Q3 2020 Pinduoduo Inc Earnings Call
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Good.
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Mrs who you May go ahead.
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Okay.
Thank you operator, Hello, everyone and thank you for calling us that it can do those earnings.
Pete.
Sorry <unk>.
Yes.
Moving.
Thank you operator.
Hello, everyone and thank you for joining us today and although it's early it's really what's disputed earlier.
And it is available on the IR website, I'd like Dolphin Goto dotcom as well as through Globenewswire services.
On today's call are.
The old suddenly, we'll make some general remarks, our performance for the third quarter of 2020.
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Are we P. I'll try to be David Lee will then elaborate further or specific strategic initiatives.
We are fighting a cold EMA.
Argo then take us through our financial results for the third quarter ending September Thirtyth Twentytwenty.
Before we begin I would 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.
The non-GAAP financial measures. Please.
If you refer to our earnings release, which contains a reconciliation of the non gotten matters to have gotten that is.
No. It's my pleasure to introduce our Chief Executive Officer, Chad late late please go to <unk>.
Hello, everyone. Thank.
Thank you for joining was awesome.
Third of announcements.
Teamed with less than five years old last month reached another milestone only incredible journey.
This year, we continue to deliver strong user growth and build shop engagement with consumers.
We are facilitating more sales every day we.
To support our U.S, there was no true and business partners.
Well. The 12 month ended September 32020 people don't feel the need of a 751 million active buyers and generated nearly 1.5 I'd be happy.
Yeah.
Well I mean, unless we can pay October the peak baby or the <unk> the cost 100 million driven by increased demand for agricultural products.
Joan consumer activity continue into Q4.
Well actually goes to all continue to fall.
Of course, our music.
So better engagement metrics as we offer the most election more compelling value and more and I to feature.
In Q3.
He could.
Frequency I'll leave it there.
Number of category visited an average baby Todd.
You bet.
It's a comfortable with it I was I do spend be per user increased with the RMB 1800.
57 in Q2 I'd be 1993 in Q3, despite a net add another 48 million.
Active buyer.
You know we outgrew it scale today it still feels like we just started yesterday.
We recognize that as people got a treatment today.
Well, a good evolution of China Internet.
Rather than off until industry.
<unk> increased consumption.
We've always believed that to go to the consumers who make enterprises.
Alan went wrong.
This is why from the beginning what had been our possible we're going to presuppose upkeep offered.
Or in mind.
Oh well.
Top five years, we witnessed a growing support what have you and actually mobile commerce experience that weekend.
Oh, that's helpful. Because that's doing online shopping.
Open to rank for us, although I would have thought.
This is because China on that.
Right so more vibrant.
Good have become more sophisticated and it won't enjoy the benefits are being served by more than a one powerful.
We are constantly looking out for more often.
Better value and differentiated experience.
Our mission is clear and straightforward.
Continuing to fill customers at least they're trending preferences.
This relentless focus on building consumer it that's the aim or let's track more than 700 million.
Coal car.
We also continue to be guided.
The principal are being more open.
We are committed to being open and fair Paul.
Service providers at the Mercury.
We are pleased to see an increasing number of enterprises choosing to work with indoor.
In the past five years more brands has joined.
And we can go door to offer customized design and development activities for our users.
Allison Han well.
Okay and have.
Have use our platform to get direct consumer exposure.
Some of them have even launched their own brands leveraging.
On the consumer side get broken Dawdle.
Lastly, and most importantly clinical.
Pinnacle has also become chinas largest online travel for agricultural products, but.
Enabling direct sailing from farm to guidance hit.
We are mindful of that we scaled the comps responsibility.
To improve transparency and increase our stake holders of our progress in managing environmental social and governance liners.
We recently issued our first E S. Three report.
Our cost.
Total responsibility applaud our guided about a goal of promoting digital inclusion.
By bringing more people into a digital economy we.
We believe with local communities can benefit from new jobs, and new market opportunities and share in the reward of greater productivity, particularly in years.
As we look forward to our next phase of our journey.
We remain steadfast in our vision.
Vision of offering consumers, a greater selection of value for money products through a fun and interactive discovery experience.
We continue to observe closely how consumer behaviors are evolving.
Okay, and evaluate how technology cohort.
We are committed to adapting to trends and pushing for innovation.
Well, we plan to invest capital resources in our platform supply chain and ecosystems to realize this vision.
Yes.
It's a lot we can do particularly with agriculture products.
Post pandemic, well noted that consumer habits of growth growth was shocking and when market our supermarket atrophy.
Many of our users have shift to online channels for.
We really stable.
We saw a surge orders for agricultural products in the first how have you not.
Not just for food and other groups particles that can be easily transported also for the better to both and dedicate fruits.
We started our sales.
Moving down to our users.
Especially given our familiarity with the sector as China's largest online agriculture platform.
The more we learn about industry the more we realized how much more we could do.
The color largest network is up.
My to deliver 30 manufacturer to crude by rail agricultural products.
Today pin due to collaborate with existing logistic networks to transfer certain produce such as oppose echo tacos across China within two to three days.
Our merchants have evil found ways to transfer X with minimal damage.
As a result, we have made it possible for consumers across China to enjoying some agricultural produce in good times and at good prices.
However in July and August were more.
The user started to buy leafy vegetables on our platform.
Our complaint rate increase significantly.
Many packages sustained some damage from he'd had a poor heavily.
It was a less Brad that we not only make our user expectation.
We realize that we will only add a very beginning our crack to create real value in China's agriculture supply chain.
One of the key factors and a quick call Roadblock, it's building a logistic infrastructure just for agricultural produce.
Yes.
Therefore, we decided to be more hand, all launches total my title.
We get a localized inflammation, who agriculture produce available nearby I'd.
Identify and disposable calling by vendors through.
Through a list of products, we offer daily.
Aggregate.
The orders.
Provider liquidated fulfill fulfillment services to enable pickup location.
And Haendel after sales services.
It is that in a host pricing and logistic walbro need to be perfectly executed at allied to ensure great value.
Our users.
Im costs money back off my tight operation to leverage all of the existing ecommerce know how often go door.
Others require significant development.
It is not just about matching demand with the product.
But the matching demand with the most suitable to.
Delivered.
Delivered next day attractive price to our users.
We are committed to drive a new infrastructure being built for agriculture products for all consumers and farmers in China.
Our management team believes that nice high is high.
Aligned with our long term vision for China agriculture industry.
It's something like touch our Hearts US we started indoor with agriculture produce.
It's now a natural extension of our mobile commerce platform, an integral part of our.
Highly engaged ecosystem.
Forfeited well approaches available we feature my title Ahmed.
We want to offer our users the option to purchase a curated selection to use and lower prices and taken our locally the next day.
Understand.
Hi, there.
They can continue to enjoy the fun and it actually experience and discovered our category of value for our new products.
Inphi, we get implemented.
To better to a product from FX.
Which in turn provides a better understand.
Building off work customer value in deciding how to buy their daily essential tested.
As we invest in the infrastructure of agriculture produce.
We are also developing technology and deploying talent to tackle the challenge they might hybrid.
We believe that it will pay off for the long term value often dawdle.
As we mentioned last quarter.
Although is interested in partnership and investment opportunities in the whole value chain and infrastructure of agriculture boots.
We are committed to help farmers enroll.
No and consumers save more.
We will continue to leverage inside we have gathered for the past five years to make agricultural value chain more efficient and to benefit or.
And now let me ask David to share some details on our recent initiatives.
Thank you Ray.
Printer has been one of the world's largest online communities in the past five years by focusing on bringing consumers more savings are more fun.
As user behaviors evolve we have also adapted to meet and exceed their expectations.
Five years ago, we started.
At our team purchase model, which led users pen and save together as they browse.
Two years ago, we started our new branding initiative, which enable capable manufacturers to launch their own brands with products tailored to our users preferences.
And now we're pushing ahead on even big.
Bigger user need fresh affordable agriculture products.
We never choose to do what is the easiest for what is right.
We have made important progress on our new brands initiatives this past quarter.
We launched a new brand initiative as part of our CTO and refer to help capable.
Merchants and manufacturers gaining valuable insights of their target customers designed and manufactured tailor made products for our users and leverage our interactive channels to sell with more accurate prediction of the price and quantity they can potentially achieve.
It is a new role into reverse and.
Well, just in time manufacturing, which can potentially south inventory and supply chain efficiencies.
I have been troubling retail sector for decades.
Seeing the results we started helping these capable and proven merchants and manufacturers to establish their own brands and started teaching them not just about the new channel.
No we have created a pinball door.
Marketing tools and tips tailored to the increasing number of users we have accumulated.
Even though Brent meeting that takes time, we hope that with our help these new brands could become national or even global brands one day.
China has been the worst.
Factory over the past 20 years.
It has largely been following the conventional workflow of receiving orders, making product contacting quality control and shipping them out to brands globally.
Manufacturers do not have for insights of how brands plan there.
Production and sales cycle, which means their revenue and potential are always kept by brands.
Coburn has forced many of these capable manufacturers to turn back to the domestic market.
We see a great market opportunity that is manufacturers could become important brands in the next 10 years.
We are happy to see to that today, we have worked with more than 1500 companies launched more than 4000, SK use and generated over 460 million cumulative orders.
This quarter, we plan to provide more marketing support and expand the program's coverage to fight.
Sales and company.
