Pinduoduo (Minutes): Do not judge the company based on short-term financial performance!
The following is the minutes of Pinduoduo's 4Q24 earnings call. For the earnings interpretation, please refer to Pinduoduo: "Falling from Grace," How Long Can Its Pride Last?
I. Core Information Review of the Earnings Report
Revenue Situation: In the fourth quarter of 2024, revenue reached RMB 110.6 billion, a year-on-year increase of 24%; total revenue for the year 2024 was RMB 393.8 billion, a year-on-year increase of 59%.
Costs and Expenses: Total costs in the fourth quarter of 2024 were RMB 47.8 billion, a year-on-year increase of 36%, mainly due to increased fulfillment and payment processing costs; operating expenses in the fourth quarter of 2024 were RMB 37.2 billion, a year-on-year increase of 19%; non-GAAP operating expenses were RMB 35.1 billion, accounting for 32% of total revenue.
Profit and Earnings: In the fourth quarter of 2024, the GAAP operating profit was RMB 25.6 billion, the non-GAAP operating profit was RMB 28 billion, and the operating profit margin was 25%; the annual non-GAAP operating profit was RMB 118.3 billion; the net profit attributable to ordinary shareholders in the fourth quarter of 2024 was RMB 27.4 billion, and RMB 112.4 billion for the entire year.
Cash Flow: The net cash flow generated from operating activities in the fourth quarter of 2024 was RMB 29.5 billion, and RMB 121.9 billion for the entire year; as of the end of 2024, the company had RMB 331.6 billion in cash, cash equivalents, and short-term investments.
II. Detailed Content of the Earnings Call
2.1 Key Information from Executives' Statements
1. Strategic Direction: 2024 is a critical year for advancing the high-quality development strategy. Through a series of measures such as fee reductions, merchant support policies, and updates on trust and safety, the vision for high-quality development of the platform will extend to the supply chain, leading the platform into a new stage of growth driven by high quality.
In the second half of 2024, we will accelerate the advancement of the high-quality development strategy through several major initiatives, including the launch of a RMB 100 billion fee reduction plan, logistics support measures to promote e-commerce services in remote areas, and a high-quality merchant support plan. We are pleased to see that these initiatives have begun to yield positive results. In 2025, we will continue to deepen this strategy, focusing on the healthy and sustainable development of merchants and the supply chain.
2. Business Initiatives and Achievements
1) RMB 10 Billion Reduction Plan: This has helped over 10 million merchants improve operational efficiency and reduce costs, while the promotional service fee refund plan has also begun to bring significant cost savings to eligible merchants. Logistics support measures for remote areas have driven double-digit growth in order volume and provided free shipping services to nearly 100 million consumers in those areas. The first phase of the high-quality merchant support plan has helped cover a large number of high-quality merchants and brands in 1,000 agricultural and industrial production areas nationwide, assisting them in transitioning to high-quality development 2) Agricultural Support: Continuous investment in agricultural technology, supply chain innovation, and training for a new generation of farmers, such as long-term initiatives like indoor smart agriculture competitions, has achieved results and promoted innovation and development in the agricultural industry.
3) Merchant Rights Protection Committee: Formalizing communication channels with merchants and launching an upgraded after-sales service system, implementing a series of improvement measures and governance plans to address issues such as order dispute resolution. These initiatives aim to improve the overall operating environment for merchants and build a platform ecosystem that benefits all participants.
3. Future Planning and Outlook
1) Development Plan for 2025: Continue to increase investment in the supply and demand chain, accelerate the delivery of high-quality products to the western regions, stimulate regional economic vitality, and build a multi-win ecosystem.
2) Global Business: Adhere to the mission of providing high-quality products to global consumers. Guided by this vision, continue to focus on supply chain optimization, service innovation, and ecosystem development, while ensuring strict compliance with standards. The goal is to build a trustworthy global platform and shopping environment, providing quality services to global consumers.
2.2 Q&A
Q: How do you view the long-term goals of platform ecosystem development, and how will this drive further growth for the platform?
A: Since the second quarter of 2024, the company has launched a series of initiatives focused on protecting merchant rights, such as a 10 billion fee reduction plan and a quality merchant support plan, effectively reducing operational costs for merchants. By leveraging the platform's digital technology and resources, the company has also enabled manufacturers to invest in product innovation and technology while expanding their marketing assets. These initiatives deepen the company's long-term efforts to build a stronger ecosystem and extend to the supply side, driving meaningful supply chain upgrades, which is central to the company's pursuit of high-quality development strategies.
The company has noted that in certain industries, some merchants face homogeneous competition, squeezing corporate profits and harming innovation and investment. As a platform connecting manufacturers, merchants, and consumers, the company has launched a series of policies supporting quality suppliers, encouraging merchants to invest more in products and services through fee reductions and streamlined operations, leading the platform into a new phase of quality-driven growth. With the development and modernization of the supply chain, more quality merchants and products are emerging, providing consumers with more choices, higher quality, and smoother shopping experiences, bringing tangible benefits to consumers and creating a healthy ecosystem that benefits all stakeholders in the long run.
Q: What recent efforts have been made on the consumer side, what new attempts did the company make in the fourth quarter? What will be the strategic focus on the consumer side in the future?
