Pinduoduo (Minutes): Once again, they have cut themselves!
The following are the minutes of Pinduoduo FY25Q2 earnings call organized by Dolphin Research. For the earnings interpretation, please refer to$PDD(PDD.US) 《Pinduoduo: Back to the Money Tree? Unable to Resist Management's 'Forced Kneeling' 》
I. Review of Core Financial Information
II. Detailed Content of the Earnings Call
2.1 Key Information from Executives' Statements
1. 'Billion Core' Support Plan:
a. Merchant Support (Core Investment Direction): Helping merchants face challenges, seek new growth, and navigate market cycles. Since last August, significant cost savings for merchants have been achieved by reducing fees, encouraging them to innovate and provide high-quality products. Significantly reduced transportation costs in remote areas, resulting in a 40% increase in order volume in these regions.
- Utilizing platform consumer insights to shorten R&D cycles, reduce costs, and revive sales.
- Helping them transition from 'white label' OEM to own brands, avoiding homogeneous competition.
- Through projects like 'Duoduo Good Specialty', helping them improve quality control and enter deep processing fields to achieve higher profits.
b. Consumer Feedback: Enhancing consumer experience and providing more value.
- The billion-dollar subsidy will continue. The billion-dollar coupon plan is launched as a new long-term activity.
- '618 Shopping Festival' results: By stacking coupons, sales in categories such as fresh produce, electronics, home appliances, and clothing reached new highs.
2. Business Progress:
a. Global Business: Acknowledging a more complex environment, exploring new models and markets with merchants, and improving efficiency.
b. Agricultural Technology: As the company's foundation, continuing to invest in agricultural technology through projects like the 'Smart Agriculture Competition'. The competition has entered its fifth edition, focusing on commercial application testing of cutting-edge technologies (such as AI planting and hydroponics) from the lab to the field.
c. Future Outlook: Facing an evolving environment and intensified competition, the company will adhere to long-termism. Future high-quality growth will come from creating long-term opportunities for merchants and optimizing consumer experience.
3. Accelerating the 'Trillion Support':
The company has elevated its investment in 'high-quality development' to a 'new level', clearly proposing and accelerating the new 'trillion support' strategy. For the first time in the e-commerce industry, a trillion-level consultation action has been initiated, demonstrating the determination and scale of investment. The company is willing to sacrifice short-term revenue and profit, investing 'real money' to exchange for long-term returns of the platform ecosystem, viewing it as the platform's social efficiency and responsibility.
a. Supply-side Support: The company has subdivided the support targets into three categories (agricultural products & agricultural areas, small and medium-sized merchants & industrial belts, brand merchants), providing specific implementation cases and methods.
b. Demand-side Results: The supply-side investment successfully stimulated demand-side consumption enthusiasm. Platform-wide consumption is booming, with sales in dozens of categories reaching new highs. The 'Billion Subsidy Super Double' activity saw over 3.76 million orders in a single day.
c. Facing fierce competition around new formats in the e-commerce industry, the company insists on the 'long-termism' concept. It will continue to promote the 'trillion support' strategy, using funds to enhance user experience, optimize merchant services, and promote industrial upgrading.
2.2 Q&A
Q: This quarter, industry competition has significantly intensified, especially in the instant retail sector, while content platforms are also increasing their e-commerce investments. Compared to peers, the company's revenue growth advantage seems to have narrowed. Could management explain the main reasons for this phenomenon? What strategies will the company adopt to cope with the increasingly fierce market competition?
A: In the context of intensified industry competition, the company's revenue growth slowed this quarter, and operating profit also saw a significant decline for the second consecutive quarter. In response to this situation, our core strategy is to proactively increase investment, sacrificing short-term profits, and turning competition into an opportunity to promote high-quality development of the ecosystem. We believe this is the platform's responsibility and the most effective long-term investment for the ecosystem. Therefore, we do not consider this quarter's profit to be sustainable, and future financial performance will still have significant fluctuations.
