Q4 2020 Pinduoduo Inc Earnings Call
Moving.
Okay.
GAAP.
Okay.
Okay.
[music] cash.
Okay.
And the.
[music].
And then.
[music].
Okay.
Ladies and gentlemen, thank you for standing by and longevity didn't go day fourth quarter of 2020 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer the question John you can do the cash.
And you'll need the good star one on your telephone please be.
For today's conference is being the project I would now like to hand, the confidence of its first speak of today with the.
Chase and the true. Thank you. Please go get share.
Some people a day Hello, everyone and thank you for joining us today and those are.
Our news release, what's the stability of the earlier on.
A little on the IR web site at the Wassa.
And it starts and dot com as well as the global Newswire services on.
Today's call are the Oh total Lake way I'll make some general remarks on our performance for the popular and our specific focus going forward, our VP of strategy, David the little way of the elaborate further on the specific trends and.
So the big initiatives.
Our weighted all final and Tony and Mark will then take us through our financial results for the fourth quarter and the fiscal year 'twenty.
And the December equity for plenty of money.
And there will be sales before we begin I would like to refer you to our safe Harbor statement and the earnings press release, we applied for this call we will make certain forward looking and feeling also this call includes discussion of certain non-GAAP financial measures. So please refer to our earnings release, which contains a reconciliation of the non-GAAP.
Now here's the forgot and matters.
Now it is my prior to introduce our Chief Executive Officer total late night. Please go ahead.
Thank you for Tracy and the hydro.
The one.
Thank you for joining us on our earning call for the fourth quarter and the fiscal year 2020.
<unk> delivered another quarter of strong gross and solid execution and that's all users continue the charterers with their purchases.
And active buyers increased.
$57 million in Q4 to reach $788 million for the trailing 12 months.
Use of engagement has also especially the way day.
And then you increased to $720 million.
Total number of orders placed on our platform increased by 94 per cent to reach $38 3 billion in 2020.
Total revenues excluding revenue from merchandize sales for Q4 was RMB 21 2 billion.
The increase of 19, 6% from a year ago.
Non-GAAP operating loss narrowed in Q4 for the same quarter a year ago.
2020, what's the trend of year for P. Tau and he was for many other.
<unk> and 19 pandemic, which by now already stretched over two winters.
Our team and platform sewer tap fees passed since we were founded six years ago.
He has the a humbling experience for us I'm glad that we have response quickly and responsibly to continue serving our users better and thereby we knew the invaluable trust.
I would like to think our users and our team for their continued support.
And so we changed the trend for all 22000 22021.
Like to share some takeaways and do a recap of.
Off lease and very long yet.
First to the.
The 20 has dictated our view from the get go which is net of separation of the online and offline world is increasingly irrelevant.
With element of mobile Internet online and offline are just part of a single award <unk>.
And the together more and more seamlessly and complementary to each other.
Unlike with desktop.
Smartphone users go go online anywhere any time and for any length of time.
Users no longer have to carve out time and be confined to a specific place which is common practice for desktop era.
This is why it's six years ago, and fitbit on developing a mobile only platform for our users.
In fact, we are the only one of my Internet companies of our scale to be mobile only to date.
If anything COVID-19 has assets right at the friendly.
He was already happening fast even pre COVID-19.
Today, the younger the nation grew up with smartphones.
And even conscious about economies and seamless.
Transition they make each day between online and offline.
And my other age groups.
China is high at the advanced online payment assistance and mobile communication tools have also made it clear clip maybe nearly impossible to do anything purely offline.
This had into and have increased familiarity and acceptance of its commingle The award.
With COVID-19, the adjustment that we have had to make our routines have only expanded online space and exited its brandy with off line space.
Consumers.
The frequent brick and mortar shops tend to all of our platforms like the pedal to the appropriate food and other cross relief.
Oh Wow preserve of web market with Chinese families visit not just to get cautionary.
Social activity.
Users are able to travel back home to spend Chinese new year with loved ones.
Also.
For us to deliver work.
The either same care package of food and clothing to lots of one leaving elsewhere.
Or does it taste of home for himself.
We use two of challenge of the legal and best services to our customers.
Well first of the debt.
And before.
Oh on the Chinese new year holiday, we work with Mercury and to stay open and the patch borders.