A: Our efforts on the supply side ecosystem complement those on the consumer side, and our commitment to providing quality goods and services has not changed. In the Q4 promotional event, we upgraded the super double subsidy, providing consumers with tangible discounts by adding double discounts based on the 10 billion subsidy daily price, while providing certainty for brand growth. The number of brand and product registrations for activities has also broken through, and during the Double Twelve event, the 10 billion subsidy was upgraded to a 10 billion consumption voucher activity, continuously benefiting consumers At the same time, we are investing a hundred billion resources on the supply side to focus on supporting new quality merchants and promoting new consumption trends on e-commerce platforms. For example, during this year's New Year goods festival, the platform accelerated the integration of local specialties into the western regions through traffic-limited subsidies. We have also seen a positive cycle forming between the consumer side and the supply side. Moving forward, we will continue to insist on high-quality investments on the consumer side to achieve a mutually beneficial and win-win platform ecosystem.
Q: The competition in the domestic e-commerce market has been intensifying for some time. Can the management share the recent developments in the competitive landscape and whether there will be any adjustments to the company's future development strategy?
A: Competition is not only an inherent characteristic of the e-commerce industry but also a key driving force for its continuous development. Major platforms are actively optimizing their strategies and services to better respond to changes in consumer preferences, reflecting the industry's strong and healthy development. With the continuous evolution of the industry and technology, e-commerce platforms are actively exploring innovative business models and technological applications to enhance user experience and operational efficiency. The company will closely monitor this development trend and continuously optimize the platform ecosystem and services to better meet consumer demands under a quality-driven strategy.
Q: What are the results of the company's strategic investments?
A: The company's strategic investments in the consumer side, supply side, and platform ecosystem have achieved significant results, proving the feasibility of sustainable growth through high-quality development. Over the years, the company has established a trustworthy brand reputation and gained high loyalty from consumers, which is the company's core advantage.
Q: What measures and goals does the company have on the supply side?
A: The company recognizes the necessity of profound supply-side reforms in the e-commerce industry. Current investments in merchant welfare and industry sustainability will improve consumer experience over time. By safeguarding merchant rights, improving service quality and satisfaction, and enriching supply, we will promote the healthy development of the platform ecosystem. The company will continue to strengthen its advantages through meaningful long-term high-quality investments, aiming to provide consumers with more high-quality products and seamless experiences.
Q: How do you view the impact of external policy changes on the company's globalization efforts? What measures are being taken?
A: The external environment is changing rapidly, competition remains fierce, and policies may also change. In this situation, we will first strictly comply with laws and regulations to ensure compliant operations. On this basis, we will actively communicate with relevant stakeholders in various markets to optimize our services. However, external changes may inevitably pose some challenges to our business.
Our goal and original intention to connect consumers around the world with quality goods remain unchanged. We will focus on our business, continuously make long-term high investments in the supply side and platform ecosystem under the premise of high-quality development, and deepen our core advantages based on long-term accumulated supply chain and operational capabilities. Additionally, we will continue to make new attempts in our business model, deepening our presence in various systems through localized supply chain innovations, and expanding new categories and services. Our goal is to build a more stable and sustainable platform infrastructure in the long run Based on low-priced quality goods, we hope to meet the higher demands of global consumers for the platform. We insist on supporting and governing simultaneously, providing support to high-quality merchants with strong innovation capabilities while governing merchants who violate platform rules. These measures have gradually received feedback and will be implemented in the long term.
As a relatively large e-commerce platform, we also pay attention to the concerns of corporate social responsibility in serving global consumers. We hope to create more value for the communities we serve through our technological capabilities and platform resources. In terms of corporate social responsibility in the global market, we have already made some attempts, and in the future, we will have many new ideas. The team will actively practice research and is very much looking forward to it. We hope that through long-term investment and consistently doing the right things, we can continuously consolidate our core advantages and establish long-term trust with merchants and global consumers.
Q: How do you view the recent trends in revenue and profit, given the slowdown in revenue growth and profit fluctuations in the past few quarters?
A: This quarter's financial performance has been affected by external environments and intense competition, leading to a short-term impact on revenue growth. At the same time, increased investment in supporting merchants and developing the platform ecosystem may cause fluctuations in profitability. When we started this investment, we anticipated fluctuations in revenue growth and profit because we aim to build a high-quality platform ecosystem and achieve sustainable growth. Currently, our efforts have received positive feedback from merchants, and the optimization on the supply side is driving new consumption trends on the demand side, beginning to form a virtuous cycle. In the future, we will continue to focus on a high-quality development strategy, investing gradually and patiently to ensure long-term sustainable development.
Q: In the past two quarters, management has mentioned taking on more social and platform responsibilities. In the long run, what goals does the company hope to achieve through fulfilling these responsibilities, and how does it balance this with its responsibilities to shareholders?
A: Evaluating the company's performance solely based on short-term capital expenditure returns does not align with the company's current development stage. As a global company in the new era, we are increasing our innovation efforts, adapting to changes, and taking on more social responsibilities in the regions we operate, which aligns with our long-term responsibilities to shareholders and reflects thoughtful leadership decisions. For example, recent support for high-quality merchants covers aspects such as product development, marketing, operations, and supply chain, nurturing a group of high-quality merchants with product and testing capabilities, and promoting supply chain transformation; logistics support measures for remote areas have led to double-digit growth in orders from western China and provided nationwide free delivery services for nearly 100 million consumers in remote areas, expanding business opportunities for merchants and benefiting consumers in different regions.
In the agricultural sector, we continue to invest in agricultural technology, supply chain innovation, and training the next generation of farmers, supporting agricultural modernization, improving supply chain efficiency, increasing farmers' income, and creating local jobs. The e-commerce industry is shifting towards quality, service, experience, and innovation, and our support for merchants considers both costs and the growth needs of the e-commerce platform. In the long run, building an inclusive ecosystem that creates value for all participants will bring sustainable growth and long-term returns to the company.
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