Ladies and gentlemen, thank you for standing by, and welcome to PDD Holdings Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today. Sir, please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. PDD Holdings earnings release was distributed earlier and is available on our website at investor.pddholdings.com as well as through the GlobeNewswire services. Before we begin, I would like to refer you to our Safe Harbor statement in the earnings press release which also 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 non-GAAP measures to GAAP measures. Joining us today on the call are Mr. Chen Lei, our Chairman and Co-Chief Executive Officer; Mr. Zhao Jiazhen, our Executive Director and Co-Chief Executive Officer, as well as Ms. Liu Jun, our VP of Finance. Lei and Jiazhen will make some general remarks on our performance for the past quarter and our strategic focus. Jun will then walk us through our financial results for the first quarter ended March 21st -- 31st, 2024, and during the Q&A session, Lei and Jiazhen will answer questions in Chinese and will help translate. Please note that the English translation is for reference only and in case of any discrepancy, statement in the original language should prevail. Now it's my pleasure to introduce our Chairman and Co-Chief Executive Officer, Chen Lei. Lei, please go ahead.

Hello, everyone. Thank you all for joining our earnings call for the first quarter of 2024. 2023 was the first year on our journey towards high-quality development. We are encouraged by the positive feedback from our users and merchants and are more confident in our strategic direction. 2024 is a critical year to deepen our execution. In the first quarter, we benefited from an improving macro environment and achieved steady growth. Our total revenue reached RMB86.8 billion, which represents a 131% year-on-year increase. Looking ahead, we will continue to work on the fundamentals of our business through our investments in supporting high-quality consumption, broadening high-quality supply, and promoting a high-quality ecosystem. Our proactive transition to high-quality development will inevitably bring challenges and difficulties, but still we decided to embark on this journey and are determined to execute it well because we are seeing a few irreversible long-term market shifts. First of all, we clearly see a trend of consumption upgrade and in response to this, we are innovating our service offering to cover more consumption scenarios and at the same time actively engaging with our merchants to broaden our product selection. For example, this year, we are deepening our cooperation with top brands from around the world to bring a new product launch down to our platform. In addition to meeting consumers' demand for more savings and better services, we hope to deepen connections with our consumers and strengthening our platform with [Myshare] in new product categories and among new customer groups. High-quality consumption will not be possible without strong supply chain capabilities, and over the years, we have built out valuable experience across the entire e-commerce supply chain. Through technology innovation and investments in research and development, our supply chain know-how is transformed into easy-to-use tools and services to…

[Foreign Language] Thank you, Lei. Hello, everyone. This is Zhao Jiazhen. Thank you all for joining our earnings call for the first quarter of 2024. This year is a year for consumption promotion. The consumer market in the first quarter has made a good start. Online consumption remains strong and online retail penetration continues to rise. We proactively responded to the consumption promotion policies and launched a series of promotional activities to meet users' shopping needs during the spring festival and other seasonal events. This further relieved consumption potential and benefits merchants. Driven by both macro environment and our effective promotional events, we achieved solid growth in the first quarter. We are confident in the consumer market in China. As Lei mentioned, this year we will step up our investment to deepen the execution of high-quality development strategy. High-quality development is our long-term strategy. Going forward, we will continue to direct our efforts into three key areas which are consumption, supply, compliance and platform ecosystem while offering more savings to consumers. We also focus on delivering high-quality supply and services to more consumers. Guided by this strategy, on the consumer side, in the first quarter, we remain committed to putting consumers first. Focusing on more savings and better services, we continue to give back the most tangible rewards to our users. For example, we step up our investment in a RMB10 billion program and partner with millions of quality merchants during the spring festival shopping season and the May Day shopping festival to fulfill consumers' demand for more savings. As for better services, the consumer goods trading program is one of the initiatives driving this year's nationwide consumption promotional efforts. We have been actively working with third-party service platforms to provide users with convenient trading services covering mobile phones, electronics,…