We also looked at with the logistics partners to ensure that there are millions of people I met with the point to deliver puzzles.
We fulfill the surge of orders for the hometown delicacy.
As for fresh produce and cross the release, we provided consumers with the most of what they want is quickly and affordably.
Consumers in the house.
Stock up before the long Chinese new year break.
And this way we have to fill the gap left by brick and mortar shops, thereby bring values to our users.
Going forward <unk>.
At the pioneer I think the space, we will book the appeal on the lessons, we have learned and that was done to improve our offerings to our users.
And we'll always be on a look out for new ways to create more value for them.
Second 2020 has highlighted is that we can and should do more for agricultural sectors and rural communities.
10 of those party, Paul Sidney fresh produce online.
It was a conscious decision because we found them to be on necessity and optimizing.
Faction distribution and consumption consumption.
And the greatest widespread benefits.
The one that French penetration of agricultural sector has also consistently lacked the industry average.
We have never lost sight of lease beginning and agriculture has consistently been a strategic priority for us.
We are proud to be China's largest agriculture platform.
Our G and need for agricultural products doubled to more than RMB 270 billion in 2020.
12 million farmers, so theyre produced directly to consumers via our platform.
We were among the leading technology companies commended for making outstanding contribution for the wall of Oreo property.
We see this affirming our investment to bring solutions to optimize every part of the agricultural value chain.
In 2020, we also launched life's premium fashion for farming communities and dedicated channels to promote their products to the difficulties brought about by call. It 90.
We observed that all of the woman was so large and the Alterra and deliver partners had issued fulfilling and especially in the summer.
To some of this August we launched total grossly our next day crossed the rethink of surveys the house local farmers and dispute for US two sales directly to consumers.
Increasing sales and cutting waste and cost for customers.
Pingo towards the vision of Costco.
The study for agricultural products and our farmland.
We are now already the largest agricultural platform in China.
We can and should do more.
Hope that in the next stage Pinto the oil will become worse, not just agriculture and the growth rate platform.
And then make crossways source of raw word affordable and available for our users.
And we aim to build up of equity focused on logistics infrastructure platform.
<unk> waste lower costs and speed of delivery for agricultural products.
This is the work in progress.
Back to make a few more years of investment before it can realize its full potential and achieve.
<unk> efficiency.
We share the vision of contributing to China agricultural sectors with technology.
To help increase the resilience of the food chain as day.
And of the room and global for the crisis.
We are continuing to invest and agriculture and of course technology.
And look into global investment opportunities.
The key proteins for the safety and the precision farming.
Third 2020 has also made a small committed the effort to continue to promote digital inclusion of rural communities and.
Advantaged.
<unk> total have created a level playing field for businesses of all sizes.
The agricultural sector.
Margin has seen them.
And in addition, livestream and all of that business on our platform has created new rules and prioritize different skus that and.
A lot of inclusion of users on the otherwise excluded.
For instance.
Agriculture is traditionally labor intensive way.
And the physically week of people may not be able to participate inc.
<unk> strength and online business operations to not exactly the same physical League club.
And these individuals are able to participate in debt.
In fact of all.
The actively engaged and the sale of agricultural products.
Half of our managed by women.
This is a win win and for everyone.
And the with our commitment to social responsibility.
Definitely the one two and we will do more here, including by per via further training for them to sell well on our platform.
Last but not least many of you and learned that Colin will step that the dock for his chairman and through effect to date.
On behalf of the call.
We will likely thinking for his leadership and the contribution to <unk> in the past six years.
We were trading on exploring new frontiers for years to come.
And with new chairman of the board.
I would like to ensure everyone on debt.
Yes.
A lot of that our strategy remains thin, which is to stay true value for it.
And profile of mostly being more experience to serve our users on our platform.
Well of cloud that we have the kind of the world's largest E cost platform I use the user.
He was the number.
We will work hard to deliver even better results, yes of course.
Now, let me turn it over to David to provide update on our recent initiatives.
Thank you.
Hello, everyone.
For further elaborate on points minimum interest now.
First on our consumer efforts to improve the agricultural value chain.
Second on our revenues from merchandise sales.
And the third on our ESG priorities for 2020 one.
Improving the agriculture sector to benefit of our users, thus farmers and consumers as the central and a strategic priority for us.