Currently, the platform has entered a 'critical period' of high-quality development. Our strategy is not to engage in broad subsidy wars but to focus on specific, representative merchant cases, implementing the 'trillion support' in a down-to-earth manner.
For example, we focus on supporting merchants that can combine technology with industry, such as 'tech agricultural products' merchants using smart factories to produce vegetable salads. The platform will provide special subsidies and resources for such innovative supplies, helping them quickly scale up, ultimately achieving a win-win situation for consumers, merchants, and the platform.
To achieve this, we must delve into agricultural areas and industrial belts, truly understanding merchants' pain points. We believe that as long as we can continuously create such specific, replicable merchant support cases, we are confident in achieving high-quality, sustainable growth with merchants. This is our core approach to competition.
Q: Considering the rapid changes in the external environment in the first half of the year, what new strategic thoughts does the company have for the future development of its globalization business? What new evolutionary directions might the future business model take?
A: Regarding globalization business, we acknowledge that the external environment (such as global trade structure and national policies) is changing rapidly, which may lead to short-term performance fluctuations in different regions. However, the core driving force is stable: we observe that global consumer demand remains robust, and their trust in the platform is gradually deepening. This is the source of our confidence. Our globalization business has passed the initial exploration stage, receiving positive feedback from consumers worldwide, but we are clearly aware that the business is still in its infancy, with huge room for improvement.
Therefore, our future strategic focus will return to basics and fundamentals, investing more deeply in the following three core capabilities to lay a solid foundation for the next stage of development: First, the core is to strengthen local operations, we will cooperate with more local merchants to enrich product supply, enhance supply chain stability, and improve logistics efficiency. Second, optimize fulfillment experience, we will continue to deepen collaboration models with logistics partners and comprehensively strengthen the team's service capabilities to meet the higher expectations of global consumers. Finally, improve compliance capabilities, quickly adapting to meet the policies and market demands of different regions.
In summary, the service level we currently provide is still at an early stage. Our outlook for the future is not to set specific growth targets but to focus on improving service quality and core capabilities day by day, believing that through solid efforts, we will naturally win more consumer choices.
Q: Regarding the 'Trillion Support' plan, since its launch, what specific changes or initial results has it brought to business operations? Which specific indicators in this quarter's financial data were affected by this plan? In the medium to long term, how will this strategy affect the company's take rate and expense structure?
A: Facing intensified industry competition and changing external environment, we decided to elevate merchant support to a new strategic height. The 'Trillion Support' plan launched this year is our core strategy for the next stage, meaning that in the future, the company will proactively sacrifice part of its profits, investing substantial resources to build a long-term healthy platform ecosystem. The meaning of this plan is very broad, and the core principle is: wherever merchants need support, we will increase investment there.
In the past quarter, the plan's effectiveness has begun to be released, reflected in several aspects:
Agricultural sector: Through special actions like 'Duoduo Good Specialty', we have delved into hundreds of agricultural areas, not only helping merchants but also assisting them in exploring new models and enhancing the added value of agricultural products.
Industrial belt transformation: Our special team has entered hundreds of industrial belts, helping small and medium-sized 'new quality' merchants complete digital transformation, promoting the overall upgrade of industrial belts.
Reducing operating costs: For example, through the 'E-commerce Westward' plan, we have waived logistics transfer fees for merchants shipping to remote areas, which has not only broadened merchants' sales channels but also activated consumption potential in remote areas.
From a financial perspective: The 'real money' we invested around the above measures directly led to a slowdown in revenue growth and a year-on-year decline in profit this quarter. This is a direct reflection of our support for merchants.
We will continue to deeply understand merchants' pain points, developing more targeted support measures under the 'Trillion Support' framework, and continuously increasing investment. Therefore, we reiterate: we do not consider this quarter's profit to be sustainable, and future financial fluctuations will still be significant. Our goal is to create development space for merchants and build a healthier long-term ecosystem.
