Operator: Ladies and gentlemen, thank you for standing by, and welcome to PDD Holdings, Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. [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.

Unidentified Company Representative: 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 start, I’d like to refer you to our Safe Harbor statement in the 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 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 Mr. 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 2025. During the Q and A session, Lei and Jiazhen will answer questions in Chinese and will help translate. Please kindly note that the English translation is for reference only. And in case of any discrepancy, statements 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.

Lei Chen: Hello, everyone. Thank you for joining our earnings call for the first quarter 2025. Over the past year, we accelerated the execution of our high quality development strategy, extending our efforts from platform operations to a broader ecosystem and covering both the supply side and demand side. Through initiatives such as 10 billion fee reduction program, logistics support for the remote regions and the high quality supply initiatives, we broadened the product selection for consumers and accelerated supply chain transformation. This marks a new chapter in the e-commerce sector that prioritize merchant support and ecosystem investments. Starting at the beginning of this year, we made substantial investments in our platform ecosystem and made a rapid shift in external environment.

To increase merchant support, we established the Merchant Rights Protection Committee and launched the billion support program, which is a major strategic decision for the next phase of high quality development strategy. On one hand, the program is designed to further lower fees for our merchants, improving the business environment of our platform. On the other hand, we will also invest more to drive sales for our merchants and to help them better adapt to new challenges. In Q1, our revenues were RMB95.7 billion, which slowed down notably amid rapid change in external environment, at the same time due to the mismatch between the business investment and return cycles. Through our revenue growth and our sustained ecosystem investments led to a significant drop in profit.

As communicated a few times in the past quarters, as our business grows and new challenges emerge, a slowdown in growth rate is inevitable. This trend has been further accelerated by the trends in external environment in the past quarter. While a disproportionate drop in profit this quarter can be attributed to three different factors, they all chase back to one underlying consideration and that is during a period of uncertainties where merchants face difficulties, we choose to invest more to help our merchants grow their business and reduce costs. Looking at the factors one by one. At first, competition in Chinese e-commerce sector has further intensified. As a third party marketplace, we face inherent limitations when it comes to passing on policy incentives to consumers, which put our merchants at a clear disadvantage compared to our competitors that has a first party business.

While this issue has been discussed last year, the challenge is still here due to limitations in our team’s capabilities. And second, in our global business, radical change in external policy environment such as tariffs has created significant pressure for our merchants who often lack the capability to adapt quickly and effectively. And third, since the second half of last year, we significantly expanded our fee reduction program for merchants under the 10 billion fee reduction program, which is a key initiative in driving a high quality development of our platform ecosystem. And this year, after it has become increasingly clear that the merchants are expected to face further pressure and convinced in the long term value of our merchant support initiative, the management team made the strategic decision to launch the 100 billion support program.

Under this updated program, we are committing significant resources to support the platform ecosystem through uncertain times. This is not an empty slogan, but a real commitment backed by tangible investments. We understand a marketplace platform is built on collective success of its merchants. In challenging times like these, it’s essential for us to step forward to help our merchants endure and emerge more resilient. If we do nothing, merchants could be overwhelmed by these external shocks. Only when merchants strive can consumers receive quality products and services, and only then can the platform achieve long term sustainable development. Our management team believes that in a fast changing market where merchants are facing challenges, it’s our obligation to invest decisively to support consumers and merchants, putting their needs ahead of those of the platform.

And we believe that these initiatives are investments that will ultimately lead to a stronger and higher quality merchant ecosystem over the long run. This effort will likely weight off our profitability in the short term and even for a considerable period of time to come. However, as stated in our first shareholder letter, we are not a conventional company and we do not evaluate our strategic decisions based on quarterly financial results. Instead, our focus is on long term intrinsic value over five years, ten years or even longer. And we believe our long term investors will share this perspective. When seen from another angle, the decline in profit this quarter can be attributed to one overarching factor, which we consider our merchant support initiatives long-term investments.