We take our systems based approach to this and devote substantial resources to identify and implement improvements at all stages of the agricultural value chain.
As Larry mentioned, we share the vision of transforming agriculture, and China with technology and.
And aim to increase food security.
To begin at the upstream where we.
And with industry partners and University of St introduce more technology to farming.
In 2020, we launched the inaugural Smart agriculture competition and partnership with China Agricultural University, where teams from around the world participated and investigating the use of artificial intelligence and optimizing the strawberry planting.
The competition identify cost efficient and scalable technology that can potentially be standardized across China.
The winning team has started its of commercial license research findings.
Last year. The also supported the global Greenough Challenge 2020, which was co organized by the food and agricultural organization of the United Nations and George on University.
The competition and attracted over 150 teams from around the world to put forward innovative solutions to challenges and the distribution and sales of average per product during the COVID-19.
All of our farms Africa, and the accurate tax startup based and cannot credit dania, while on the competition with its technique of the Aqua tonics, which combined fish farming with soil, especially of all growing.
Allowing the production of fruit and vegetables are not the are normally imported.
We will continue.
Okay.
Yeah.
Investing in the promotion of digital agriculture, and precision farming and going forward.
And the downstream we have helped over $12 million of farmers out directly to our 788 million consumers were.
We're training more than 100000, new farmers, who returned to their rural communities from urban areas to operate online businesses and vital life of their hometowns.
We have committed to training another 100000, new farmers over the next five years.
To relieve difficulties brought about by COVID-19, we sponsor live streaming sessions for public district, and planned communities and and established dedicated channels.
To promote their products.
We continue to work for these communities to rise of direct access to our consumers.
Circling back to the midstream as mentioned during our earnings call last quarter, the rapid increasing orders of.
And for fresh produce particularly leafy vegetables via our platform surface of the urgent need to develop a dedicated and logistics infrastructure to deliver fresh produce to our users and the optimal condition at compelling prices and within 24 hours. This new solution goes beyond streamlining of distributions.
And you will be different from existing ones and it will take time resources and multiple iterations for us for eventually arrived on what works best.
However, we believe that we have made some progress and the right direction through total grocery our next day grocery pickup service that intelligently connect local farmers and distributors directly to the local consumers, thereby reducing spoilage for storage and transport.
We have been increasing the number of agricultural producers and regional distributors and expanding the number of pickup points.
There's still so much more we can do.
Where we need to make substantial investments in people technology potentially capital assets.
And our preference is to work with strategic partners towards this goal we are prepared to make equity investments to expedite the requisite development or purchased assets and places where they are on the available.
We are prepared to persevere in this endeavor, even though you could take some time to play out pay off.
As we are constant of how you will benefit our users and we hope that investors with the patient and supportive of the challenging for a meaningful endeavor.
Next I would like to say a few words regarding our revenue strong merchandise sales.
This quarter and you'll have noticed that we are reporting on additional revenue line items merchandise sales.
This line item captures the revenue generated from the <unk> trials, we started last year.
And our one can trial, we aim to temporarily filled the gap of missing product our users' need on our platform.
And while we look for merchants, who can offer these products on our marketplace.
We have no plan to grow this business. We expect this line item to the remaining very small percentage of total GLA of regenerate.
And so Q4, it is less and 1% of total GMB regenerated.
Now onto our ESG priorities for 2021.
As we continue to manage the challenges caused by the global health crisis.
We are pausing to reflect on what more we can contribute to a more sustainable and a critical future.
Specifically, we have identified the following ESG priorities for 2021.
Firstly, continuing to promote digital inclusion and rural communities.
China's largest agricultural platform was 798 million users.
Firmly believe and playing our part to empower people and businesses to take part in the digital economy.
Since our inception, we have connect of farmers directly with consumers.
Coach them on and setting our stores online and provided them with access to and demand and help them to the increased household income and our efforts have helped buoy. The 100000 young men and women returns of the hometown and become ecommerce Avenue farmers they have come from.
And to become champions of digital inclusion often catalyzing, a multiplier effect and wealth creation for their local communities.
We have also partnered with China post the and farmers cooperatives to bring the agricultural products for remote areas. So the national market to boost rural incomes.