We are targeting to offer a 100000 customize C. MSK use with aggregate GMB of RMB, one trillion by 2025.
To facilitate that we plan to continue our investments in technology to end in April.
We have created.
And unique prediction model taking into users change in behavior.
Input into the platform in different regions of China.
We plan to make it more user friendly to our merchants and manufacturers to take advantage of the insights we have and are constantly gaming.
Further we.
Exploring more software services to make it easier for merchants to streamline their operations such as raw material analysis inventory predictions supply chain tracking.
Harsher industrial automation.
It would have we're already seeing the reduction in product cycle for Apparels.
As possible to have a style or models design.
Nine manufactures and display to consumer ingest 15 to 20 days, we hope to offer such capability to our ecosystem partners in the future and extended to other categories.
The phase two am effort we.
We recently launched a new function total my time.
It is another area, where we believe will pay off in the long term.
We view the entire agriculture value chain in three parts.
Production transportation and consumption.
While we have done in the past five years was to connect farmers directly with our users are either consumption part.
No doubt our efforts have created efficiencies cut unnecessary intermediaries and help farmers and more end users safe more.
So we have not addressed other fundamental roadblocks such as the lack of a dedicated logistics infrastructure for agriculture products.
Farm productivity and food safety.
When people started we operated our own fulfillment network. So we have some experiences in this.
But what we need to build now is over a totally different scale.
It is an infrastructure buildup leveraging our prior experience were working closely with warehousing service providers delivery fleet to meet the demanding next state.
Delivery requirements.
Sometimes we have even we have to even step in design and manage the warehouse work flow ourselves.
We also plan to explore more demand driven localized coaching options at reasonable cost in order to deliver a better consumer experience.
We.
They are already investing in people and warehouse and fleet management systems.
Where needed we are willing to invest in key players in the warehousing and coaching logistics sectors to accelerate the improvement of the entire agriculture value chain.
With more localized supply being fulfilled Maurice efficiently.
Yeah, we can mean users daily consumption needs were better quality produce in shorter time.
In addition to logistics infrastructure, we are making bigger R&D investments in product duration sourcing and demand aggregation to further enhance our understanding of user needs and curation accuracy.
We take into account the mode of our consumer engagement from and time and its impact on pricing and convenience.
By improving our ability to predict demand, we can work with the local top distributors of agriculture goods to source directly from upstream farmers cheaper and faster.
Over the past five years.
Yes, we have already accumulated substantial in size for agricultural goods.
Rich and give us a kick start as we fine tune mantech.
Another important area, we have not done enough is in production.
As a technology company properly that more than half engineers, we see an important role.
Or technological solutions for full production and have started to explore various investments in agritech.
We believe there is a huge market opportunity for small agriculture to address challenges in full supply food safety and light labor shortages.
We are well placed to facility.
Robust adoption ragtag, given the demand visibility, we have and our access to a vast community of agricultural producers.
We will explore the commercial viability of new Agritech solution, our potential partners have.
Two more two for more interesting innovation, we initiated the smart agriculture.
Sure competition this year.
Which gathers top mining AI agronomy worldwide to develop growing methods that can generate the highest yield while economizing on inputs such as labor.
The composition pits 14 say at worst against for traditional form teams in growing strawberries.
The winner will.
Will be determined based on profitability reliability scalability and technical merits of the Agritech solution they have deployed.
Through this competition, we hope to inspire more young farmers and researchers to develop localized smart agriculture solutions.
By working with the winner to implement there so.
Moving on to an actual farm, we hope to demonstrate that they are agritech solutions suitable for smaller scale Chinese farms, we plan to standardize our solutions for problems deployment across China.
We see a bright future for agriculture in China.
We generated 136.
You know GMI in this category in 2019 and expected to hit 250 billion. This year.
Consumers have contract densify PVD as the go to platform for agriculture goods.
Our aim is to lead the industry in innovation and be a driving force of agriculture infrastructure.
Buildup.
Our efforts in agriculture, and manufacturing sectors seek to create long term structural changes that will improve our users' experience and contribute to the value creation of the industry.
They are not the easiest, but they certainly are the right things to do.
We believe that our hard work.
Work will pay off in the long run.
Now, let me invite Tony to walk through the details of our third quarter results.
Thank you David.
For the 12 months ended September Thirtyth 2020, our GMT increased 73% to nearly R&D 1.5 trillion from R&D.
$840 billion a year ago.
As a result of continued growth in our user base and increase the spending per user.
Our average monthly active users in the third quarter increased by 74.6 million from the previous quarter to 643.4 million.
Okay.
An increase of 50% from a year ago.
Our annual active buyers for the 12 months ended September Thirtyth 2020 grew 36% year over year to reach 731.3 million.
This represents a net add of 195 million in the past 12 months.
Yeah.
The annual spending per active buyer in the 12 month period ended September Thirtyth 2020 increased 27% to RMB 1993 from RMB 1567 for the same period in 2019.
The increase in annual spending per active buyer was moderated.
We did buy significant number of new users added.
Who contributed less than 12 months of purchases to our GMP.
Our strategy of investing in user engagement contributed to increase in user activities in Q3, and higher average spending per active buyer.
During the third quarter.
China continues its recovery from pandemic.
Consumer behaviors continue to normalize.
Resulting in pickup in online offline retail activity.
Compared to the year over year increase of 22% observed during the high seasonality of Q2 accord.
According to our Mds data now.
Value of physical goods sold online in the third quarter gross lower in Q3, as 17% versus a year ago Peter.
Endorse GMB growth continued to exceed the industry and saw in contrast that pickup on TNT growth rate in Q3.
For the nine months ended September Thirtyth 2020 total.
Oh parcel shipment volume in China continue to grow rapidly at 27.9% from the same period last year.
In comparison the value of physical goods sold online only grew 15.1% during the same period.
This suggests the average value per parcel is decreasing which is consistent with the strong.
Strong demand that we have to observe in Q2 and Q3 for lower ticket value items like household and staff the fees and agriculture products on our capital.
We continued our promotions and support to our users in these categories because they have what many of our consumers need it.
These high.
Frequency category have helped us to accelerate trust building and engagement with our users.
Which translated to better response and conversion for other promotion activities that we conducted on the platform.
Our total revenue was in the September quarter were RMB 14.2 billion.
Liam representing an increase of 89% from RMB $7.5 billion in the same quarter last year.
The increase was driven primarily by the strong momentum in online marketing services.
Our revenue was from marketing online marketing services and others was RMB 12.9 billion.
The 90.
82% from a year ago.
Our transaction service revenue increased to 66% to RMB $1.3 billion.
We continue to see strong merchant advertising activities in Q3.
Which we attribute attractive measuring ROI due to higher user engagement on our platform and more compelling.
Typing products.
The implied in monetization rate defined as total revenue divided by GMB for the last 12 months ended September Thirtyth 2020 was the 3.0%.
Which is the same as the comparable period last year and up from 2.9% for the 12.
A period ended in Q2 2020.
Now moving on to costs, our total cost of revenues this quarter increased to 78% from RMB $1.8 billion in the same.
Given last year to RMB 3.3 billion this quarter.
That's leading to a gross margin of 77.
Total cost of revenue increased mainly due to the increases in bandwidth and serve a cop staff costs and.
In other expenses directly attributable to the online marketplace services and other revenue.
Our total operating expenses this quarter were RMB 12.2 billion as compared to.
One of the $8.5 billion in the same as in quarter of 2019.
Our sales and marketing expenses this quarter increased to 46% to RMB $10.1 billion from RMB 6.9 billion in the same quarter of 2019.
On a non-GAAP basis, our sales and marketing as a percentage of our revenue.
Was 69% as compared to 89% for the same quarter last year.
Our priority this year is to improve user engagement and gain more mind share with consumers.
We continued our sales and marketing investments in Q3 towards this priority wherever we saw opportunities that meet.
Our internal our hurdles.
Users, who have been on our platform longer tends to shop more frequently on our temple.
Purchases across more categories and spent above our annual average spending per user.
We attribute the increase in average annual spending per user in Q3, two our efforts in prior.
Yeah, our quarter to invest and build engagement with our rapidly expanding by require use a buyer base.
And our investment in our users this quarter with the continued to principal position us well for the long term.
General and administrative expenses.
RMB $368.6 million.
As compared to RMB 436.6 million in the same quarter of 2019.
The Gn expenses in Q3 2019 included certain one off expenses related to our initiatives to alleviate rural poverty. We.
We did not.
One could such expenses this quarter.
On a non-GAAP basis, our gn expenses as a percentage of revenue was 1% in Q3.
Research and development expenses were RMB $1.8 billion, an increase of 60% from RMB $1.1 billion in the same quarter of 2000.
19.
The increase was primarily due to an increase in headcount and the continuous recruitment of talented engineers.
And that an increase in R&D related cloud services expenses.
On a non-GAAP basis, R&D expenses as a percentage of revenue was 10%.
In Q3.
Technology is fundamental to our operation and we plan to increase our spending our engineering talent and technological capability going forward.
Some of our key R&D initiatives include developing our demand forecasting system for agriculture database 42 end manufacturers and not.
The planning system.
As a result operating loss for the quarter narrowed to RMB $1.3 billion on a GAAP basis.
Compared with operating loss of RMB $2.8 billion in the same quarter of 2019.
Non-GAAP operating loss for the quarter was RMB 330.