They are treated as an accounting expenses, a timing mismatch between when expenses are recorded and when the long term returns materialize is expected to persist for some time to come and will continue to weigh on our profitability. We are firmly committed to long term investments in our platform ecosystem and to deepening our execution of high quality development strategy. And we believe by prioritizing the needs and interest of our merchants and consumers through these uncertainties, we help them emerge stronger and create a room for focus on high quality sustainable growth. And now I will hand it over to our Co-CEO, Zhao Jiazhen to share more about our development plans in 2025.

Jiazhen Zhao: Thank you, Lei. Hello, everyone. This is Zhao Jiazhen. Thank you for joining our first quarter 2025 earnings call. Over the past few quarters, our high quality development strategy has entered a new phase. A series of initiatives such as fee reductions and merchant support programs have delivered solid results. Our fully committed efforts to build a win-win ecosystem are now generating tangible benefits to a broad base of users and tens of millions of merchants. Since the beginning of this year, as Chen Lei mentioned, to tackle new challenges together with our merchants, we have scaled up our commitment to high quality development and upgraded initiatives such as the 10 billion fee reduction program to the more comprehensive 100 billion support program.

This upgraded strategy calls for the entire company to work together and fully devote ourselves to take on our social responsibilities as a platform at such a critical stage, providing merchants with greater certainty and offering consumers a more trustworthy shopping environment. On the supply side, under the 100 billion support program, we will further increase investments in high quality supply, expanding our support for high quality merchants from top and mid-tier merchants to small and medium sized. We are committed to focusing more on supporting the smaller merchants, which is the heart of critical steps toward achieving high quality growth. On one hand, we will continue exploring more fee reduction initiatives to help merchants lower costs and create more room for cost flexibility, business growth and innovation.

On the other hand, will extend comprehensive support, including traffic resources, black label premium store programs, digital resources and technology capabilities to empower small and medium sized merchants, unlock their potential and drive broader, higher quality upgrades across the supply chain. Since the beginning of this year, our dedicated team for high quality merchant support program has visited frontline manufacturing bases such as cookware in Yongkang, women’s footwear in Guangzhou, consumer electronics in Shenzhen, athletic shoes in Xinjiang and running shoes in Xin’an. We’re pleased to see that the merchants and the broader supply chain have made notable progress in transformation with the platform’s comprehensive support. Many merchants are transitioning from traditional OEM and distribution mindset towards user oriented and brand driven approaches.

This shift has enabled them to pursue differentiated development path amid homogeneous competition. Moreover, fee savings are being reinvested into new product development, warehouse upgrades and supply chain transformation, accelerating high quality transitions across major industries. As a platform rooted in agriculture, our 100 billion support program will also enhance support for agriculture products. Recently, we officially launched the 2025 Duoduo Specialty Initiative. The first phase of the initiative has covered key agriculture regions. [indiscernible]. We’re implementing tailored strategies across agriculture product categories such as local farm products, fruits, seafood and poultry, deeply integrating with regional agriculture industries and providing one on one guidance to small merchants.

Through these initiatives, we aim to explore new models for agriculture product distribution, enhance value add and drive production and income growth across the agriculture industry. In the papaya producing region of Yunnan Gongzi, with the support from our platform, local merchants have developed a digital system for agriculture product operations, enabling automation across harvesting, listing, pricing, logistics, after sales services and traceability. This system addresses key industry pain points, such as unclear pricing and high spoilage rates, driving the transition from experience base to data driven operations and enabling the modernization of the traditional agriculture supply chain. On the demand side, the 100 billion support program has also launched several give back initiatives to benefit consumers.

