Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Pinduoduo Third Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn the call over to your host for today's call, Mr. Chung Khoan [ph]. Please go ahead, sir.

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Chen, and I will help host the earnings call today. Pinduoduo earnings release was distributed earlier and is available on our website at investor.pinduoduo.com as well as through GlobeNewswire services. Before we begin, I would like to refer you to our Safe Harbor statements in 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. Joining us today on the call are Chen Lei, our Chairman and Chief Executive Officer; Tony Ma, our VP of Finance. Lei will make some general remarks on our performance for the past quarter and our strategic focus going forward. Tony will then elaborate further on specific strategic initiatives and take us through our financial results for the third quarter ended September 30, 2021. After that, we will open the floor to questions from analysts. During the Q&A session, Lei will answer your questions in Chinese and Preston [ph] will help translate. Please kindly note that all translation provided are for ease of reference only. In case of any discrepancy between our original remarks and translated version, statements in the original language should prevail. Now it is my pleasure to introduce our Chairman and Chief Executive Officer, Chen Lei. Lei, please go ahead.

Thank you, Chung. Hello, everyone, and thank you for joining our results announcement for the third quarter of 2021. Our total revenue for this quarter, excluding revenue from merchandise sales, was RMB 21.4 billion. This represents a year-on-year increase of 55%. Our annual active buyers reached 867.3 million for the 12 months ending on September 30. Over the quarter, average MAU increased to 741.5 million. Pinduoduo turned 6, last month. We are grateful for opportunities to serve our users, farmers, merchants and everyone who has interacted with us in the past 6 years, and we hope to continue serving them. It has been over a year since I took over as a CEO and half year as Chairman of the Board. Over this period, we have been busy watching our transition, which I'm happy to report has been gradual and on track. There are two major things to this transition has been happening behind the scenes. The first is grooming younger talent and leaders. The second is shifting to more focused investments in R&D from a previous focus on sales and marketing for the first five years. And now let me elaborate. First, on grooming younger talent and leaders. Since the beginning of last year, we have witnessed many of our younger team members stepping up to take more responsibility. This young men and women demonstrated their core value of commitment to our users. When COVID-19 was struck and disrupted our daily lives, many among our young team immediately took actions to source essential supplies and deliver to users in need. When heavy rains got stuck Henan in July, they explain interaction to source out our stocks and coordinate the logistics so that our users will not run out of daily necessities. This unforeseeable event has accelerated their maturity and…

Thank you, Lei. Hello, everyone. Let me begin by sharing highlights of some of our agriculture initiatives in the past quarter. Then I will discuss our financials for the quarter. First, as part of our efforts for the digital inclusion of farmers, we initiated and supported a series of agricultural promotion activities to strengthen the direct connection between farmers and the consumers. Autumn is a harvest season. And this September, we were the main platform of the farmers' harvest festival and its golden autumn consumption season. We launched the Duo Duo Harvest Hall and designed a series of initiatives to help farmers to sell better, including live streaming, merchant training, traffic support, et cetera. Over 280,000 agri merchants participated in our event this year, nearly double the number last year. In September, we joined the Ministry of Agriculture and Rural Affairs Farmers Daily and the China Green Food Development Center to kick off the 2021 campaign of China's GI Agricultural Products Tour. The campaign helps to promote the agriculture products and their regional heritage, helping to recognize quality agricultural products across China. To support the campaign, we provided the technical and platform support. We offered online and off-line training, including marketing and branding techniques tailored to GI products. During China's Golden Week in October, a plan when families typically reunite and enjoy meals together, we rolled out various initiatives to make more agriculture produce across the nation easily accessible through our platform. These initiatives helped to increase agriculture-related orders, which surged 279% over the same period last year. Second, we are stepping up efforts to raise consumer awareness, appreciation and demand for quality agricultural produce in the producing regions. In October, we launched our Apple Golden Week. We worked with farmers in 6 major apple producing regions: Shanxi, Shandong, Gansu,…

Thank you, Tony. For today's Q&A session, we have Lei, our Chairman and Chief Executive Officer; and Tony, our VP of Finance on the line. Preston will help translate Lei's remarks in Chinese to English for ease of reference. Operator, we may now take questions from the first analyst on the line.

[Operator Instructions] Your first question comes from the line of Natalie Wu of Haitong International. Please ask your question.