Just 9.8 million compared with RMB $2.1 billion in the same quarter of 2019.
For the quarter ended September Thirtyth 2020, we record a net non operating income of RMB 475.6 million compared with RMB 465 point.
On 2 million in the same quarter in 2019.
The increase primarily reflects the net impact of higher interest income offset by the loss on fair market value change from long term investment.
And interest expenses from amortization of our outstanding convertible bonds.
We have excluded.
It's a fair market value change Kendra convertible bond amortization. In addition to the share based compensation in our presentation of non-GAAP metrics.
To sum up.
The net loss attributable to ordinary shareholders.
Was RMB $784.7 million on a GAAP basis.
And as compared to a net loss of RMB $2.3 billion in the same quarter of 2019.
Basic and diluted net loss per ABS.
Or RMB 0.66 on a GAAP basis, compared with RMB 2.0 in the same quarter of 2019.
On a non-GAAP basis, we recorded a net.
Net income attributable to ordinary shareholders of RMB $466.4 million compared.
Compared with net and non-GAAP net loss of RMB $1.666 billion in the same quarter last year.
Non-GAAP basic and diluted net income per adss for R&D sales.
Slide three night, and R&D 0.33, respectively. This quarter as compared with non-GAAP net loss of RMB 1.44 in the same quarter of 2019.
And total my time is still a young initiatives and its contribution to our results in Q3 is immaterial.
Probably operate might play under as Threepi model.
We recognize transaction service revenue was 4% is taking the sales and incur logistic cost and the cost of goods sold at.
The incremental sales and marketing expenses.
That completes the profit and loss payments for this quarter.
Got it.
Our net cash flow generated by operating activities in this quarter was RMB $8.3 billion as compared to RMB 2.6 billion in the same quarter of 2019.
Primarily due to an increase in online marketing services revenues.
Our operating cash flow.
A positive on an annual basis since 2017.
As of September Thirtyth 2020, the company's cash reserve comprising of cash cash equivalents and short term investments.
Was RMB $45.6 billion as compared to RMB 41.1 billion at the.
Has been of December 2019.
We allocated the most of our capital reserve two highly liquid.
Short term investments terrific receive better cash yields.
And to maintain flexibility to restore and deploy capital strategically as necessary.
This concludes our prepared remarks.
Operator, we are ready for questions. Thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session and we have questions. Please press star and the number one.
Retaining female.
So the request and institutions that heskey.
So your question it is time to number one.
Yes.
First question comes from the line.
Hmm.
Of Jefferies. Please go ahead.
Sure Hi operations management.
My questions.
Could you comment about our strategies in community.
Sure.
And how do you see the competitive landscape going forward and how big is the addressable market. Thank you.
Hi, Thank you for the questions. So first I want to profile misconception now and many people have.
Hi, Mike Hi, use was not really a.
Community community group buy business.
Yes, the dislocation blaze and.
Our customers pick up their purchases.
Further places close room, but.
I believe in the deferred revenue growth.
Prowl Committee buying models, we have been seeing in.
Apart.
Many years.
Two others.
I cannot comment on a different because we really don't know what how does I think they are doing but we can't speak for our sales so.
First Mike.
Hi, I think is a natural extension of our current business.
Given our know how often.
Two sectors under its ecosystem players.
And.
We well we might high because we see we saw this new emerging.
Customer need that our current infrastructure and platform cannot meet.
And.
We sent a strong leader for our users we are now.
We're seeing the first half year of this year.
Actually won't who they want to buy for.
Glossary.
More conveniently and more frequently.
And our existing offering of agricultural produce I think cannot meet users new rep preference purposes. This about a fresh and the next the consumption.
So.
That does not say that we are not only my as high as a standalone business its integrated offering.
With our existing platform use actually can choose different services and.
Service offerings.
Can be next.
Hey, pickup or door to door delivery was.
Three to five days to be over time.
But we think this is a very important needs from our customers. So we are committed to.
Invest in the infrastructure.
To to make this happen.
To make the whole package about de lever.
Delivered.
Delever, the consumer need from farm and to their home faster and cheaper and the in terms of landscape I think we need to be hitting Farley.
Two in twofold.
First as well my stand alone and I do believe that.
A significant portion we offer to consumers in the future.
We will.
Complete their costs are shopping totally oni.
And just like.
This trend for the buying daily cost through online I think it's very similar.
To what we saw five to seven years ago with the with the apparel category and I think no. One today have imagined then no no no on local revenue matches that.
To give a number of consumers who are using online shopping.
Bruce to try out per trees and return close.
Is it still you are seeing today, so in terms of our grocery shopping I think a similar thing.
The.
I happen.
They also days above our list the synergy between high end of our men E Commerce platform basically us.
So Mike.
Hi.
Hi purchase frequency, so our user will have higher engagement.
With our platform so they were vacant peak.
Other liposuction off category of products.
Our E Commerce platform.
Thank you.
Operator next question.
Thank you next question is from the line of Joyce Zhou of Bank of America. Please go ahead.
<unk> management congrats on the very strong without this quarter and thanks for taking my questions I would like to take this opportunity to get more color on the on your strategic New initiative.
So don't Mike Hi, as we all know like you mentioned in the opening remarks, you guys actually truth. This repeat our marketplace motto to conduct its business and but we all know like in this.
Business from probably a we have seeing lumpy models threepi moderate.
Could you could you elaborate a little bit more and why.
The problem decide to do so and if there are any likely no special advantage or like you know key advantage. We have been like why we particularly truth is model and how we are differentiated compared to other major players or new entrants in this market and secondly, also I think a lot of like in the us.
Three experts are kind of comment this is a business actually heavily rely on the you know supply chain while growing our.
Company perspective like cost, we typically in a more light business model. So we don't really have heavy offline latman for infrastructures.
Before.
Are we going to spend a lot of money to actually you know is that more like logistics supply chain, how big will be the capex related and also give atmel round also would like to know like what's the plan for the south marketing budget investments.
Hum to acquire like you know new users for this business. Thanks.
Sure. Thank you for that question.
It's a very comprehensive.
Let me point out a few things so first of all.
As late have mentioned in his remarks please.
We see total on my side. It really is a natural extension of our E Commerce model and we are.
Emphasis on agriculture, but.
But we have seen is that as the country you emerge from cold and my team consumers' behaviors are changing or how they are looking to address their needs for daily groceries are.
Evolving.
And while we have seen is that mobile users are now increasingly looking for to be able to buy more things online. They are trying to identify an alternative venue to what mark has a supermarkets and they wanted to alert the time to be quick So next day and also again.
Continued to be great value. So looking at this equation and looking at the use cases that pvds ecommerce platform addresses.
On a standalone basis, we recognize that there are certain deficiencies for.
For example, the next day tighter logistics delivery isn't something that Pvds platform to date have been.
Termites for so the extension to total my hypothesis is very natural we can really comment how are the players decision to enter into similar.
Physicists and whether they are more likely more likely community purchase or not by far perspective, while we see those all my time is.
Really addressing.
Yes.
Different way of engaging with consumers fulfilling that a friend type of Guy and usage patterns and then again you are right to point out that we do think this will require.
A much better infrastructure tailored specifically.
For the.
Agricultural produce.
Hi, good how is your products. So we are prepared to go heavy in building, we're accelerating the development of this agriculture.
Infrastructure.
Two days, while we have been doing is investing in people. So we have teams on the ground working with third parties.
Services for writer today.
In some instances we have been cutting involved in.
In establishing the ISO piece for the warehouses to getting involving the workflows we.
We are also investing we have already invested in warehouse and fleet management systems.
We are looking for ways to continue to optimize that leveraging the technology platform. We have for domain from our E Commerce platform.
Specifically, though we do think that there will be scenarios, where we need to.
Make certain investments in order to to.
Fulfill a tape develop.
In our infrastructure, including potentially a build out of a more localized coaching operation.
That is demand driven and therefore can be most cost efficient, we're looking to leverage existing services provider to diversify in some incidences, we may need to develop and test cases into it ourselves.
Let me pause there and let Tony address the questions regarding sales and marketing.
Hello, Mike.
Hi, Yes, and.
As sales just mentioned and also Lainie mentioned in his remark built on my side first is a natural extension from our main ecommerce.
This model.
So we were bucket, our sales and marketing investment in total might have the same way, we invest in our E Commerce platform.
And the guiding principle it will focus on the long term ROI, we can generate from the business.
Not instead of short term profitability.
Got it.
I have a quick.
Quick follow up just Tom May weaken colors, like what kind of overlap between like you know suppliers for our main PDP marketplace and the total my time like in terms of like outbreak, how Charles fresh produce like you know suppliers.
Turning to our midstream Markwest Sherwood.
Question is that meaningful the reason why I say business, we offer total my tie as an incredibly they're part of our E Commerce platform.
Purchase who work with us in that my time since.
Scenario can also be merchants online so it really depends on the.
Hi, Betsy.
And whether they can work with on the localized scenario you might attack.
Of course, they came and where they are more than welcome to continue to dispatch nationwide to working with the delivery forces on.
Our platform.
I will say that the credibility we have as you know in China, The second largest E commerce platform.
By users give us incredible leverage with merchants and we see a lot of.
Merchants looking to work with us in a localized scenario as well.
Hi, Thanks, a lot.
Next question please.
Your next question is from.
The line of Morgan.
Morgan Stanley. Please go ahead.