Our 10 billion program has introduced a new 10 billion merchant giveback program, rolling out RMB10 billion consumer coupons. Through dedicated campaigns such as the 10 billion coupon program and 10 billion duo [ph] of programs, we deliver additional coupons across all product categories to meet consumers’ functional and personalized needs, while improving supply demand matching efficiency and supporting business growth for high quality merchants and brands. In addition, we further enhanced our direct discount program. We’re fully safeguarding merchants’ interest. We benchmark prices against the national subsidy program across multiple categories to provide real savings to consumers and stimulate consumer demand, aiming at compensating for the disadvantages under the national subsidy schemes and support merchants in strengthening their overall market position.

While such investments may weigh on short term profitability, we believe they are necessary and worthwhile as they help create unique opportunities to achieve high quality growth for the small and medium sized merchants on our platform. In the face of a complex and evolving environment, we remain committed to building a business ecosystem in which users, merchants and the platform thrive together. We will continue to increase investments on various supply and demand side to help our merchants emerge stronger than these uncertainties, create more valuable experiences for consumers and generate greater positive impact for the society. I will now hand it over to Jun. She will provide you with an update on our Q1 financial performance.

Jun Liu: Thank you, Zhao Jiazhen. Hello, everyone. Let me walk you through our financial performance for the first quarter ended March 31, 2025. In terms of income statement, in the first quarter, our total revenues increased 10% year-over-year to RMB95.7 billion. This was mainly driven by an increase in revenues from online marketing services and transaction services. Revenues from online marketing services and others were RMB48.7 billion this quarter, up 15% from the same quarter of 2024. Revenues from transaction services were RMB47 billion, up 6% from the same quarter last year. Moving on to costs and expenses. Our total cost of revenues increased 25% from RMB32.7 billion in Q1 2024 to RMB40.9 billion this quarter, mainly due to increase in fulfillment fees and payment processing fees.

On a GAAP basis, total operating expenses this quarter increased 37% to RMB38.6 billion from RMB28.1 billion in the same quarter of 2024. On a non-GAAP basis, total operating expenses increased to RMB36.5 billion this quarter from RMB25.6 billion in Q1 2024. In the first quarter, we further increased our platform ecosystem investments through expanded merchant support initiatives to help merchants increase sales and reduce costs. Our total non-GAAP operating expenses as a percentage of total revenues this quarter was 38% compared to 29% in the same quarter last year. Looking to specific expense items. Our non-GAAP sales and marketing expenses this quarter were RMB32.8 billion, up 44% versus the same quarter last year. In the past quarter, we continued to give back to consumers through promotional programs and increased marketing support for high quality merchants to help grow their businesses.

On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was 34% versus 26% for the same quarter last year. Our non-GAAP general and administrative expenses were RMB735 million versus RMB572 million in the same quarter of 2024. Our research and development expenses were RMB3 billion this quarter on a non-GAAP basis and RMB3.6 billion on a GAAP basis, up 23% year-over-year. On a GAAP basis, operating profit for the quarter was RMB16.1 billion versus RMB26 billion in the same quarter last year. Non-GAAP operating profit was RMB18.3 billion versus RMB28.6 billion in the same quarter last year. Non-GAAP operating profit margin was 19% this quarter, down from 33% for the same quarter last year. Net income attributable to ordinary shareholders was RMB14.7 billion for the quarter, compared to RMB28 billion in the same quarter last year.

Basic earnings per ADS was RMB10.59 and diluted earnings per ADS was RMB9.94 versus basic earnings per ADS of RMB20.33 and diluted earnings per ADS of RMB18.96 in the same quarter of 2024. Non-GAAP net income attributable to ordinary shareholders was RMB16.9 billion versus RMB30.6 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB11.41 versus RMB20.72 in the same quarter of 2024. In the first quarter, we see a slowdown in revenue growth as our business scales and challenges emerge. Looking ahead, our financial results may continue to reflect the impact of sustained investments in ecosystems as we support merchants and consumers through uncertain times. That completes the income statement. Now let me move on to cash flow.

Our net cash generated from operating activities was RMB15.5 billion, compared with RMB21.1 billion in the same quarter last year. As of March 31, 2025, we have RMB364.5 billion in cash, cash equivalents and short term investments. Thank you. This concludes my prepared remarks.

