Pinduoduo (Minutes): Consumer & Merchant Investments Anchor Long-Term Value Proposition
The following is the earnings call minutes for $PDD(PDD.US) FY25Q1. For earnings analysis, please refer to《"Slashing Madly! Pinduoduo's Big Splash, a Blatant Conspiracy?"》
- Key Earnings Information Recap
II. Detailed Earnings Call Content
2.1 Key Executive Statements
1. Strategic Initiatives: Over the past year, we have implemented a high-quality development strategy, extending from platform operations to the ecosystem of both supply and demand sides. Measures such as fee reductions and logistics development have expanded product selection and accelerated supply chain transformation. This year, we established a Merchant Rights Protection Committee and launched a 100 billion RMB support plan to increase support for merchants.
2. Reasons for Profit Decline: Intensified competition in domestic e-commerce, limitations in policy incentives from third-party platforms, and tariff policy changes in global business have pressured merchants. Since the second half of last year, we expanded the merchant fee reduction plan.
3. Long-term Investment Decisions: We view merchant support measures as long-term investments. Although they impact short-term profitability, we focus on intrinsic value over five, ten, or even longer periods, prioritizing merchant and consumer needs to achieve high-quality sustainable development. We are committed to building an ecosystem where users, merchants, and the platform grow together, continuing to invest in both supply and demand sides.
4. Supply-side Support: Increased investment in high-quality supply, expanding support from top and mid-tier merchants to small and medium-sized merchants to drive high-quality supply chain upgrades.
a. Small and Medium-sized Merchants: Explore more fee reduction measures to lower costs and unlock growth and innovation opportunities. Provide traffic resources, low-label premium store plans, digital resources, and technical capabilities to help small and medium-sized merchants realize their potential.
b. Transformation: Dedicated teams visited production bases in Hong Kong (footwear), Shenzhen (consumer electronics), and Xinjiang (sports shoes) to shift merchants from traditional OEM models to user-oriented, brand-driven models.
c. Agricultural Product Support Plan: Launched the 2025 Specialty Agricultural Product Plan, covering major agricultural regions in the first phase, with customized strategies and one-on-one guidance for specific product categories.
5. Demand-side Initiatives: Acknowledge that such investments may pressure short-term profitability but deem them necessary and worthwhile.
a. Reward Plan: Introduced a 10 billion RMB merchant reward plan and 10 billion RMB consumer coupons, offering additional discounts across categories to meet consumer needs and improve supply-demand matching efficiency.
b. Direct Discount Plan: Aligned with national subsidies to provide price subsidies for multiple categories, ensuring merchant benefits while offering consumer savings.
2.2 Q&A Session
Q: Management mentioned recent macro policy changes (e.g., tariffs) pressuring merchants. What preparations and measures has the platform taken for highly uncertain external environments? How are business model adjustments in specific markets progressing?
A: Under strict compliance, leveraging long-term supply chain investments and operational experience, we focus on core business, enhancing competitiveness through continuous investment in supply chains, service capabilities, and ecosystems.
Launched a 100 billion RMB support plan, prioritizing small and medium-sized merchants, helping them cope with policy pressures and market risks through stable sales and fee reductions to achieve sustainable growth.
Exploring new business models, expanding categories and services, deepening market penetration to build a more robust ecosystem; global business collaborates with regional merchants to ensure stable consumer prices and ample supply, helping local merchants grow through the platform and increasing local warehouse fulfillment ratios.
Q: This quarter, the company's net profit margin and net profit declined significantly YoY. Can management clarify the specific factors behind the drop? What are the expectations for Q2 trends, and will this trend persist?
A: Specific factors for net profit decline: ① Slower revenue growth due to expanded business scale, intensified competition, and external uncertainties (especially accelerated slowdown in Q1 due to external environment changes); ② Continued ecosystem investments (e.g., merchant fee reductions, marketing support), with mismatched business management and return cycles.
Q2 and Future Trends: As we treat expenses as long-term investments with mismatched return cycles, profitability may face challenges in the near or even longer term. However, we prioritize long-term intrinsic value, expanding support plans to drive high-quality business growth.
Q: Following last year's 10 billion RMB fee reduction plan, the company upgraded to a 100 billion RMB support plan. How will this be implemented for merchants? How does management view its long-term financial impact?
A: Implementation: On the supply side, expand high-quality merchant support from top and mid-tier to small and medium-sized merchants, empowering them through fee reductions, traffic resources, and digital technology to unlock potential and drive high-quality supply chain upgrades. Building on last year's 10 billion RMB fee reduction plan, further lower merchant operating costs and improve efficiency.
On the demand side, launch a 10 billion RMB merchant reward plan, offering additional coupons across categories to meet diverse consumer needs. Align with national subsidies, upgrade direct discount mechanisms to provide consumer savings while boosting merchant sales and optimizing the business environment.
The plan is backed by substantial funding, complemented by logistics support and supply chain transformation, creating synergistic ecosystem effects.
Q: Management previously mentioned limitations in benefiting from macro policy measures. Can you detail how the platform responds to policies like national subsidies? What are the current plans?
A: The platform's 3P market model has inherent limitations in policy incentives, affecting price competitiveness for some categories. Response measures: ① Since January, launched a national subsidy dedicated page, supplementing the 100 billion RMB support plan with enhanced consumer promotions. ② The national subsidy channel now spans 20+ provinces, offering additional coupons beyond government subsidies; continue aligning with national subsidy prices and expanding promotions to daily necessities. ③ Stimulate demand through savings, creating incremental market opportunities to help merchants improve inventory, manage capacity, and focus on high-quality differentiated products.
Q: With fierce competition in China's e-commerce, management noted Pinduoduo faces challenges against self-operated platforms due to disadvantages in transaction subsidies. How does management view the current competitive landscape? What are the strengths and limitations of the third-party platform model?
A: Competitive Landscape: Merchants face challenges with limited adaptability. Some platforms (e.g., self-operated) may have advantages in policy incentives like transaction subsidies, affecting price competitiveness. Third-party platforms must support merchants during difficulties to prevent short-term pressures from overwhelming them, as merchant success is the foundation for providing consumers with high-quality products and services.
Strengths: Platforms leverage technology, economies of scale, and digital capabilities to support merchant innovation in product development, technology, and operations, expanding market reach. Through fee reductions and support plans, more small and medium-sized merchants can benefit from high-quality platform growth.
Q: The 618 promotion has begun. Can you update on overall consumption trends? Can management share platform performance and key observations?
A: 618 focuses on simplified mechanisms and genuine savings, combined with the 100 billion RMB support plan, driving consumption and merchant sales with high-value products. Introduced price protection services, strengthened quality and service guarantees, and built consumer trust to promote sustainable sales growth. The shopping festival deepens a win-win ecosystem, aligning platform, merchant, and consumer interests.
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