Hi, Thank you management for taking my question and congratulations on the very great results. So yeah. I also have a follow up question on both on my side as well. So basically can you show was an awareness.
We understand that you know we were just.
Other business in August, but Oh would appreciate if you can give us more color on Hollywood. The both the momentum of the I thought there might have been in the past three months and if you know.
If you look at East AOL and you know the the SPR use are all of this business wise if.
Just on <unk> I understand that it's.
Much input in integrated into our agriculture for that business, but.
If I compare with the Lv compared with D.A. user frequency wise, how your thought on my time in the past three months compared with the you know youre the users the behavior of the AG.
Cultural.
Purchase yeah. Thank you.
Sure I'd, thank you for that.
As you rightly pointed out we don't have my take is still a very new business for us. So we are also fine tuning our operations.
So we're not going to be able to comment on the specifics.
It looks like you will note that the my type.
Function is now available.
Yes, most of the provinces in China, and we featured an entry way up for my time that may happen itself.
Very prominently.
So we are seeing good momentum on the user pickup and greater adoption.
Then in particular I would say that the visibility on coming up is also helping to drive our traffic.
To them I.
Might that business itself.
You also asked about the A.O.V.
I think it's fair to say that the Mike Hi.
Scenario is key.
Clearly it's meant to address.
The daily grossly needs of the consumers on our platform. So naturally that lends itself to a higher frequency of.
Purchase and engagement on the platform.
And it's also true that it'll be today.
For those orders are.
Lower relative to be able to be average LTV.
Popham today. However, it is compensated by much higher frequency the way, we're looking at them I said businesses. So they continue to serve the consumer as well the frequencies will increase and as we build out the infrastructure over time.
They will be will also increase so we do see a tremendous amount to.
Potentially in this business and for now we are just focused.
Writing.
The best experiences for the daily grocery needs.
Okay. Thank you. Thank you very much and good luck.
Sure lesions on that.
We will.
Thank you.
Thank you next question is from.
Ph.
Goldman Sachs. Please go ahead.
Thank you for taking my question Congratulations Blake everything on superior results.
When I look at the.
Assay bond number you attained of seven its actually 1 million youre not that far away from the market leader.
The question now is up.
What we've seen thus far what is the next step.
You'd like to class II.
And the second question is I'm trying to better understand on the community Bank.
Side, what is the what are the profitability levels. So if we go through on a city by city basis could you just take us through examples of where profitability could be or how should we be thinking of the cost side of the equation.
I appreciate that thank you.
Okay. So let me first.
Your first question and so and we are currently have several hundred 31 million active customers.
It's inevitable that sort of grows will slowdown and that being said.
We do see Theres still room for us to grow in terms of expand.
Our user base.
However, let me get the bigger issue actually here is so we're still lagging behind all our use of my share therefore, the charts with.
Yeah.
Yes, the one key area, we are focusing on now and I think I believe it is also one of the reasons we lunch Mike.
Hi.
I think we want much my title meta, they're trending behaviors and preferences and I do believe that this is a very key Keith.
He approach so those two to win their trust.
But if we take a look and a little bit further.
And I do think that we we are currently at a critical point about integration of online and offline Award.
And.
We do see this structural trends.
As a result of the high mobile Internet penetration and.
Hopefully that.
It is also expedited passwords the buyers.
Probably 90.
Nick and.
Our young generation the net.
No pull into this mobile internet era and to them I think there is no such kind of conception off online.
Offline.
All this thing our integrated if you take a look kind of mobile payment life to me. They are both good examples of it.
And on things that technology and online channels. They typically provides higher efficiency and I do believe that.
Most of the activities will be focused on online and.
I think Uh huh.
Areas E Commerce, So we will see this shift earlier there.
Area and.
We will potentially see that the majority of the retail effort results will be from.
Formed owner.
And we definitely hope to capture this kind of.
But.
To realize that.
In this new World This new integrated watch new kind of new type of infrastructure is needed that.
Why sort of we are committed.
Two more infrastructure buildup to help.
I hope this integration process.
So, let's do something which I think it will never change, which is I think in order to other twos now become successful he long wrong, you really need to constantly meats.
User.
Affection and meet their expectations and two hours it boils down to two factors one is value for money. The other is fun interactive experience use though.
So hopefully that will answer your first question I will pick up on the second one.
Thank you Julie.
And.
Tweak up the profitability.
Hi.
I think it makes sense to us if.
Long term opportunity.
Which will help us to address the and for you to give any.
We just today I guess limited by the agriculture infrastructure.
So.
As far as we committed to investment keep innovating on this initiative when trying to reduce the additional layers in the process.
Try to cut some of the waste in the process, therefore, creating more value for the users.
With that Vicki.
Economic outlook for my time will be very different from today.
For us the monetization model can be abused along the development of this journey.
Which.
And include advertising, but not limited to it.
So in summary I.
I think it's too early to tell a after after only two or three months operation.
And.
This there's a lot to be determined outdoor we haven't.
Roll out a cover all the cities yet.
In China, we will keep other investors informed about our progress.
Thank you very much.
Okay. Thank you next.
Next question is from that I have met any heightened international. Please go ahead.
Hi, good coupon Claude taking my question and congratulations on nice I called out on my questions regarding that.
Office, you can choose the slide for the nitrite initiate it shows you that you've set aside some personnel roaming side do the my type business across the city. So how should we be honest, there's more stuff and what could be spot discounting.
That business should we I would say.
And then my time related assess the marketing budgets on Sept, Chile incremental all should we assume that those stuff.
UBS.
That business is together with the moves I showed that incremental budget is actually after the secular sigal physical desktops.
Yeah sales.
Second in such as well.
Thank you.
Okay.
Thank you for the question like I said previously we budget, our sales and marketing investment into them I think the same way that we manage our.
Our other sales and marketing investment on the main platform.
So we evaluate Ah.
The sales and marketing investment based on our internal.
Our matrix Kate.
Case by case basically all the all the activities like them. It's exactly the same we don't dedicated that's it the second pack of a budgeting for sales and marketing for my pack.
It's managed through or evaluation on our internal Iowa.
Matrix.
So that is pent up demand or is that right.
Sales, so not really I'm just to add on to what Tony said <unk>.
Okay individual sales and marketing.
Fairly and frankly at a fairly granular level you fan you know as you know we can go as deep as on the user base.
Individual user level right. So we continue to evaluate every dollar spent and it's a little bit I think the question is self as a little bit misleading in a sense that we do see users now only.
Specifically for my time, but they will also continue to be a user on the main platform as well. So we are looking at the deployments.
Okay.
Our investments in the users across these different.
Functions or futures individually and looking at ROI that we're getting from the investment.
So yes.
Spending on so it's really more of a bottom up approach as opposed to say, we're beginning the year with its fixed budget and how we're going to allocate that budget.
Got it that's it thank you.
Operator, why don't we take one last question.
Sure go ahead. Our next question is from Tonight.
Citigroup. Please go ahead.
Hi, Good evening management, Thanks for taking my questions. Congratulations on the strong results.
I also my question is also related to the community grocery shopping.
Just looking at.
Tons competitive Lance.
Good.
What do you.
Youre the PD these commitment right and you know that the success factors off willing this battle I'm, just wondering how much of the investment in infrastructure supply chain that we need to do.
As well will.
He will be consider I see to ship.
With other players or lap wage the core operations or at least a ride sharing players or even a cloud sourcing partner to support our delivery capability. Thank you.
Thank you Alicia.
As I mentioned earlier we.
Total from my side as far as sort of the core.
To learn English type of 'em experiences style, where you think the consumers' desire for at once.
Just to go out and dedicated infrastructure on a localized level for agriculture.
We don't see.
This pipe infrastructure readily available in the market today, we and this is why we are committed to go deeper necessary to build this obviously, where you will be evaluating.
What is available and.
Looking to work with partners because we.
We believe being more open being open platform. It would certainly be the most efficient to deliver the right type of.
Experiences. So again, we will be informed by how.
Well, the consumers' needs and how we can best fulfill guidance.
And that May mean that we need to invest in certain player.
Layers.
To help facilitate their salary.
Our deployment, so we will need to continue to be that way. There is a certain lines of business develops and in any event. We do think these investments.
Well.
Pay our pay.
Oh for the long term.
So the shareholders.
Can I just very quickly follow up just in case, you didn't need to build out you know kind of model that.
Thats happened towards the structural infrastructural investments.
Well youre profitable quarter this year that.
We have to be.
More cautious it could fluctuate from quarter to quarter that may be some time into the future it could.
Go back tend to lead to a loss making quarter.
Okay, Let me comment on that.
As you know, we don't really see there.
Very young capital.
In today's remark I think both from a daily already mentioned about or the number of opportunities.
Pursuing.
And when we speed up on these investments, it's like fix impact on the near term profitability.
These incremental investments.
We talk a lot about agriculture infrastructure, but this also talent tech.
Technology and the continuous vessel.
Thats on our sales marketing to further engage with our increasing user base.
In the.
We will.
Focus on profitability on a quarterly basis.
We have but we are very confident on this investment will generate long term value for our shareholders.
Okay, great. Thank you.
Figure we should I.
And now I'd like to.
No matter, how many conference back to Mr., Jason It's true for closing remarks.
Yes.
Thank you everyone for joining us on conference calls. They did you have any further follow up questions feel free to reach out to the IR team. Thank you and have a great day.