Thank you, Jiazhen. Hello, everyone. Let me walk you through our financial performance for the first quarter ended March 31st, 2024. In terms of income statements, in the first quarter, our total revenues increased 131% year-over-year to RMB86.8 billion. This was mainly driven by an increase in revenues from online marketing services and transaction services. Revenues from online marketing services and others for RMB42.5 billion this quarter, up 56% from the same quarter of 2023. Revenues from transaction services were RMB44.4 billion, up 327% from the same quarter last year. Moving on to costs and expenses. Our total cost of revenues increased 194% from RMB11.1 billion in Q1 2023 to RMB32.7 billion this quarter, mainly due to increase in fulfillment fees, payment processing fees, maintenance cost and call center expenses. On a GAAP basis, total operating expenses this quarter increased 44% to RMB28.1 billion from RMB19.6 billion in the second quarter of 2023. On a non-GAAP basis, total operating expenses increased to RMB25.6 billion this quarter from RMB18.1 billion in Q1 2023. In the fourth quarter, we invested decisively in key strategic initiatives such as giving back to the consumers, investing in our service offerings, promoting brand awareness, and R&D. Our total non-GAAP operating expenses as a percentage of total revenue this quarter was 29% compared to 48% in the same quarter last year. Looking to specific expense items, our non-GAAP sales and marketing expenses this quarter were RMB22.7 billion, up 44% versus the same quarter last year. Throughout the past quarter, we continue to give back to consumers over a series of seasonal promotion campaigns and increased advertising to promote our brands. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 26% versus 42% for the same quarter last year.…

Thank you, Jun. Now let's move on to the Q&A session. In today's Q&A session, Lei, Jiazhen and Jun will take questions from analysts on the line. We could take a maximum of two questions from each analyst. Lei and Jiazhen will answer questions in Chinese and will help translate for convenience purposes. Operator, we are open for questions.

[Operator Instructions] Your first question comes from Alicia Yap from Citigroup. Please ask your questions.

Hi, thank you. [Foreign Language] Thanks, management, for taking my questions. Congrats on the strong results. Two questions. First is regarding the domestic competition. So over the past year, we have seen e-commerce platform actively adjusting their strategies in terms of the pricing and service. Can management share your view on how you evaluate the competitive landscape? In such an environment, what would be the strategic focus for Pinduoduo business going forward? Second question is related to compliance. I think we noticed on the recent earnings call, management spend quite a bit of time talking about compliance-related matters. Obviously, markets is also paying close attention to the work that you are doing in this area. Can management explain a little bit more about the efforts you have made so far and what goals you wanted to achieve? Thank you.

[Foreign Language] Hi, Alicia, this is Chen Lei. Let me take your question. And regarding your first question on strategy and competition, as for competition, we find that consumers are getting used to making purchases from different platforms. And before they decide on which platform to choose from, to shop from, consumers compare the overall shopping experience across different platforms in a few areas. For example, on product selection, pricing, and also on services. And given this trend during the first quarter, we are seeing that our industry peers have significantly stepped up their efforts. And we welcome healthy competition. And in response to competition, we always put our consumers first. Our survival depends on the value we create for our users. And with our continued investments over the years, we are very pleased to see that our value proposition of more savings and better services is being increasingly recognized and accepted by our consumers. But at the same time, we also realized that consumer demand is constantly changing and we must do our best to keep up with it. And currently, consumer demands are becoming more rational and also more diversified. And this means in addition to offering more savings, we are also expected to meet consumers' need for higher quality products and also more varied consumption scenarios. And therefore, on top of deepening our more savings and better services capabilities. We are also working on boosting the supply of high-quality products on our platform. And by improving the overall shopping experience, we hope we can further deepen our users' trust in us. And regarding your second question on compliance, as our business grows, consumers and regulatory bodies are holding us accountable for ever higher compliance requirements and also on the merchants doing business with us. And in order…

Thank you.

Operator, we can move on to the next analyst on the line.

Thank you. Your next question comes from Yang Bai with CICC. Please ask your question.

[Foreign Language] I have two questions. The first one is about the growth. The company delivered decent top-line growth for this quarter. Please can the management share your thoughts on the growth potential of the business? Is there still room to grow? How should we think about its growth rate going forward? And my second question is about the global business. Could the management talk a bit more about your latest thinking around the strategy of your global business? How would this business look like in five years? Thank you.

Hi Bai Yang, this is Jun. Thanks for your questions. I will take your first question about the growth. Well, rather than being captivated by short-term financial results, we have always focused on long-term investments and creating long-lasting value. And in the long run, we still see many areas to improving the consumption market. The consumption market actually offers plenty of opportunities for platforms and merchants. And in addition to the potential of the overall consumer market, we also see that the online retail industry is growing quickly. E-commerce infrastructure continues to improve and new e-commerce models continue to emerge. We are actively innovating and exploring new models to create greater value for our consumers. In the long term, we believe there's still large potential in online retail penetration. We will keep improving our services to consumers. From the merchant side, we are also improving the scope and value of our services. We continue to allocate resources to support high-quality merchants who are willing to do business properly. By doing so, we hope to grow together with the merchants and further broaden the selection of quality production of our platform. A positive feedback loop is achieved when these factors work together. In such a rising industry, we need to keep our heads down and focus on execution. Faced with more competition, our constant focus is to deliver more value for our consumers and merchants. We believe that the value we create for consumers and merchants will ultimately be reflected in our financial results. Thank you.