Hi, good evening. Thanks for taking my question. I have two questions here. First of all, it seems that your sales and marketing expenses is tapering off. Just wondering, are you changing your ROI for sales and marketing spending? How should investors understand your future sales and marketing strategies? This is also the second consecutive quarter that your company is showing both non-GAAP and GAAP profit. Just wondering, are you prioritizing profitability over growth going forward? And should the investors expect full year profitability for 2021 and going onwards as well? And my second question is regarding the agriculture initiatives. Just wondering, can you provide an update on the CNY 10 billion initiative you started last quarter, has any investments being reflected in the latest financial results? Which financial line items has been affected? Thank you.

Thank you, Natalie, for the question. And to answer your question, our high standards for sales and marketing investments ROI have not changed. But as our user base expands and our user needs diversify, we are also constantly applying macro adjustment to our ROI model. And the goal is actually to better serve our users' diversified demand. So when we were just starting, we were hoping that with the application of technology, we can serve the wider consumer pool for our principle of benefit all. So when our user base was relatively small, the investment goal was actually to attract more users to get to know about us, try different features and also try out our platform. Now as our user base is much larger, with more and more users starting to use Pinduoduo, our new challenges now is, how can we constantly encourage them to try out new categories to explore new experiences and how can we actually meet their changing and much higher expectations of us so that we can improve our trust and build longer-term user mindshare. It is a challenging task to constantly satisfy users, especially given that we have such a large and diversified base of users. It is also the challenge for our new generation of leaders. We are also learning and adjusting through iteration. But one thing that is not changing is that we will continue to hold ourselves to high ROI standards in terms of sales and marketing and spend our sales and marketing dollars in a highly disciplined manner. At the same time, we are also stepping up our investments and investing patiently for long-term development of our company. You may have noticed that we are increasing our R&D investments, which is a key area for our future investments. And in your question, you also touched upon profitability, so let me ask Tony to help address that.

Okay. Natalie, coming back to your question regarding the consecutive being profitable for the past two quarters, the main contribution of our profitability in the past two quarters is the leverage efforts from sales and marketing expenses showing a decline in percentage of revenue. But for us, the profitability is not any team's KPI internally. We are more focused on the long-term investment to address users' fundamental needs. As we have been communicating with the market, to us, investment into sales and marketing is similar in nature to capital expenditure which crystallize as user mind share and long-term assets for us. So this is a strategy that we have been digitally executing for the first five years and an area where we will continue to practice financial prudence. It is worth highlighting that we are shifting our focus and investments towards R&D and expect to step up our investment there to lay the foundation for the solid long-term growth. As a result, we will expect R&D expenses to increase going forward. Coming to your second question, I think Lei will address that question, but let me just point out one comment on that. I think you mentioned about the financial impact in the third quarter for the CNY 10 billion program. Since this program has only get the EGM approval at the end of September, so in the Q3 financial results, there's nothing has been booked or reflected yet. Lei, I pass the floor back to you.

I'd like to add one more point here. So after we announced our CNY 10 billion agri initiative last quarter, we have received many quality product proposals and advices from various stakeholders in the industry. So together with my team, I'm also diligently starting various proposals. That will conclude the answer for this.

Got it, very clear. Thank you Lei and Tony.

Your next question comes from the line of Thomas Chong of Jefferies. Please ask your question.

Hi, good evening. Thanks management for taking my questions. I have two questions. The first question is about the competitive landscape in online shopping as well as the impact to our site due to the increase in popularity in live streaming online shopping. And my second question is about our support measures. Can management highlight about the support measures? And how should we expect the growth rate between GMV and advertising due to the support measures? Thank you.

Thank you, Thomas, for your question. Let me address this question. So in my view, e-commerce in China is a huge industry, full of vibrancy and potential. As we see mobile technologies continue to develop and the relevant infrastructure continues to mature, and also, at the same time, consumer demand is also constantly evolving, with all these moving pieces and these changes, commercially, we do expect more and more platforms entering this space, and this would make commercial sense. At the same time, we also noticed that the recent issued rules and regulatory measures are promoting healthy competition and the orderly development of the entire e-commerce sector. In our view, we think that more competition is always good in terms of promoting positive benefits and providing benefits to users, the industries and all the companies involved. For example, we have seen platform companies, including the short video platforms, entering the e-commerce sector. To us, it is not surprising to see these companies with such a huge user base and high user frequency, such as the short video platforms, to enter this space. At the same time, we are also seeing more and more platforms with sizable user base and engagement level entering this space. So let's not discuss the external factors, but I think it's always important to come back and zoom in into ourselves and see what kind of value are we providing. So Pinduduo actually started off from selling agricultural produce. We always aim to help address users' daily necessity and basic needs. So in my view, this sets us apart from the other e-commerce players and potential new entrants. And so for us, how to serve our nearly 870 million users better and remain user-centric is our concern as a company. And so the question that we constantly ask ourselves are, how could we continuously iterate to serve our users better? At the same time, are we creating value for the society? Are we promoting a green environment and sustainability? So for us, our key strategy as a company has always been to gain user trust and to create value for society, which we believe will also become our long-term assets.