Thanks.
Thank you, ladies and gentlemen that concludes the conference for today. Thank you for participating.
Now I'll discuss.
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Thank you operator.
Hello, everyone and thank you for calling up today.
And although it's early it's really what's dispute it earlier.
Well <unk> I like for Dolphin Goto Dot Com, that's all that's true global sales wire services.
On today's call our CEO Tonight will.
I'll make some general remarks on our performance for the third quarter of 2020 an hour.
Look at the focus going forward.
Are we p. outside of D.A. Davidson you will then elaborate further or specific strategic initiatives.
We are fine and Tony will then take us through our.
Initial results for the third quarter ending September Thirtyth Twentytwenty.
Before we begin I would 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.
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.
Now, it's my pleasure to introduce our Chief Executive Officer, Chad late late please call that.
Hello, everyone. Thank you for joining us also quarterly announcements.
Our people Daughton five yes, Oh last month.
Another milestone only incredibly good.
This year, we continue to believe that Joel user growth beuchaw engagement with consumers.
We also penetrating more sales every day, we've got support our users neutral.
And business partners.
For the 12 months ended September 32020 single dose ever need all the 751 million active buyers and generating nearly 1.5 b.
Yes.
During our fixed and the anniversary campaign.
October look.
Pick baby or the one the product one hundreds of it.
Driven by increased demand for agricultural products.
Strong consumer activity continue into Q4.
Well actually it goes to all continue to focus on.
[music].
Okay, so better engagement metrics as we offer the more selection more compelling value and more fun and interactive features.
In Q3, we observed an increase in the frequency of visit the number of category visited an average daily time aspect.
This accountability.
Good day to our average annual spending per user increasing from RMB 1800.
57 in Q2.
The 1993 in Q3, despite a net add of another 48 million active buyers.
Yes.
And our girl would scale today it still feels like we just started yesterday.
We recognize that appeal to a treatment today.
Well, a good Lucian China's internet.
But the vitamin awful until industry.
Consultant how.
We've always believed that the data the consumers who make enterprises not outerwear along.
Really so why from the beginning we have built our platform within the principles of people for it as benefit or in mind.
Over the past five years, we witnessed that globally.
Support what do you think active mobile commerce.
Here is that we track.
All the above Paul has become a mastery online shopping.
Open leg.
Direct store.
This is because of China and that's played through more vibrant.
Consumers have become more prepared and the water enjoy the benefit of being served by more than one platform.
We are constantly looking out for more options.
That's a value add.
Bruce experience.
Our mission is clear as straightforward.
Continue to sell customers and meet the changing preferences.
This relentless focus little consumer it.
Okay Board, let's track more than 700 million users in record time.
We also continue to be guided by the principal are being more open.
Yes.
Committed to being an open and fair Pratfall wireless service providers at the merger.
We are pleased to see increasing number of enterprises choosing to work with crude oil.
In the past five years more brands has joined hands, we can go door to offer customized.
And the value for money for our users.
I reckon Hot mill.
Okay.
Hi use our platform to get the rack consumer exposure.
Oh, Hi, Youve allows our brands leveraging on the consumer side you get from.
Total.
Lastly, and most importantly pinnacle.
Google has also called timeout locket allied preferable for agricultural products by enabling indirect sailing from Bom cost guidance table.
Well Michael is that we scale.
We are comfortable responsibility.
To improve transparency and increase our stake holders of our progress in managing the environmental social and account managers.
We recently issue our first E SP report.
Our cost social responsibility for.
Our guidance about a goal of promoting digital inclusion.
By bringing more people into a digital economy.
We believe with local communities can benefit from new jobs, and new market opportunities and share in revenue was up greater productivity krikorian.
As we look forward to our next phase of our journey.
We remain steadfast in our vision of offering consumers, a greater selection of value for money product Sue upon and into active discovery experience.
We continue to observe closely how consumer behaviors are evolving.
Evaluate how technology.
We are committed to adapting to train and pushing for innovation.
Well capacity less capital resources, our platform supply chain and ecosystem to realize this vision.
We remain.
A lot, we can do particularly with agriculture products.
Post tendon, we notice that consumer habits of growth quarter, shocking and when market our supermarket are shifting.
Many of our users have shift to online channels for their daily.
Stable.
We saw a surge orders of agricultural products in the first half of the year not.
Not just for Bruce as other good particles that can be easily transported also for the better to both a dedicated group.
We started our sales is more.
We doubled our users.
Especially given our familiarity with the sector as China's largest online agriculture platform.
The more we learn about industry the more we realized how much more we could do.
The current largest network is optimized.
Deliver 30 manufactured accrued but not agricultural products.
Today Pinto collaborating with existing logistic network to transfer certain produce such as Apple and potatoes across China within two to three days.
Somewhere.
Patrice has evil found ways to transfer X with minimal damage.
As a result, we have made it possible for consumers across China to enjoys an agricultural produce in good time and at good prices.
However in July and August were more user.
Starting to pile leafy vegetables, our platform.
Our complaint rate increase significantly.
Manning packages sustained some damage from heat and a poor heavily.
It was a less Brad that we can not only make our user expectation.
We will.
I realize that we will only add a very beginning our crack to create real value in China's agriculture surprising.
One of the key factors as a quick call Roadblock is building a logistic infrastructure just agricultural produce.
Therefore.
We decided to be more hand, all and launched the total amount tightrail.
We get a localized inflammation, who agricultural produce available nearby.
Identify and disposed from qualified vendors through.
Operator, Liz approached us we offer a baby.
Aggregate David.
Orders, providing liquidity to fulfillment services to enable pickup location.
And Haendel after sales services.
Except in a host pricing and logistic wardrobe needs to be perfectly executed at allied to ensure great value to argue.
Our users.
Our cost money back off my tight operation to leverage all of the existing ecommerce know how often go to.
The others require significant development.
It is not just about matching demand with the product.
The matching demand with the most suitable supply.
Delivered next day attractive price to our users.
We are committed to drive a new infrastructure being.
Bill for agricultural products for all consumers and farmers in China.
Our management team leaves as my time is highly aligned with.
Our long term vision for China agriculture industry.
It's something like touch our Hearts US we started shipping boardwalk with agriculture produce.
It's now a natural extension of our mobile commerce platform and integral part of our highly.
Engages ecosystem.
Forfeited well also is available we feature my title Ahmed.
We want to offer our users the option to purchase accumulate lecturer at page views and lower prices and picking our locally the next day.
At the same time.
Okay can continue to enjoy the fun and is actively theories and discovered our category of value for our new products.
Inphi, we get implemented in April to better to a product for my facts.
Which in turn provides a better understanding of what.
Our customer value in deciding how to buy their daily essential tape tape.
As we invest the infrastructure of agriculture produce.
We are also developing technology and deploying talent to tackle the challenge they might hybrid.
We believe that.
You will pay off for long term value of indoor.
As we mentioned last quarter.
People, who is interested in partnership and investment opportunity in the whole value chain and infrastructure, our agriculture booth.
We are committed to help farmers annual increase.
Consumers save more.
We will continue to leverage inside we have gathered for the past five years to make agricultural value chain more efficient and to benefit all.
And now let me ask David to share some details on our recent initiative.
Thank you.
Okay.
Pandora has been one of the world's largest online community used in the past five years by focusing on bringing consumers more savings are more fun.
As user behaviors evolve we have also adapted to meet and exceed their expectations.
Five years ago, we started our team.
Great just model, which led users pin and sales together as they browse.
Two years ago, we started our new brand initiative, which enable capable manufacturers to launch their own brands with products tailored to our users preferences.
And now we're pushing ahead on an even bigger user.
Per need fresh affordable agriculture products.
We never choose to do what is the easiest but what is right.
We have made important progress on our new brands initiatives this past quarter.
We launched a new brand initiative as part of our CTO and refer to help capable merchant.
Users or manufacturers, gaining valuable insights of their target customers designed and manufactured tailor made products for our users and leverage our interactive channels to sell with more accurate prediction of the price and quantity they can potentially achieve.
There is a new row into reverse and Justin.
Second our manufacturing, which can potentially solve inventory and supply chain efficiencies.
I have been troubling retail sector for decades.
Seeing the results we started a helping these capable and proven merchants and manufacturers to establish their own brands and started teaching them not just about the new channel we have.
Created that people at all by marketing tools and tips tailored to the increasing number of users we have accumulated.
Even though bran meeting that takes time, we hope that with our help these new brands could become national or even global brands one day.
China has been the worst factory.
And over the past 20 years.
It has largely been following the conventional work flow of receiving orders, making products contacting quality control and shipping them out to brands globally.
Manufacturers do not have for insight of how brands plan their production.
And sales cycle, which means their revenue and potential are always kept by brands.
Cobot has forced many of these capable of manufacturers to turn back to the domestic market.
We see a great market opportunity that is manufacturers could become important brands in the next 10 years.
We are happy to see to that today, we have worked with more than 1500 companies launched more than 4000, SK use and generated over 460 million cumulative orders.
This quarter, we plan to provide more marketing support and expand the program's coverage to fight out.
Sales and company.
We are targeting to offer a 100000 customize C. MSK use with aggregate GMB of RMB, one trillion by 2025.
To facilitate that we plan to continue our investments in technology to enable them.
We have created.
And unique prediction model taking into users changing behavior.