[Foreign Language] Hi, Bai Yang. This is Lei. Let me take your question on a global business strategy. And first of all, our global business is still quite new and we are working very hard to grow the business in a high-quality way, while at the same time still learning more about new business model. And, we are a company that focuses heavily on execution and after setting a strategic direction, we'll do our best to execute. Looking ahead, we will continue to focus on enhancing our supply chain capabilities, our service capabilities and compliance capabilities. And in terms of supply chain, our goal is to further extend and deepen our supply chain to connect with high-quality merchants and high-quality suppliers around the world and to further broaden the product offerings on our platforms. And at the same time, we'll improve the efficiency of the supply chain to make it easier for merchants to sell their products and also to lower their cost of doing business. And therefore we can -- all consumers and merchants worldwide will be able to benefit from this. And in terms of service capabilities, we are exploring different fulfillment solutions to improve efficiency and also to serve more diverse consumption scenarios. And in addition, we are also leveraging our technology capabilities to improve our customer service and the overall shopping experience. And as for compliance, we have talked about it earlier on this call that this is the key to the high quality and sustainable development of our platforms and it is also the foundation for creating a safe shop environment for our users. And we will continue to invest firmly in this area. And finally, the purpose of us doing all these investments is always to bring more quality products at affordable prices to consumers worldwide and to offer them a safe, enjoyable and unique shopping experience.

And, Operator, let's move on to the next analyst on the line.

Thank you. Your next question comes from Kenneth Fong from UBS. Please ask your question.

[Foreign Language] Thank you management for taking my question. I have two questions. The first is on profitability. The company can still achieve profitability growth in the first quarter despite intensified competition. We are also seeing good operating leverage in terms of sales and marketing expenses. Does it mean the company is slowing down the investment in marketing? More broadly, can management talk about your plan in resources allocation? And my second question is on agriculture strategy. Regarding agriculture, could management share how you think about the growth potential of agricultural product category? And also how do you evaluate your key competitive advantage in this area? Thank you.

Hi, Kenny, thanks for your question. This is Jun. Let me first answer your question about profitability. Well, regarding profitability, we mentioned in our prepared remarks that the company's business does not follow a linear path. It will beat market expectation in some quarters and lease expectation orders. We suggest investors not to forecast our future growth completely based on results from a few quarters. We always focus on the long-term growth of the company's intrinsic value and we're not smooth out short-term financial data. In business execution, we compelled return of investment in different markets and make prudent plans for a resources allocation. We'll not increase or decrease in expense items solely based on a preset budget. The company's investment in each quarter depends on the specific investment opportunities we see in the market. Currently, we are still in growth phase. If we seek value-creation opportunities in the future, we will investment firmly. These investments might bring fluctuations to short-term profitability, but will help us grow intrinsic value in the long term run. This is our view on profitability. Thank you.

[Foreign Language] Hi, this is Zhao Jiazhen. Let me take your question on agriculture. Agriculture is our foundation. We started our business with retailing of agriculture products. We have been investing in agriculture for many years and we initiated the new model of group purchase for agriculture products. We have also innovated many agriculture solutions such as the direct delivery of agricultural products from the place of origin and our Duo Duo Grocery, building up a platform that connects local supply to local demand. Agriculture is a challenging industry with low product standardization and decentralized supply. Storing and transporting agricultural products can be quite difficult. Currently, the online penetration rate of agricultural products remains relatively low, and there's still plenty of room for improvement in digitalizing farmers' operations. Therefore, we have taken it upon ourselves to invest in this industry and dive deep into transforming the agricultural supply chain. Throughout this journey, we have accumulated a lot of valuable experience and enhanced our team's capabilities. Agricultural products are now a very important high-frequency category, and Pinduoduo has always been a full-category e-commerce platform featuring agricultural products. We're still making firm investment in agriculture. In the fourth smart agriculture competition launched last month, we focus on AI planting and encourage participants to explore optimization and commercialization of agriculture production. Our agriculture cloud initiative also continue to bring digital solutions to farmers in various agricultural production regions. We will continue to invest in diverse aspects of agricultural production and supply chain in the future. Through continued investment in agriculture, we hope to promote modernization of the agricultural industry and enhance the quality and efficiency of the supply chain. At the same time, we help farmers increase their value and income, create local jobs, thereby supporting the overall revitalization of rural communities. Thank you.

Thank you, Jiazhen. And also thank you, Kenny. Thank you all once again for joining us today. And it's about time. And if you have any further questions, please reach out to our Investor Relations team. And, thank you and have a great day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.