And the STREAMWAY collaboration China post local offices open online stores on pingo door and sourced directly from agriculture of co ops.
This approach has proven very effective and helping to tackle and rural coverage.
Looking ahead, we are continuing our efforts to work with local communities regulators and academics and modernizing farming practices.
And in addition, we see technology such as the findings of our smart agriculture competition last year to play a more central ROI and driving China's agricultural Revolution.
We also see investment opportunities and food and agriculture technology that we can help the extent across swamps and China.
Secondly, continuing to empower women and the physically challenged.
Pinto of those zero additional commission policy and our SKU oriented recommendation of approach creates a more level playing field for smaller entrepreneurs. We have seen many success stories on the platform for women and physically challenged entrepreneurs, who might otherwise be exclusive on the offline job markets.
As Larry mentioned, we are and will continue to provide more training to enable these entrepreneurs and look forward to helping them create further success stories on our platform.
Thirdly, continuing to make our service screener and more efficient.
<unk> is committed to protecting the environment.
And as we mentioned in our ESG report last year.
We're investing in technology and working with our logistics partners to optimize delivery route planning.
We are also investing in research and development of Green packaging design and materials, we're working with our merchants the eliminate excess of packaging and providing them with more suitable environmentally friendly solutions, such as different sizes and biodegradable materials.
We see ourselves, making a positive difference for the environment, especially yes order volumes on our platform rise.
Now, let me pass the floor to Tony to discuss our financial results.
Thank you David.
Now let me take you through our financial results for the quarter and fiscal year ended December 31 2020.
Our annual active buyers for the last 12 months ending December 31, 2020 grew by over $200 million from the end of 2000 $19 million to $788 million.
Our MAA used in Q4 grew by $77 million from the prior quarter.
Reached $720 million.
On an increase of 50% from the same quarter in 2019.
On <unk> in Q4, as a percentage of our annual active buyer exceeded 90% for the first time.
Which we see as a reflection that we of satisfying the needs of more users.
Our last 12 months' GMB for 2020 grew to RMB 167 trillion, representing 66% year on year gross.
And comparison, our average annual spending per active buyer increased 23% to RMB 2000 per 115.
The lower rate of increase should be considered in the context of substantial increase of 203 million active buyers over the past year.
Most of these new users are still.
The building trust with our platform and have contributed less than a full year worth of purchases in 2020.
We continue to observe that at our users seasoned on the platform they make purchases across more categories and.
And the increase the average spending over time in each category.
We did observe an increase in purchase frequency in 2020 per.
Partly due to the grocery business we launched.
In 2020, our platform and generated a total of $38 3 billion and others.
And on average of 49 orders per active buyer.
This is an increase of 44% from a year ago.
As the average order value of crossing rate and lower than on our platform average and our <unk> came down 15% to RMB 43, five and 2020 as compared to RMB $51, one and 2019.
Please note that starting from Q1 2021, we will retire the disclosure of quality GMB.
But we will continue to disclose full year, Germany, which is the practice adopted by our peers.
Since our IPO when we were operating as the straightforward marketplace model, we have reported both quarterly and annually and the state.
And on the same basis and how.
Our peers in order to provide the public with a meaningful barometer to assess our progress as the new market entry.
However, as the complexity of our business growth quarterly GMB is increasingly less relevant to evaluate our overall business.
Nor is it reflective of our strategic priorities, especially when we do not manage our business against the quarterly <unk> targets.
And our revenues grow in scale and with the introduction of new initiatives, such as total grocery and our <unk> trials.
We would encourage investors to focus on our P&L and cash flow metrics going forward to assess our ability to generate sustainable value.
In terms of P&L I will.
Total revenues and this quarter and December 31, 2020 were RMB $26 5 billion up 146% from RMB 10, 8 billion in the same quarter last year.
As the as I mentioned, we reported the revenue from merchandise sales of our <unk> trials this quarter.
One is the contribution of our one P trials to our CMV is negligible.
We are reporting it as a separate line item and it accounts for 20% of our total revenues in Q4.
To give you and the apples to apples comparison, excluding revenue contribution from one free trials, our total revenue grew by 96%.
RMB 21 2 billion in Q4 2020.
The main driver of this growth was our online marketing services.
On the marketing services revenue was RMB 18, 9 billion this quarter up 95 per cent compared to the same period last year.