Input into the platform in different regions of China.
We plan to make it more user friendly to our merchants and manufacturers to take advantage of the insights we have and are constantly gaming.
Further we are.
Exploring more software services to make it easier for merchants to streamline their operations such as raw material analysis inventory predictions supply chain tracking.
Russia industrial automation you're.
I would have we're already seeing the reduction in product cycle for Apparels. It is possible to have a style or model design.
Manufactured and display to consumer inkjet is 15 to 20 days, we hope to offer such capability to our ecosystem partners in the future and extend it to other categories.
The sales due to an effort.
We recently launched a new function total my time.
It is another area, where we believe will pay off in the long term.
We view the entire agriculture value chain in three parts.
Production transportation and consumption.
While we have done in the past five years was to connect farmers directly with our users I either consumption part.
No doubt our efforts have created efficiencies cut unnecessary intermediaries and help farmers and more end user sales more.
While we have not addressed other fundamental roadblocks such as the lack of a dedicated logistics infrastructure for agriculture products farm.
Farm productivity and food safety.
When people started we operated our own fulfillment network. So we have some experiences in this.
But what we need to build now is over a totally different scale. It is an infrastructure buildup leveraging our prior experience were working closely with warehousing service providers delivery fleet to meet that demand the next day.
Delivery requirements.
Sometimes we have even we have to even step in designing and manage the warehouse work flow ourselves.
We also plan to explore more demand driven localized coaching options at reasonable cost in order to deliver a better consumer experience.
We.
We are already investing in people and warehouse and fleet management systems.
Where needed we are willing to invest in key players in the warehousing and coaching logistics sectors to accelerate the improvement of the entire agriculture value chain.
With more localized supply being fulfilled more efficiently.
We can mean users daily consumption needs with better quality produce in shorter time.
In addition to the logistics infrastructure, we are making big R&D investments in product duration sourcing and demand aggregation to further enhance our understanding of user needs and curation accuracy.
We take into account the mode of our consumer engagement from my time and its impact on pricing and convenience.
By improving our ability to predict that man, we can work with the local top distributors of agriculture goods to sourced directly from upstream farmers cheaper and faster.
Over the past five years.
Yes, we have already accumulated substantial in size for agricultural goods, which and give us a kick start as we fine tune mitek.
Another important area, we have not done enough is in production.
As a technology company populated and more than half by engineers.
We see an important role.
All four technological solutions for full production and have started to explore various investments in agritech.
We believe there is a huge market opportunity for small agriculture to address challenges in full supply food safety and light labor shortages.
We are well placed to facility.
Data adoption ragtag, given the demand visibility, we have and our access to a vast community of agricultural producers.
We will explore the commercial viability of new Agritech solution, our potential partners have.
Two more two for more interest in innovation, we initiated the smart agriculture.
Petition this year, which gathers top mining AI and grinding meat worldwide to develop growing methods that can generate the highest yield while economizing on inputs such as laser.
The tough competition pits, 14th to AG worse against for traditional forming teams in growing strawberries.
The winner will.
Second retirement based on profitability reliability scalability and technical merits of the Agri Tech solution they have deployed.
Through this competition, we hope to inspire more young farmers and researchers to develop localized smart agriculture solutions by.
By working with the winner to implement their solutions.
Moving on to an actual farm, we hope to demonstrate that they are agritech solutions suitable for smaller scale Chinese farms, and we plan to standardize our solutions for broader deployment across China.
We see a bright future for agriculture in China.
We generated a 136.
Usually in a GMP in this category in 2019 and expected to hit 250 billion. This year.
Consumers have contract anti PD has to go to perform for agriculture goods.
Our aim is to lead the industry in innovation and be a driving force of agriculture infrastructure Bill.
Buildup.
Our efforts in agriculture, and manufacturing sectors seek to create long term structural changes that will improve our users' experience and contribute to the value creation of the industry.
They are not the easiest, but they certainly are the right things to do.
We believe that our hard work.
Bill pay off in the long run.
Now, let me invite Tony to walk through the details of our third quarter results.
Thank you David.
For the 12 months ended September Thirtyth 2020, our GMV increased 73% to nearly R&D 1.5 trillion from on the.
840 billion a year ago.
As a result of continued growth in our user base and increase the spending per user.
Our average monthly active users in the third quarter increased by $74.6 million from the previous quarter to 643.4 million.
And.
Well, Chris up 50% from a year ago.
Our annual active buyers for the 12 months ended September Thirtyth 2020 grew 36% year over year to reach 731.3 million.
This represents a net add of 195 million in the past 12 months.
And.
Any spending per active buyer in the 12 month period ended September Thirtyth 2020 increased 27% to RMB 1993 from RMB 1567 for the same period in 2019.
The increase in annual spending per active buyer was moderated.
Any by significant number of new users added.
Who contributed less than 12 months of purchases to our GMP.
Our strategy of investing in user engagement contributed to increase in user activities in Q3, and higher average spending per active buyer.
During the third quarter.
China continues its recovery from pandemic.
Consumer behaviors continue to normalize resulting.
Resulting in pickup in online offline retail activities.
Compared to the year over year increase of 22% observed during the high seasonality of Q2. According.
According to our Mds data now.
View, our physical goods sold online in the third quarter grow slower in Q3, a 17% versus a year ago period.
Single dose GMB growth continued to exceed the industry and saw in contrast, a pickup on GNP growth rates in Q3.
For the nine months ended September Thirtyth 2020 total.
Parcel shipment volume in China continue to grow rapidly at 27.9% from the same period last year.
In comparison the value of physical goods sold online only grew 15.1% during the same period.
This suggests the average value per parcel is decreasing which is consistent with the strong.
Strong demand we have observed in Q2, and Q3 for lower ticket value items like household and Saturdays and agriculture products on our capital.
We continued our promotions and support to our users in these categories because they have what many of our consumers needed.
These high free.
Frequency category have helped us to accelerate traffic building and engagement with our users.
Which translated to better response and conversion for other promotion activities that we conducted on the platform.
Our total revenues in the September quarter were RMB 14.2 billion.
Liam representing an increase of 89% from RMB $7.5 billion in the same quarter last year.
The increase was driven primarily by the strong momentum in online marketing services.
Our revenue was from marketing online marketing services and others was RMB 12.9 billion.
Of the 90.
82% from a year ago.
Our transaction service revenue increased to 66% to RMB $1.3 billion.
We continue to see strong merchant advertising activities in Q3.
Which we attribute attractive merchant ROI due to higher user engagement on our platform and more compelling.
Advertising products.
The implied a monetization rate defined as total revenue divided by TMB for the last 12 months ended September Thirtyth 2020 was the 3.0%.
Which is the same as the comparable period last year and up from 2.9% for the 12.
On a period ended in Q2 2020.
Now moving on to costs, our total cost of revenues this quarter increased to 78% from RMB $1.8 billion in the same period last year to RMB 3.3 billion this quarter translating to the gross margin of 77%.
Total cost of revenue increased mainly due to the increases in bandwidth and server costs stock comp and other expenses directly attributable to the online marketplace services and other revenue.
Our total operating expenses this quarter.
RMB 12.2 billion as compared to.
RMB 8.5 billion in the same as in quarter of 2019.
Our sales and marketing expenses this quarter increased to 46% to RMB $10.1 billion from R&D 6.9 billion in the same quarter of 2019.
On a non-GAAP basis, our sales and marketing as a percentage of our revenues.
With 69% as compared to 89% for the same quarter last year.
Our priority this year is to improve user engagement and gain more mind share with consumers.
We continued our sales and marketing investment in Q3 towards this priority wherever we saw opportunities that meet.
In our internal our sales.
Users, who have been on our platform longer tends to shop more frequently on our temple.
Purchases across more categories and spend at both our annual average spending per user.
We attribute the increase in average annual spend per user in Q3, two our efforts in prior.
Quarter to invest and build engagement with our rapidly expanding by fire use a buyer base.
And our investment in our users this quarter with the continued to precipitate position us well for the long term.
General and administrative expenses.
RMB $368.6 million.
As compared to RMB $436.6 million in the same quarter of 2019.
The Gn expenses in Q3 2019 included certain one off expenses related to our initiatives to alleviate rural poverty.
We did not.
Incur such expenses this quarter.
On a non-GAAP basis, our gn expenses as a percentage of revenues was 1% in Q3.
Research and development expenses were RMB $1.8 billion, an increase of 60% from RMB $1.1 billion in the same quarter of 2000.
Slide 18.
The increase was primarily due to an increase in head count and the continuous recruitment of talented engineers.
And that an increase in R&D related cloud services expenses.
On a non-GAAP basis, our R&D expenses as a percentage of revenue was 10%.
In Q3.
Technology is fundamental to our operation and we plan to increase our spending our engineering talent and technological capability going forward.
Some of our key R&D initiatives include developing our demand forecasting system for agriculture database, 42, and manufacturers and not.
Olympic planning system.
As a result operating loss for the quarter narrowed to RMB $1.3 billion on a GAAP basis.
Compared with operating loss of RMB 2.8 billion in the same quarter of 2019.
Non-GAAP operating loss for the quarter was RMB 330.
39.8 million compared with RMB $2.1 billion in the same quarter of 2019.
For the quarter ended September Thirtyth 2020, we record a net non operating income of RMB 475.6 million compared with RMB 465 point.
$2 million in the same quarter in 2019.