Q: We have observed that major competitors have withdrawn from some markets, and the industry landscape is changing. What new strategic plans does the company have for the 'Duoduo Grocery' business segment?
A: We acknowledge that 'Duoduo Grocery' is a 'tough business' that requires long-term substantial investment. Although competitors choose to withdraw, for us, this is precisely the moment to further increase investment with a 'nail-driving' spirit to cope with competitive shocks. Our starting point for this business has always been 'can we create unique value'. We see it as a natural extension of the e-commerce business, aiming to address the pain points of fresh produce demand that traditional e-commerce cannot meet.
After nearly five years of investment, we have achieved significant results, creating multiple values for the ecosystem:
For consumers: By covering over 70% of administrative villages nationwide with pickup points, we have solved the 'last mile' delivery problem, meeting users' demand for high-quality and affordable fresh products.
For the industrial chain: We have built an efficient agricultural product circulation network, precisely connecting local farmers, small and medium-sized merchants with local consumers.
For society: With the support of the 'Trillion Support' plan, we have tilted resources towards remote areas, not only enriching local supply and meeting consumption upgrade needs but also creating a large number of local employment opportunities.
We believe this business is very meaningful, so we will continue to increase investment. Although it is a heavy investment business, our determination will not waver. In the future, we will work steadily, making more long-term, solid investments in product categories, service quality, and fulfillment efficiency, continuously creating tangible value for consumers and participants in the industrial chain.
Q: Management mentioned last quarter that the mismatch between investment and return cycles is one of the main reasons for the decline in profits. From this quarter's data, the company's expense rate and profit margin seem to have stabilized. But you just mentioned that investment will be long-term. Does this mean that the scale and cycle of the company's investment have stabilized? How should we understand the company's short-term and long-term profit margin trends?
A: Our profit growth in the second quarter was driven by seasonal factors in e-commerce and therefore should not be taken as a reference for future performance. Although revenue growth slowed to 7%, operating profit margin dropped to 21%. This was mainly due to our increased investment and support for merchants in response to intensifying industry competition. We plan to continue these investments, which may result in fluctuations in future profitability. Our goal is to build a healthy long-term merchant ecosystem rather than to pursue short-term profits.
Q: We have observed initial signs of improving consumer demand from some industry indicators. Has the company platform also observed similar new trends or changes that can be shared? How does management view the overall trend of macro consumer demand in the third and fourth quarters of this year?
A: We have confidence in the long-term potential and resilience of the Chinese consumer market, observing steady growth in retail driven by policies, and online penetration is also increasing. However, we are more concerned about changes in industry structure: competition is intensifying, and consumer switching between platforms has become extremely convenient, which means the existing competitive landscape is at risk of being reshaped. In this environment, the platform must take proactive actions, which inevitably requires increased investment.
Our strategy during the '618' period in the second quarter is a manifestation of this proactive investment, focusing on both supply and demand sides.
Supply side: The number of farmers and 'new quality' merchants participating in the 'Billion Subsidy' doubled year-on-year. Small and medium-sized merchants in categories such as beauty and mother & baby also achieved new breakthroughs. The 'Duoduo Good Specialty' project delved into hundreds of agricultural areas (such as Maoming lychees in Guangdong, with sales exceeding 100,000 jin), and the support team also entered hundreds of industrial belts such as Jinjiang shoes and clothing, and Chenghai toys, helping new products quickly open the market.
Demand side: We invested a large amount of 'real money' for direct subsidies, combined with super consumer coupons, providing consumers with substantial discounts.
Our proactive investment strategy has received positive feedback from merchants and consumers. Therefore, facing fierce industry competition, we will continue to increase investment on both supply and demand sides, and are willing to sacrifice part of short-term profits to exchange for a healthier and more dynamic platform ecosystem. Our goal is very clear: to reduce costs and increase efficiency for small and medium-sized merchants, and to create value for consumers.
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