Unidentified Company Representative: Thank you, Jun. Next, we’ll move on to the Q and A session. Today’s Q and A session, Lei, Jiazhen and Jun will take questions from the analysts on the line. We will take a maximum of two questions from each analyst. Lei and Jiazhen will answer questions in Chinese and will help translate for convenience purpose. Operator, we’re open for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Alicia Yap with Citigroup. Please go ahead.

Alicia Yap: I have two questions. First is that we noticed in management’s prepared remarks that recent macro policy changes, including the tariffs, have placed considerable pressures on the merchants. And the market is also keen to understand what preparations and measure the platform has taken in response to such a highly uncertain external environment. How are we adjusting our business model in certain markets? And also, what’s the current progress? The second question is on this quarter, we obviously noticed a very significant decline in the company’s net profit margin along with a year-over-year decrease in the net profit number. Can management elaborate a little bit more on the factors that are contributing to this decline? And what are we seeing in the second quarter? Does the management expect this trend to continue?

Lei Chen: Alicia, this is Chen Lei. Let me take your first question. As we have emphasized in the past few quarters, in response to macro policy changes and external headwinds, we’ll continue to take proactive actions while strictly upholding regulatory compliance. Over the past few years, our long term investments in the supply chain, together with our work in advancing new business models, have enabled us to accumulate substantial supply chain and operational know how. And guided by our high quality development strategy and operating under strict regulatory compliance, we’ll stay focused on our core business and enhance our competitive strength through sustained investments in supply chain, service capabilities and the platform ecosystem.

Our merchants are under considerable pressure given the recent policy changes and many lacked the capability to respond effectively, making it very challenging for them to keep up. In light of these circumstances, we believe it is our obligation as a platform to increase support for merchants and invest platform resources to support their businesses. The 100 billion support program we mentioned earlier is designed for this exact reason and to increase our support efforts for small and medium sized merchants. And through stabilizing sales and lowering cost for them, we seek to help them manage risks arising from the rapidly evolving market environment and giving them the time and the flexibility that will be necessary to pursue sustained growth.

In addition, we will continue to explore new business models, deepen our market presence and expand into new product categories and services to build a more robust platform ecosystem. Amid a rapidly changing external environment, our global business is working with merchants across the region to bring stable prices and abundant supply to consumers around the world. No matter how policies shift, we’ll continue to strengthen our operations in the markets we serve, helping more local merchants grow on our platform and enabling more orders to be fulfilled from local warehouses. And right now, we are seeing these merchants becoming more proactive with better stock inventory and more value passed on to consumers to differentiate its products and services.

Platform is a collective of merchants. We believe only when merchants achieve long term sustainable growth can our consumers receive high quality products and services. And therefore, in times of external shocks or policy changes, where merchants face difficulties, but we feel a strong obligation to support our merchants to navigate through these external uncertainties. And this is why we launched the 100 billion support program to foster a long term and healthy merchant ecosystem that will be essential to achieving high quality development. Thank you.

Jun Liu: Hello, Alicia. This is Jun. Let me take your second question regarding profitability. As we have communicated over the past few quarters, a slowdown in growth rate is inevitable as our business scales, competition intensifies and external uncertainties emerged. This trend has been further accelerated by the changes in the external environment in the first quarter. And our revenue growth has slowed significantly. At the same time, the slowing revenue growth and our continuous ecosystem investments result in a significant drop in profit this quarter. This is mainly due to the mismatch between the business investment and return cycles. As mentioned in our prepared remarks, the market is undergoing rapid changes at the moment.

As an e-commerce platform, merchants and platforms work together in serving our consumers. We have done adapt to such changes. We have increased our investments in the platform ecosystem, putting our consumers and merchants first. We believe this is a responsibility the platform must take on in this environment. And only by doing so, we can build an ecosystem that benefits all stakeholders in the long term. Our initiatives to support the merchant ecosystem include merchant fee reduction and marketing support for high quality merchants. This will have financial impacts on revenue growth and expenses. While we view these expenses as long term investments, there remain a mismatch between the return and business investment cycles. Therefore, our profitability is likely to face challenges in the near term and potentially over a longer period.