My next question is about how should we think about the support measures to merchants and the growth rate between GMV and advertising as a result of the support measures? Thank you.

Thank you, Thomas. Let me try to address your question. I think your question is pretty much linked to the outlook of monetization. Let me share some of our views. Our strategy has always been serving our users well, as Lei just mentioned in his response. We believe the revenue growth and monetization are a natural result of that. And our merchants’ ROI is already reflected in our revenues. As you can see, our revenue this quarter shows the healthy ROI merchants are seeing when they sell more on our platform. We do not focus on the monetization on a quarterly basis. It is a result of user satisfaction and merchant ROI. And our merchant, the monetization rate has been fluctuated in the past and it will be the case going forward. We are also raising the bar on the quality of merchants and the products to meet our users' needs to help promote agriculture produce to users and strengthen PDD as a go-to platform for agricultural products. Therefore, we are committed to keeping a 0 commission policy for agriculture and fresh produce.

Got it. Thank you.

Your next question comes from the line of Eddy Wang of Morgan Stanley.

Thank you, Lei and Tony for taking my question. I also have two questions. The first one is regarding the -- our efforts to attract more brands and branded products, merchants on our platform. we noticed that the merchandise sales actually declined significantly on a quarter-on-quarter basis. Should we suppose that this is a very ideal progress for us in the last quarter actually attract more the branded brands in our platform? That's the question number one. And the second question is about the rather weak consumption environment in China since the third quarter. So as we see that some of the competitor platform, they actually have been affected by this weak consumption significantly but seem to be very resilient. I just want to hear your view on how this -- the weak consumption had been effect on PDD, especially given that we have higher exposure to the agriculture products and the -- for example, value for money. Does that means that our GMV growth or revenue growth actually is more resilient under this environment? Thank you.

So let me answer your question. I believe your first question is on brand. So as our user base increase, we are noticing that our users need and demand are also becoming more and more diversified. At the same time, we are observing that our users' needs, they do require more and they also require more abundant supply of product offering and brand. So from our view, we do think that in terms of getting more brands, this process will do take some time. At the same time, the recent anti small measures, have may -- had some initial impact, whereby we have noticed that a number of brands finally there to come to the platform and start to operate. And -- but however, store opening is a gradual process, which requires both the platform and the brands to put in resources, energy and time and to build trust and foster a successful partnership. So we do expect this to take some time and the process has to be more gradual.

Please hold and the conference will resume shortly. Thank you for your patience. [Operator Instructions] Your next question comes from the line of Joyce Ju of Bank of America. Please ask your question.

Thank Management for taking the -- giving me the chance to -- taking my questions. I have two questions. My first question is related to the regulatory environment. Could management give us an update on the recent regulatory environment, specifically the Tencent, Baba opening affect our operations? And can you also share some colors on if there are any regulatory measures that affect your operations? And second, my question is we have seen our 1P business continued to decline in the third quarter. Does this mean that you have winded down this business? Any comment on the future 1P business contribution? Thanks a lot.

So we think the recent series of regulatory measures would help to promote the high-quality growth of the platform economy and the entire industry. So we have always been fully embracing and supporting the regulatory measures, and we'll continue to firmly and thoroughly implement all relevant guidance and measure. We saw that many companies are taking action and continuing to optimize under the backdrop of these changes brought forth by regulations in the industry. We are one of these companies. Our company as a whole is proactively taking this as an opportunity to improve ourselves and also to further enhance compliance with regulation. So in the short term, you may notice the impact from these changes. But in the medium to longer term though, we believe that these changes would be very beneficial to users, the industry and the companies involved in this industry.

Joe, let me...

We are also following up the development of opening up as you mentioned, as we believe that such measure would set a great example for platform companies and the entire sector. So we believe such measures would eventually be very beneficial for the users and the healthy development of the sector in the long run.

Joyce, let me come to address your question regarding the 1P business. As we mentioned at the outset, when we started this 1P business, we already stated very clearly our 1P trial is a temporary measure to offer products that our consumers want but our merchants cannot offer at that time. So 1P is not a strategic priority for us. As we see more product offering from merchants on our platform, we do not expect a significant revenue contribution from 1P going forward.

Thank you, everyone, for joining us on the conference call today. If you have any further questions, please refer to our IR team managers. Thank you, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.