The increase primarily reflects the net impact of higher interest income offset by the loss on fair market value change from long term investment.
And interest expenses from amortization of our outstanding convertible bonds.
We have excluded.
With that the fair market value change and a convertible bond amortization. In addition to the share based compensation in our presentation of non-GAAP metrics.
To sum up.
The net loss attributable to ordinary shareholders.
Was RMB $784.7 million on a GAAP basis.
As compared to net loss of RMB 2.3 billion in the same quarter of 2019.
Basic and diluted net loss per ABS.
Were RMB 0.66 on a GAAP basis, compared with RMB 2.0 in the same quarter of 2019.
On a non-GAAP basis, we records and.
Income attributable to ordinary shareholders offline be $466.4 million.
Compared with NEC and non-GAAP net loss of RMB $1.666 billion in the same quarter last year.
Non-GAAP basic and diluted net income for eight years for R&D sales.
Net line three nine and R&D 0.33, respectively. This quarter as compared with non-GAAP net loss of RMB 1.44 in the same quarter of 2018.
And total my time is still a young initiatives and its contribution to our results in Q3 is immaterial.
Probably operate might play and as Threepi model.
We recognize transaction service revenue was 4% is taking the sales and incur logistic cost and the cost of goods sold at.
The incremental sales and marketing expenses.
That completes the profit and loss payments for this call.
[music].
Our net cash flow generated by operating activities in this quarter was RMB $8.3 billion as compared to 92.6 billion in the same quarter of 2019 primer.
Primarily due to an increase in online marketing services revenues.
Our operating cash flow.
Be positive on an annual basis since 2017.
As of September Thirtyth 2020, the company's cash reserve comprising of cash cash equivalents and short term investments.
Was RMB $45.6 billion as compared to RMB 41.1 billion at the.
The end of December 2019.
We allocated most of our cash reserves to highly liquid.
Short term investments to recently receive better cash yields.
And to maintain flexibility to restore and deploy capital strategically as necessary.
This concludes our prepared remarks.
Operator, we are ready for questions. Thank you.
Thank you, ladies and gentlemen, well now begin the question and answer session and for your questions. Please press star and the number one and between female.
Cancel the request is the pounds of Heskey.
For your questions. It is started the number one.
Greetings good ones.
First question comes from the line.
Although Thomas Chong of Jefferies. Please go ahead.
Hi.
Well, taking my questions.
Could you comment about our strategies in community.
Okay, and how do you see the competitive landscape going forward and how big is the addressable market. Thank you.
[noise] Hi, Thank you my question. So first I want to clarify misconception now and many people have.
Dude.
Hi, Mike Hi is not really a community community grew by business Ah, Yes, It does look different things and ER and our customers pick up their purchase.
So the places close rim, but oh.
I believe in this before and have grown.
Our community buying models, we have been seeing in.
Part sales.
Seven years.
Two hours.
I cannot comment on a different because we really don't know 100, I think you're doing but we can't speak for our sales so.
Yes, Mike.
Hi, I think is a natural extension of our current business.
Our know how often.
Two sectors.
And it's.
This is Tim players.
And.
We yeah remains high because we see we saw this new emerging.
<unk> customer need or that our current infrastructure into their platform and I mean.
And Oh, we sent a strong need to fill out.
Users now see have you ever seen the first half year over this year.
Actually won't who they want to buy for us.
Costs really more conveniently and more frequently.
And our existing offering of agricultural produce I think cannot meet users new rep preference preferences. This about a fresh and the next the consumption.
So.
As I say, we are not running my tie as a standalone business its integrated offering.
Our existing platform use actually can choose different services and.
Our service offerings.
Can be next day.
They pickup auto deliberately with.
Three to five days to be over time.
But we think that this is a very important needs from our customers. So we are committed to.
Invest in the infrastructure.
To to make this happen.
To make the whole package about to LIBOR delay.
Delivered.
Delever consumer need from farm and to their home faster and cheaper.
And in terms of landscape I think we need to think Farley.
This is twofold first.
First as well my stand alone and I do believe that.
A significant portion we offer to consumers through through.
We will.
Complete their costs are shopping totally oli.
And just like.
This trend for simplifying daily costs through online I think it's very similar.
To what we saw five to seven years goal reseller with the apparel category and I think no. One today have imagine then no no our normal to revenue matters as that.
So we have a number of consumers who are using less shocking to choose to try out purchases the return codes.
That is.
Value our team today, so in terms of crossing shopping I see a similar thing.
The.
I happen.
Yes, the outflow days above our list the synergy between might high end of our main E Commerce platform.
Basically.
So Mike.
My time.
Hi purchase frequency, so our user will have higher engagement.
With our platform so they were vacant peak.
Other full spectrum capture.
Category of products.
Our E Commerce platform.
Thank you.
Operator next question.
You next question is on the line of Joyce Zhou of Bank of America. Please go ahead.
<unk> management congrats on the very strong without this quarter and thanks for taking my questions I would like to take this opportunity to get more color on the on your strategic New initiative.
So don't Mike Hi, as we all know like you mentioned in the opening remarks, you guys actually truth. This repeat our marketplace auto to conduct its business and but we all know like in this.
Business from probably we have seeing one key models rupee moderate.
Could you elaborate a little bit more and why.
The problem decide to do so and if there are any likely no special advantage or like he advantage. We have seen like why we particular truth is model and how we are differentiated compared to other major players or new entrants in this market and secondly, also I think lotto like industry.
Three experts are kind of comments that this business actually heavily rely on the you know supply chain while growing our.
Company perspective like cost, we typically in a more light business model. So we don't really have heavy offline latman for infrastructures.
Before.
So are we going to spend a lot of money to actually you know is that more like logistics supply chain, how big will be the capex related and also on investment round also would like to know like what's the plan for the.
Our marketing budget.
Last month.
To acquire like you know new users for this business. Thanks.
Sure. Thank you for that question.
It's a very comprehensive.
Let me point out a few things so first of all as Les have mentioned in his remarks we.
We see towards all my time, I really as a natural extension of our E Commerce model and our emphasis on agriculture, but.
What we have seen is that as the country emerged from cold in 18 consumers' behaviors are changing their how they are looking to address their needs for daily groceries are.
Evolving.
And while we have seen is that mobile users are now increasingly looking for to be able to buy more things online. They are trying to identify in our tender the venue to where markers and supermarkets and they wanted to alert the time to be quick So next day and also again.
Continue to be great value. So looking at this equation and looking at the use cases that pvds ecommerce problem addresses.
On a standalone basis, we recognized that there are certain deficiencies for.
For example, the next day head of the logistics delivery isn't something that Pvds platform to date have been.
And optimize for so the extension to total might have for US is very natural we can really comment on other players decision to enter into similar.
Businesses, and whether they are more likely more likely community purchase or not but from our perspective, where we see it all my time is.
Yes really addressing.
Yes.
A different way of engaging with consumers fulfilling that different type of guy and usage patterns and needs and again you are right to point out that we do think this hat will require.
A much better infrastructure tailored specifically.
For the.
Agricultural produce.
Hi, good how is your products. So we are prepared to go heavy in building, we're celebrating the development of this agriculture.
Infrastructure.
Two days, while we have been doing is investing in people. So we have teams on the ground working with third parties.
Services for writer today Bye.
In some instances we have been cutting involved in.
In establishing the ISO piece for the warehouses to getting involving the workloads we.
We are also investing we have already invested in warehouse and fleet management systems.
And we are looking for ways to continue to optimize that leveraging the technology platform. We have for domain from our E Commerce platform.
Specifically, though we do think that there will be scenarios, where we need to.
Make certain investments in order to to.
Full silicates developed.
Selman I infrastructure, including potentially a build out of a more localized coaching operation.
That is demand driven and therefore can be most cost efficient.
We are looking to leverage.
Getting services provider to diversify in some incidences, we may need to develop and test cases and do it ourselves.
Let me pause there and let Tony address the questions regarding south of marketing.
Total my time.
Hi, yes.
As sales just mentioned and also Lainie mentioned in his remark due to my tied to US it's a natural extension from our main cameras.
Auto.
So we were bucket, our sales and marketing investment and told them I think the same way as we invest in our E Commerce platform.
And the guiding principle is will focus on the long term ROI, we can generate from the business.
Not instead of short term profitability.
Got it.
I have a quick follow up just may weaken colors like what's the current overlap between like you know suppliers for our main PVD marketplace and to build on my time like in terms of like outbreak how Charles fresh produce like you know suppliers.
Turns are mostly Markwest Sherwood.
Question is that meaningful.
I don't like the business, we offer told all my time as an incredibly good part of our E Commerce platform.
Merchants, who worked with us in them as high so.
Scenario can also be merchant or online so it really depends on there.
Capabilities.
And whether they can work with on the localized scenario you might have.
Of course, they came and where there are more than welcome to continuing to dispatch nationwide to working with the delivery forces on our platform.
Like I will say that the credibility we have as you know in China second largest E commerce platform.
By users gives us incredible leverage with merchants and we see a lot of merchant.
Merchants looking to work with us in a localized scenario as well.
Got it thanks a lot.
Next question please.
Your next question is from.
The line of 81 of Morgan Stanley. Please go ahead.
Hi, Thank you management for taking my question and congratulations on the very great results. So yeah. I also have a follow up question on board on my side as well. So basically can you show was an awareness.
