touch upon that. The Duoduo Grocery business, as we had alluded to earlier on this call, does allow us to extend the services or the that we can provide to each consumer on our platform, allowing us to better fulfill their grocery needs that requires a 24-hour type of fulfillment cycle. What it also does mean is that the users who are participating in Duoduo Grocery does have a higher frequency of purchase and higher level engagement activities on our platform, and that synergistics with the overall, you know, activities on the platform, and that does have, you know, some benefits when it comes to sales and marketing spend over the long run. I have just one point to add, David, here. I think speak of the investment on Duoduo Grocery, it's worth to mention as well, investment on people, not just embedded in the lines under the cost of goods or PP&E. We have dedicated Pinduoduo teams deployed at each location we're operating. Also our employee work closely with third-party contractors to ensure the Duoduo Grocery service can be implemented in manners that meet our quality standards. Since the start of Duoduo Grocery, we have catalyzed the creation of millions of jobs up and down the entire supply chain. Thank you. Operator, in the interest of time, we will conclude the call here. Thank you everyone for taking the time to join us this evening. If you have any follow-up questions, please feel free to reach out to our IR team at investor@pddholdings.com. Thank you very much. Thank you. Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.