Pinduoduo (Minutes): Still "fierce competition" and "unpredictable performance"

The following are the 3Q25 earnings call minutes of $PDD(PDD.US) organized by Dolphin Research. For earnings commentary, please see "Pinduoduo's Dilemma: Rapid 'Aging', Yet No Buyback"

I. Review of Core Financial Information

1. The company's total revenue for the quarter increased by 9% year-on-year to RMB 108.3 billion, mainly driven by growth in online marketing services and transaction services.

2. Revenue from online marketing services and other businesses reached RMB 53.3 billion, up 8% year-on-year; transaction services revenue was RMB 54.9 billion, up 10% year-on-year.

3. Total operating costs for the quarter rose to RMB 46.8 billion, an increase of 18% year-on-year, primarily due to higher fulfillment fees, bandwidth and server costs, and payment processing fees.

4. Non-GAAP total operating expenses were RMB 34.4 billion, accounting for 32% of revenue, remaining stable compared to the same period last year; sales and marketing expenses were RMB 29.8 billion, unchanged from the same period last year.

5. R&D investment for the quarter reached a historical high, with GAAP R&D expenses at RMB 4.3 billion, up 41% year-on-year.

6. GAAP operating profit was RMB 25 billion, up from RMB 24.3 billion last year; non-GAAP operating profit was RMB 27.1 billion, slightly lower than last year's RMB 28 billion.

7. Net profit for the quarter was RMB 29.3 billion, higher than last year's RMB 25 billion; non-GAAP net profit attributable to ordinary shareholders was RMB 31.4 billion, higher than last year's RMB 27.5 billion.

8. Net cash flow from operating activities reached RMB 45.7 billion, significantly higher than last year's RMB 27.5 billion; as of the end of September, the company held RMB 423.8 billion in cash, cash equivalents, and short-term investments.

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

1) Since its 10th anniversary, PDD has consistently adhered to its core value proposition of "Save More, Enjoy More," continuously creating value for users, merchants, and the industry, and focusing on long-term value rather than short-term performance.

2) Throughout its development, the company has remained focused on its core e-commerce business, building a consumer-centric model, and enhancing user experience by continuously driving product innovation, technology integration, and service upgrades to meet diverse needs.

3) The company continues to promote ecosystem construction, including substantial initiatives such as the RMB 10 billion fee reduction plan and the RMB 100 billion merchant support plan, helping mature brands and SMEs enhance competitiveness in supply chain and brand awareness.

4) Facing a more complex global regulatory environment, the company emphasizes prioritizing public interest and long-term ecosystem development while addressing uncertainties arising from changes in trade policies, taxation, data security, and compliance.

5) Management clearly stated that industry competition is intensifying, and the company will continue to invest heavily in the ecosystem, which may result in financial performance volatility, and single-quarter performance should not be used as a reference for future results.

6) The company emphasizes continuing to deepen the agricultural supply chain, promoting agricultural product sales growth through a billion-level support plan, providing long-term investment and logistics support for farmers, agricultural merchants, and industrial belts.

7) The company noted that the industrial belt is entering a transformation period and will continue to invest in new quality supply initiatives through a $100 billion support plan, enhancing the overall quality of brand merchants, quality SKUs, and industrial belts. By leveraging digital capabilities, rate reductions, and merchant support plans, the company aims to continuously improve merchant quality and efficiency. PDD is committed to addressing the challenges of homogeneous competition faced by many industries through gradual innovation across the entire chain from raw materials to finished products.

8) The company stated that supply-side investments allow more consumers to access a richer variety of products at lower costs, promoting consumption growth in different regions and enhancing economic activity between regions.

9) After the 10th anniversary milestone, the company will continue to prioritize consumers, driving organizational change to address the real issues faced by users, merchants, and the industry, and enhancing the ability to create social value.

2.2 Q&A Session

Q: In the context of the recovery of online retail in China and the industry entering a new investment cycle, how does the Duoduo platform view industry trends and the competitive landscape? How should the slowdown in marketing service revenue growth and profit volatility be understood?

A: The industry is in a new investment cycle, with multiple strong players increasing their investments and new models rapidly emerging, leading to intensified competition. The company chooses to focus on long-term "high-quality growth," continuously investing in creating unique value for consumers and merchants, including the $100 billion support plan, $10 billion fee reduction plan, the establishment of a merchant protection committee, and continuous upgrades to backend systems and order distribution mechanisms to improve the business environment for merchants and provide development space for brands and SMEs. The company has long anticipated that platform growth will slow as scale expands and competition intensifies. At this stage, the company is willing to defer some profits in exchange for the long-term healthy development of the ecosystem, so this quarter's profit should not be used as future guidance, and performance may continue to fluctuate in the coming quarters.

Q: In the context of stricter global regulations and increased public pressure, how does the company address the uncertainties of overseas business? What is the current progress of the previously proposed merchant ecosystem investment, and what are the financial impacts and future plans?

A: Global business has received positive feedback from consumers in many countries, so it is even more necessary to be guided by long-term sustainable development, actively integrating into local cultures and legal systems, and making "trust and safety, product compliance" the core of high-quality development. The company is increasing investment in technology and processes, continuously optimizing merchant onboarding and product listing rules, and strengthening monitoring through automation and manual review, while expanding the local compliance team. However, changes in trade policies, taxation, data security, and product compliance regulations bring unpredictable and unquantifiable risks that may affect the company's short-term and long-term financial performance.

Regarding ecosystem investment, the company reviewed its ten-year development and successively launched a $10 billion agricultural research plan and a $1 billion e-commerce support plan, introducing more quality merchants through quality supply and remote logistics support, and reducing merchant costs through rate reductions, guiding them to reinvest in product and service upgrades. These investments have already received positive feedback. Management emphasizes that these investments are the company's long-term responsibility as a platform enterprise, rather than being driven by short-term profits.

Q: In the context of intensified competition and pressure on operating profit margins in the third quarter, how should the future be understood in terms of ecosystem investment and profit rhythm? What new consumption trends were observed during the shopping festival? How does the company view competition from new models such as pre-sales?

A: In the third quarter, under intense competition and continued investment in the $100 billion support plan, operating profit margins declined both year-on-year and quarter-on-quarter. The company will continue to increase ecosystem investment, including reducing merchant rates and increasing marketing support, to provide development space for the supply chain and merchants, which will continue to pressure short-term revenue and profits. Meanwhile, global business faces a complex international political and regulatory environment, which may bring risks and fluctuations to the company's short-term and long-term financial performance; therefore, future performance should not be linearly extrapolated.

During the major promotion period, consumption momentum improved, and market confidence was restored, but e-commerce competition remains "exceptionally fierce," with new business models continuously emerging, and leading competitors increasing their focus on new directions. The company may be at a competitive disadvantage in the short term and face pressures such as slowing revenue growth. The company views competition as a long-term battle, choosing to continuously strengthen supply chain and ecosystem capabilities, transforming them into higher cost-effective products and services; and accepting the sacrifice of some short-term profits in exchange for more solid and sustainable long-term value.

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