Due primarily to an increase and merchants recognition of our tap on this capability to help them reach to the target buyers effectively and efficiently.
Our merchants are spending more on our platform because of all of our constantly improving services and also the increasing use of traffic.
Our online marketing services revenue as a percentage of our <unk> and the last 12 months and December 2020 was two 9% and.
Compared to two seven per cent for the same period ending in December 2019.
We're pleased to see the growing and endorsement by our merchants and our users.
Our transaction services revenue this quarter amounted to RMB, two 3 billion, which is up 105 per cent compared with the same period last year.
On the trailing 12 months basis, our transaction service revenues as a percentage of our <unk> has been quite stable at around 0.3 per se.
Now moving on to cost our total cost of revenues increased from RMB 2 billion in Q4 2019 to RMB 11 5 billion this quarter.
The increase in our cost of revenues was mainly due to the cost associated with the <unk> merchandise sales.
Costs related to the operation of total grocery and such as warehouse rental cost and higher costs.
And of cloud services call center and much of support services.
The total operating expenses this quarter for RMB 17, 1 billion at.
And as compared to RMB, 10, 9 billion and the same quarter of 2019.
On a non-GAAP basis, our total operating expenses as a percentage of our revenue excluding the one P contribution has been declining from 112% to 94% to <unk> 76 per cent for Q4 of 2018, 19 and 2020, respectively.
The gradual improvement continuous and demonstrates the operating leverage in our business model.
Our sales and marketing expenses for this quarter increased the 59% to RMB $14 7 billion.
And from RMB nine.
$3 billion in the same quarter of 2019.
And this is mainly due to an increase in online and offline advertisement and the promotions.
And we continue to invest and user engagement and mindshare on the.
Non-GAAP basis, our sales and marketing as a percentage of our revenue excluding one T trials for this quarter was 68% as compared to 84% and 103 per cent for the same quarter in 2019 and in 2018.
The decrease in sales and marketing as a percentage of revenue excluding monkey trials.
Has demonstrated scale of economy, and the fact that our strategy of having a higher bar of ally and our sales and marketing investment has worked well.
In fact, since we started paying total we have accumulated cash they spent RMB 18 1 billion in sales and marketing expenses.
On the non-GAAP basis, which averages to about RMB 103 per access.
And users.
And I'm accumulated up to date.
We will continue to consider our sales and marketing decisions holistically and the investor whenever we see opportunity that meet our allied with climate.
On the non-GAAP basis, our general and administrative expenses were RMB $153 million.
And increase of 26% from RMB 121 million and the same quarter of 2019.
Primarily due to an increase in head count.
Our non-GAAP research and development expenses were RMB 156 billion and.
And increase of 65% from RMB 943 million and the same quarter of 2019.
The increase was primarily due to an increase in head count.
And the recruitment of more experienced and personnel.
As well as an increase in the R&D related costs of the expenses.
On the non-GAAP basis, our R&D expenses as a percentage of our revenue excluding the <unk> contribution this quarter was seven 3% as compared to $8 seven for the same quarter last year.
Now to sum up operating loss for the quarter was RMB 2 billion on a GAAP basis compared with operating loss of RMB, two 1 billion and the same quarter of 2019.
Non-GAAP operating loss was RMB, one 1 billion.
Compared with operating loss of RMB, one 3 billion in the same quarter of 2019.
Net loss attributable to ordinary shareholders was RMB, one 8 billion as compared to net loss of RMB 175 billion in the same quarter last year.
Basic and diluted net loss per ads were RMB one one for me compared with RMB 152 in the same quarter of 2019.
Non-GAAP net loss attributable to ordinary shareholders were on.
<unk> 185 million compared with RMB $815 million in the same quarter last year.
Non-GAAP basic and diluted net loss per ads were RMB 015, compared with RMB 072 in the same quarter of 2019.
That completes the profit and loss of payment for the fourth quarter.
Our net cash flow from operating activities was RMB $14 9 billion compared with RMB nine 6 billion and the same quarter of 2019.
Primarily due to an increase in online marketing services revenues.
Net cash used in investing activities in this quarter increased from RMB 11, 5 billion in 2019 to RMB $26 6 billion. The increase was primarily due to our decision to invest a portion of our cash reserves and cash management products.