We understand that you know we would.
We just started business in older stuff, but I would appreciate if you can give us more color on how is the Somo mentioned off the top of my type in is in the past three months and if you know.
If you look at D.A.O.V. and you know the the.
Yes people use their own this business wise.
<unk> I understand that it's a much.
Much input and integrated into our you know agriculture product business, but.
If you compare with the Lv compared with D. A user frequency wise, how yes total miles high in the past three months compared with the you know youre the users the behavior of the.
As a cultural product purchase yeah. Thank you.
I'm sure Eddie Thank you for that as you rightly pointed out is one of my take is still a very new business for us. So we are also fine tuning our operations.
So we're not going to be able to comment on a specific.
I expect you will note that the my type is.
Function is now available on our.
Across most of the provinces in China, and we featured an entry way up for my tie that may happen self very.
Very prominently.
So we are seeing good momentum on the user pickup and greater adoption.
Then in particular I would say that you know the visibility on the main App is also helping to drive our traffic.
To them I like that business itself.
You also asked about the A.O.V.
I think it's fair to say that the Mike Hi.
Scenario is.
Either way it's meant to address.
The daily grossly needs.
The consumers on our platform.
So naturally that lends itself to a higher frequency.
Isn't that engagement on the platform.
And it's also true that it'll be today.
Those orders are.
Kayla.
Lower relative to be able to be average LTV.
Our platform today. However, it is compensated by much higher frequency. The way we are looking at the mine site businesses. So as they continue to serve the consumer as well the frequencies will increase and as we build out the infrastructure over time.
They will be will also increase so we do see a tremendous amount to.
Potentially in this business and for now we are just focused.
Writing.
The best experiences for the daily grocery needs.
Okay. Thank you. Thank you very much and congratulations on that.
Great results.
Thank you.
Thank you next question is from.
A P value of Goldman Sachs. Please go ahead.
Thank you for taking my question Congratulations Blake everything on superior results.
When I look at the.
Actually bought a number you attained of seven its actually 1 million youre not that far away from the market leader.
The question now is not.
What we've seen thus far what is the next step.
You'd like to class II.
And the second question is we're trying to better understand on the community Bank.
And what is the what is the profitability levels. So as we go through on a city by city basis.
Could you just take us through examples of where profitability could be or how should we be thinking of the cost side of the equation.
I appreciate that thank you.
Let me first address.
Your first question so and we are currently have several hundred 31 million active customers.
It's inevitable that at a gross will slowdown and lapping said.
We do see Theres still room for us to grow in terms of expand our.
So the user base.
However, let me get the bigger issue actually here is that we still that can be high over the use of my share therefore, the touch with others.
It's the one key area, we are focusing on now and I think where I believe it is also one of the reasons we lunch Mike.
Hi.
I think we manage my tied to meet today, they're changing behaviors and preferences and I do believe that this is a very key Keith.
He approach so those two two when they attract.
But if we take a look and it's a bit further.
And I do think that we we are constantly I love and a quick point about integration of online and offline Award.
And Oh, we do see these structural trends.
So he is out on the high end mobile Internet penetration and the hope is that.
It is also expedite the passwords that buy these.
Well the Nike.
And.
Our young generation or they deliver they fall into these mobile Internet era and the two room I think there is no such kind of conception off Oh my.
Offline.
All these things integrated if you take a look kind of mobile payment and nice to me. They are both good examples of it.
And things the technology and online channels. They typically provides higher efficiency and I do believe that.
Most of the activities will be focused on online and.
Ah I think areas E commerce, So we will see this shift earlier there.
The area and.
We will potentially see that the majority of the retail ensco trace it will be from.
From the owner.
And we definitely hope to capture at least kind off.
But I didn't realize that it's you.
At least new or at least new integrated to watch a new kind of new type of infrastructure is needed.
That's why so though we are committed.
To do more infrastructure buildout to help.
I hope it is if he patient.
Let's do something which I think that will never change, which is I think you alluded to are there to start become successful he long wrong, you really need to constantly meats.
User.
Sure Andy.
The expectation.
Two hours before you start to two factors one is the value for money. The other is fun interactive experience use though.
So hopefully that will answer your first question I will pick up on the second one.
I think you're right.
And.
If I pick up the profitability.
Hi, Andy.
I think it might take to us it's a long term opportunity.
Which will help us to address the and for you to give any.
Weekly today, I guess limited by the agriculture infrastructure.
So.
As long as we committed to investment keep innovating on this initiative when trying to reduce the additional layered in the process.
Try to cut some of the waste in the process, therefore, creating more value for the users.
With that Vicki.
Economic outlook for my time will be very different from today.
For us the monetization model can be abused along the involvement of this journey.
Which.
And include advertising, but not limited to it.
So in summary I.
I think it's too early to tell a after after only two or three months operation.
And.
This there's a lot to be determined after we haven't.
I'll now cover all the cities yet.
In China, we will keep our investors informed about our progress.
Thank you very much.
Okay. Thank you next.
Next question is from the line of Medicare Uh Huh.
Our national Please go ahead.
Hi, Good evening, Thanks for taking my question and congratulations on nice I called out on my question is regarding that.
Sockets, you can choose to apply for that my tie in Michigan.
Well, we see that you set aside some personnel warming side stood up on my cat business across the city. So how should we understand more stuff and locking people just kidding I bought that business should they.
And then my time related marketing, that's just accept surely incremental all should we assume that does that.
As that business is together with an inside sales that incremental but it is actually estimates exercise yet so that's part of the yes definitely.
Marketing budget for them insights. Thank you.
Okay. Thank.
Thank you for the question like I said previously we bucket, how sales and marketing investment into them I think the same way that we manage.
Our other sales and marketing investment on the main platform.
We evaluate.
The sales and marketing investment based on our internal.
Matrix.
Case by case basically all the all the activities like them.
It's exactly the same we don't dedicated asset the second pack of.
Budgeting for sales and marketing for Mantech.
It's managed through.
Evaluation on our international effort.
Matrix.
So that is purely mental since then.
Right.
So not really I'm just to add on to what Tony said, you look at the individual sales and marketing.
And fairly and frankly at a fairly granular level you fancy you know as you know we can go as deep as on the user based on the individual user level right. So we continue to evaluate every dollar spam and yeah. It's a little bit I think the question is self is a little bit.
Reading a sense that we do see users now only use.
Specifically for my entire but they will also continue to be a user on the main.
For them as well so we are looking at the deployment in a minority investments in the users across these different.
Functions or features individually and looking at all or that we're getting from our investment.
So yeah.
Yeah. So it's really more of a bottom up approach as opposed to say, we're beginning the year with its fixed budget and now we're going to allocate that budget.
Got it that's clear thank you.
Operator, why don't we take one last question.
Sure go ahead. Our next question is from the line.
Citigroup. Please go ahead.
Hi, Good evening management, Thanks for taking my questions. Congratulations on the strong results.
I also my question is also related to the community grocery shopping I'm just looking at in tons composites your plans.
Okay.
What do you.
No youre the P.D.V. commitment right and you know that the success factors winning these bad I'm just wondering how much of the investment in infrastructure supply chain that we need to do.
As well.
We'll be consider seeking partnerships.
We have other payers or lap reach the corporations, all with the ride sharing players or even the crowd sourcing partner to support our delivery capability. Thank you.
Thank you Alicia.
As I mentioned earlier we.
Total from its high five sorry, the core.
Okay learning those type of 'em experiences style, where you think the consumers' desire for they want.
Just to go out and dedicated infrastructure on a localized level for agriculture.
Alex we don't see I'm, just happy infrastructure readily available in the market today, we and this is why we are committed to go deeper necessary to build that's obviously, where you will be evaluating what is available and well looking to work with partners because.
Probably.
Being more open being open platform.
Certainly you see the most efficient to deliver the right type of experience.
Experiences. So again, we will be informed by how.
Well, the consumers' needs and how we can best fulfill their needs.
And that May mean that we need to invest in certain.
There's to help facilitate their salary or that deployment. So you know we will need to continue to do that right as I said my business develops.
In any event, we do think these investments will play.
Yeah, well pay you know.
Oh for the long term.
And to.
So the shareholders.
Can I just very quickly follow up just in case, if you immediately to build out you know kind of model that.
Happy to all the structural infrastructural investments well you all profitable quarter be sure that we have to be.
Well cautious it could fluctuate from quarter to quarter that may be out sometime into the future. It could you know.
Go back 10 to lead to a loss making quarter.
Okay, let let me comment on this as you know we think those relates to a very young capital.
[music].
In today's remark I think both late they already mentioned about or the number of opportunities we are pursuing.
Assuming.
And when we speed up on these investment it's likely to impact on the near term profitability.
Incremental investments.
Can we talk a lot about agriculture infrastructure, but this also talented tech.
Technology and the continuous investment sales marketing to further engage with our increasing user base.
Right.
In the.
We will.
Focus on a profitability on a quarterly basis.
But we are very confident all this investment will generate long term value for our shareholders.
Okay, great. Thank you.
Securities.
I'd now like to.
And now back to how to conference back to Mr., Jason Stewart for closing remarks.
Yes.
Thank you everyone for joining us on conference calls today. If you have any further follow up questions feel free to reach out to the IR team. Thank you and have a great day.
Oh.
Thanks.
Ladies and gentlemen that concludes the conference for today. Thank you for participating you have.
No that's good.