As I mentioned, we’re not a conventional company. In our investment decisions, we do not place too much emphasis on financial performance in a single quarter, but prioritize long term intrinsic value. Certain fluctuations will not change our focus on long term value creation. In past two quarters, through initiatives such as the 10 billion fee reduction program, we’re already seeing positive impacts on ecosystem. Going forward, we will expand the reach of our merchant support initiative to benefit more SME businesses, helping them navigate market cycles and achieve high quality growth. Thank you.

Operator: Your next question comes from Kenneth Fong with UBS.

Kenneth Fong: Thank you management for taking my question. We noted that following the company’s substantial support for the merchants through the 10 billion reduction program last year, you have initiated an upgrade 100 billion support program. The market is keen to understand how this initiative will be delivered to the merchants and would this be- and how would they think about the long term impact on the company financial performance? And the second question is, a few quarters ago and the prepared remarks just now, management mentioned that the company has certain limitation and disadvantage when it comes to benefiting from the macro policy initiative. Could management elaborate on how the company responds to the policies such as the National Subsidy Program? And what plans are in place to address the current situation?

JiazhenZhao: Let me take your question on 100 billion support program. Since the second half of last year, our merchant support initiatives, including the 10 billion fee reduction program, logistics support for remote regions and the high quality merchant support program have delivered solid results, enabling tens of millions of merchants to enhance operational efficiency and reduce costs and building merchants and the broader supply chain transition towards a new stage of high quality supply. We’re fully aware that our investments in the merchant ecosystem and supporting measures for supply chain transformation will ultimately translate into higher quality product offerings and services, which benefit consumers and create a win-win platform ecosystem.

We believe this is the path to long term healthy development for our platform. In the face of increasing external uncertainties, we believe it is our responsibility as a platform to strengthen ecosystem support and prioritize the interest of merchants and consumers. Therefore, our upgrade 100 billion support program will be backed by substantial financial commitment and is not an empty slogan. The core of the upgraded 100 billion support program is the significant increase in investments on both the supply and demand side. On the supply side, more merchants will receive the coverage of high quality merchant support program from top and mid-tier merchants to small and medium sized ones. This means more high quality merchants will benefit from the platform’s high quality development.

We aim to help release the full potential of these smaller merchants and drive broader and higher quality supply chain upgrades across the platform. On the demand side, beyond the improvements in product and service quality brought by the supply side upgrades, the 100 billion support program also includes a range of new gift back initiatives. For example, under the 10 billion program, we launched a new 10 billion merchants gift back program, offering additional coupons across all categories to meet diverse consumer demand. In addition, we have further upgraded our direct discount programs by benchmarking prices against the national subsidy program across multiple categories, offering real savings to consumers while improving sales for merchants, fostering a healthier operating environment.

We are a platform that is a collective of merchants. Working together with merchants to deliver high quality products and services to consumers is the foundation of our business development. We believe that long term investment in the platform ecosystem and prioritizing the needs of consumers and merchants amid external uncertainties is the only path to achieving long term high quality and sustainable growth in today’s environment. Regarding your second question, as stated in our prepared remarks, our third party marketplace model has inherent limitations when it comes to certain policy incentives. And we are at disadvantages compared to platforms that primarily operate under the first party model. This also affects the price competitiveness of our merchants in certain categories.

To protect the interests of both consumers and merchants on our platform, we have leveraged internal resources and responded resolutely with increased investments, helping our merchants and medium sized merchants maintain competitiveness and increase sales. Since January this year, we have launched a dedicated page for the national subsidy program. In addition, apart from our support from merchants under the 100 billion support program, we are also enhancing our promotional efforts on the consumer side. Currently, our dedicated national subsidy channel already covers more than 20 provinces, and we provide additional coupons on top of the government subsidies, delivering further savings directly to consumers. Moreover, the platform will continue to benchmark prices against the national subsidy program and expand the promotion coverage to categories such as daily necessities.