As of December 31, 2020, the company had RMB 87 billion and cash cash equivalents and short term investments.
As of the end of 2021 U S dollar of $712 million of our zero percent convertible bonds. Due in 2020 for has been converted into equity.
Thank you operator, we are ready for questions.
Certainly ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question. Please press star one.
Why don't you tell if we can keep track of breaks you need to be balance sheet.
If you wish to cancel the liquidity please push power get cash.
Keith.
Once again, the star followed by lunch.
Yeah.
We have the first question Mitch on the line.
And the Wong from HSBC. Please go great.
Hi, Good evening management, congrats on such a very robust quarter to conclude 2020.
Two questions here first question and thank you on the use of that so you'd look at the usage of entrants are amazing and 78 8 million debt of.
Of course, the Apache opinion and you wanted.
The largest so can you help us understand what is the strategy that you have used to do.
Can you for such growth and how would you say you can't sustain debt.
In terms of user engagement that for my second question is also under Covid is actually on the community quit per key.
I think you mentioned is the <unk> model just wanted to pick up the.
In terms of the accounting wise, so how does it really work in terms of the commission paid to the commission with needed or is it that most of them of it and be transacted via all of the marketplace platform. So I guess just in terms of wants to better understand the accounting Hollywood the work and also in terms of the.
I mean like on the GP dollar side.
How much losses and that'll be running assets.
Good day.
Some idea.
Non interest bearing numerically.
And at the right now.
And I think you disclosed I guess more just in terms of clarity as to how we should think about.
The investments that we do need for the vessel.
And that's.
The management of mentioned about the infrastructure and logistics side of things as well so that'll be great. Thank you.
Hey, Thanks for me.
Why don't I ask.
To address the first part of your question and then I'll have Tom and talk a little bit of an accounting for some of the technical software and figured offline as well.
And so.
And we continue to observe the recoup the momentum in terms of the audience growth and each of the deposits low quarters, we added on average over 50.
50 million annual active buyers for each of them.
And that being said as we are approaching 800 million user of landmark and its net net zero debt I'll use the growth will slow down.
We always said debt.
Net full crews on the user numbers and that we are more focused on the useless assets.
Section and trust I believe in the past.
Shopping experience and the value.
And for money for them.
And we believe that our slowest and we can continuously serve our users as well and we will keep growing and the thanks to the debt.
They are trusting us and.
So the one sectors, we are actually we always are.
Our priority is in the agricultural sector and.
Not only is agriculture and of the digitized and by mobile Internet.
And is also the greatest.
Rent benefit and so we can create.
The big platform.
And we are now on the China's largest agricultural platform and so in the future we will commit to do more for the agriculture sector and the.
Look communities and the.
Other thing.
And I talked about is about us and the future.
The integrated wood.
Online offline.
Definitely we are targeting these kind of new world. So.
Think about add to the ability to look at is wider retail market.
So today, China's total retail sales for consumer goes.
And rich.
30, <unk>, Chile and in 2020.
And the.
It is expected to grow at 5% per year over the next five years.
And if you take a look at our number and so Archie on Houston, and only 4% of it.
So I believe in the us consumer behavior of online and offline continue and integrate and an opportunity for us we definitely will continue to expand.
And let me pick up on the second question on total gross rate I guess.
And as you mentioned the total gross rate.
Operated assets.
So the key offering.
The accounting on the view, we generate transaction services revenues for the services provided to our merchants and some farmers.
And the contribution in Q4 and fiscal year 2020 of.
The total grocery products.
And material.
And the most of the cost associated of running total grocery operation such as warehouse rental income and really logistics are captured and our cost of revenue.
Just on the.
Total cost of it as a very young business line.
All of which just started with a few months.
And it is still evolving.
On.
And we are very confident about the business model and it brings significant value for our.
Consumers and other participants.
Among the <unk> value chain.
And on a few key drivers, we can think of them on the.
The.
On the <unk> side.
Sites on.
Let's take.
And if we're able to streamline and unnecessary layers of the distribution.
And each and they are traditionally the would take up of meaningful markup.
So the more efficient supply chain would also mean less of small age and all of these factors are.
Putting together.
Definitely bring additional value to the AR for.
And for the sake of.
All of the participants of the stakeholders to share.
And this business model and like I said the development of.
On the infrastructure on the whole.
Process will take time to be debt. So at this moment profitability.
It won't be a pocket for us to set for the other vessels.
And there too.
Just want to add on top of the to say the.
PDD as at the end of 'twenty to 'twenty two we are the largest.
E Commerce platform by users already and as we have always talked about focusing on engagement and really use the core.
Of our strategy and we are confident now with and even heard.
And the large base status continues to grow a good momentum, we should be able to drive even better engagement and total grocery really plays into that by giving us.
And the additional access point to address the needs that we previously couldn't have so we have high hopes for the total grocery business because of it is the integral and is that the expansion of our overall platform and as our model evolves I think you know the roles of the the different and Fisher.
Issuance of terms of the horse ecosystem, where many of the also evolve as well so stay tuned and bear with US on we think this could be a tremendous opportunities and we're confident that we'll be able to execute part of it will take some iterations of find the perfect model.
Why don't we move on to the next question.
Thank you the next.
Spreads and the comes from the line of.
Thomas Chong from Jefferies. Please go ahead.
Hi, Good evening, Thanks management for taking my questions.
The prepared remarks.
Net income income.
And it's about automates and that has the most and by sales which is a bumpy true.
<unk> business and the subset of a turn.
To the Dnb, So I just wanted to get a sense about when.
And the business is getting bigger and bigger should we expect the merchant by sales of continued to decline in absolute amounts in coming quarters and on debt points.
For the bulk of the give us some color about the GP margin for fees.
Lumpy.
The trial.
Yes.
And as well as the overall, although my tie GP margin.
As well and and my second question.
Yes.
<unk>.
The key and the growth I think the amendment also cost of about the focus on on monetization.
Should we think about the.
The other key in the by Boeing.
Moving forward. Thank you.
But on the short commerce and thank you as cash.
And a number of questions and your two questions. So let me try to maybe teradata and bits and pieces of the.
And the first thing I want to make clear if there is any confusion is that the merchandise business and merchandize sales business that we are reporting as and additional revenue item.
Nothing to do with total grocery or total of my time. So we are driving for I'm, referring to so to slaughter of grocery in English.
Going forward. So the one key merchandize sales business has nothing to do with total grocery so I wanted to make sure that is very clear.
The one key businesses, we mention it is because we have noticed that the our consumer demands on our platform, which we haven't been able to identify the appropriate merchant for and we have to step in the situations temporarily to measure that our users are and can find the product they want at the prices that they are.
And looking for.
And so because this is the temporary measure we have knowing the pension to grow this into a larger scale business and.
And the fourth quarter. The one piece of business is less and 1% of our GMB and I think you should expect that true stay.
The small percentage of our JV going forward.
As to the total amount is higher.
There is as Tony mentioned and as a very new business initiatives and the business model continues to evolve.
I would say dialing of the first thing I do want to take the opportunity to clarify.
Is that the.
The total of grocery businesses.
The total grocery business itself is not a convenient Hebrew purchase business. It's.
It's important that.
And the investors understand this distinction.
Because the impact I think your understanding of how the economics works right. So first of all.
It's not a typical community group purchase because unlike gross purchases were neighbors or a group of leaders of historic.
The owners actually aggregates of group and then the commission for organizing the purchase with an active buyer base of 788 million users total gross it does not actually rely on community leaders to attract users.
And users.
And users can just place orders independently by themselves to our App. So the this is the reason why we.
Approaching total grocery as an integrated and and extension of our E. Commerce platform. So the economics, accordingly, and the type of roles that the group leaders play on that.
The difference.
Secondly, I would say is we introduced all of our grocery to cater to the rising demand of consumers have for convenient and affordable grocery and it is now available in 300 cities across China. The.
The key part of this offering is really the agriculture focus logistics infrastructure that we are working to built and the idea here is to really reduce ways to lower costs and to speed of delivery of agricultural products.
And we are leaning on technology to achieve better quality control.
Better sourcing better forecasting of demand, which cannot reduce wastage and the improved supply chain efficiency.
We are working with third party providers now to make strategic investments were needed to accelerate the build out of the necessary and infrastructure. So we can achieve.
Less than 24 hour turnaround time for the orders.