These measures aim to provide more savings to consumers, stimulate broader consumer demand and create incremental market opportunities for the merchants. While such investments may weigh on short-term profitability, we believe they are necessary and worthwhile as they help the merchants improve inventory position, manage capacity and give the small and medium sized merchants the room to focus on high quality differentiated grades on our platform.

Operator: Your next question comes from Joyce Ju with Bank of America. Please go ahead.

Joyce Ju: First, we know China’s e-commerce competition remains intense. And as management mentioned, Duoduo is facing challenge in competing with first party online retailers due to disadvantage in getting trading subsidies. How does management view competition in current market environment? And what are strengths and limitations of your third party platform model? Secondly, may we have an update on overall consumption momentum? As this year’s June promotion already underway, could management share some colors on platform performance and also key trends observed so far? Thank you very much.

Lei Chen: Hello, this is Chen Lei. Let me take your first question. As we mentioned earlier in the prepared remarks, our platform is a collective of its merchants, and our development cannot be separated from the health of the merchant ecosystem. And in today’s environment, with increasingly intensifying competition and rapidly evolving policy landscape, many of the merchants lack the capabilities to respond and adapt and are indeed facing challenges. As an e-commerce platform, we are very aware that we and the merchants are in this together. Our business model in the marketplace naturally shapes a simpler and more direct response to the challenges we face. If the platform fails to set in and offer support when merchants are experiencing difficulties, the merchants may be overwhelmed by the short term market volatilities.

It is only when merchants are doing well can we deliver high quality products and services to consumers and meet their increasingly diverse consumption needs. We believe this is not only a responsibility that e-commerce platform should take on, but also fundamental to building a healthy and sustainable e-commerce ecosystem. And over the years, in order to better serve the merchants, we have rooted ourselves in the e commerce supply chain and made substantial investments. And leveraging our technology, economies of scale and the platform’s digital capabilities and resources, we supported merchants to innovate in their product development, technology and operations and will help them expand market reach. And these long term efforts have allowed us to accumulate the relevant supply chain knowhow and capabilities.

We saw encouraging results from the 10 billion fee reduction program launched in the second half of last year, which brought tangible benefits for our merchants. And building on this foundation, we decided to launch the updated 100 billion support program to further expand the coverage of our merchant support efforts. And this initiative will extend support to more small and medium sized merchants, enabling more high quality merchants to benefit from the platform’s high quality development. And in this current environment, we believe it is the platform’s responsibility to invest more to help merchants navigate the market cycles. We are confident that such efforts will ultimately lead to a more robust merchant ecosystem over the long run.

JiazhenZhao: Hello, this is Zhao Jiazhen. Let me take your second question. When it comes to shopping festivals, what consumers value are simplified mechanisms and real savings, which is the philosophy that aligns with our approach we’ve always taken on the consumer side. We’ve continued to uphold this principle in this year’s June 16 shopping festival. By combining the campaign with our 10 billion program, we are enabling consumers to access high quality products at compelling prices while driving sales for our merchants. Building on this, we are also enhancing quality and services to better cater to consumers’ evolving needs. This year, we’ve introduced the price drop protection service for products participating promotion to further improve consumers shopping experience.

We hope that our platform and our merchants can together excel in quality and service, build consumer trust, safeguard consumer rights and in turn drive sustainable sales growth. This is part of our vision for a win-win e-commerce ecosystem that benefits all stakeholders. Thank you.

Unidentified Company Representative: Thank you all for joining us today. It’s about time. And we look forward to speaking with you again next quarter. Thank you, and have a great day.

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

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PDD HOLDINGS INC

Q1 2025

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