We believe that has proven out in the last five and half years as loans, we remain laser focused on anticipating and meeting the.
Users' needs user they will continue to vote.
For us with their wallets.
I think you also asked about gross margin trends.
And.
And with regards to that of the individual businesses.
Not going to comment on the specifics, but suffice to say that.
Excluding the impact of our first.
The first party of merchandise business, which as I mentioned earlier in my remarks, and it's still small this business.
And as loss, making.
And if we actually exclude the impact of the lumpy business the fourth quarter of bottom line and margins are actually very much similar to the non-GAAP net margin we reported in the third quarter.
And I think Lachlan and you talked about <unk> or <unk>.
Spending per user.
Look I think without taking too much time, I would just say that with the user base that will happen with the focus that we are spending around engagement. We are very confident that the.
The U S user of activity growth.
And the availability of merchandise on our platform will grow and as the user of season on our platform as we have seen in the past they will continue to shop across more categories. They will make more purchases when the thing those categories because thats the trust level bills.
<unk> share of that market share of wallet share we have with them will also grow so we're quite confident with the outlook on the <unk> the.
And the way I would think about the monetization for and you alluded to earlier or is I'd say the three 2%.
And of LTM of monetization and you see in the fourth quarter debt.
It really is and the endorsement of.
The merchants and seeing good conversion for the advertising spend and that is the only possible.
If the if the use of our activities are translating into sales.
So let me actually start there and then move on to the next question.
Thank you David and me.
The next thing.
The next question comes from the line of always thought of yet.
And the Citigroup, Inc.
Right.
Hi, and thank you and good evening management and thanks for taking my questions I have all day too.
Two quick ones one is I wanted to follow up on what.
In fact, the if I can.
Category and these are lumpy trials.
And then second Inc.
Could management comment on.
The total cost and the performance I know a day.
I think on how.
How do you make.
Oh Wow.
Fourth quarter is that in line above or below.
Thank you.
Sure.
Yeah.
Oh boy.
So sorry to be shared with their track of the boat on you.
Your question on regarding the area.
The one piece of business.
And the product categories and is actually quite diversified.
And how we approach there was really identify and looking at items or execute on our platform, where we know they are clear consumer demand, but we are unable to.
Source sufficient merchants for so the power of categories are quite diverse.
And then and the strategy of itself it is not a category specific.
The second thing I would say your question regarding the progress of.
The total grocery.
And as both I think the Lady and Tom you have commented.
And this is a very long term commitments for us and we.
Because we think the the opportunity is immense and because we think we can really create some value share for the users so as such I think.
We are experiencing as we move forward.
As I mentioned.
Earlier in my response the.
On the service is now available across the nation and over 300. Other cities. So I think we are pretty comfortable with the progress or the.
Pace of debt.
The rollout on the geographic footprint.
One of the things more interesting from our perspective, however is to build and develop a corresponding infrastructure and network, it's easy to drive.
User growth and particularly for a platform like us we actually have Inc.
And then the intrinsic.
On.
The adventures debt from.
The traffic perspective. The question that we are more concerned about is one of the investments that we need and how can we deliver the right type of user opportunities too.
And user experience to address the opportunities we see because I think one of the few.
Elements of success to the total grocery business in our mind.
I guess, maybe to highlight two things in particular, one of which is the sourcing and forecasting.
And how much you can sell or how our price of oil what price and you saw there for you for ultimately it depends on your ability to forecast the demand properly and be able to organize the of pricing around the and the most efficient way possible.
And of course, the second part of it and infrastructure that can be aligned appropriately and largely for our agriculture and fresh produce such that we can arrange the fulfillment and delivery in the flex and <unk> 24 hour type of the cycle.
So we are still really in the very early innings of.
And while we considered to be kind of our per approach to grocery business.
In China and.
We are pleased with the progress that we have made so far but there are definitely still of lot more we can do.
Okay. Thank you.
The next question please.
Okay and the next question comes from the line of true.
And at least some type of interaction.
And then.
Hi, good evening, Thanks for taking my question.
And up on the screen.
And the G.
And if he is.
Question on that.
And last question just wondering.
And what kind of of the synergy between the two glossy.
And no multiplies on.
Okay.
In terms of the supply chain.
On the expense.
And it's not on Whatsapp coupon.
Yeah and.
Okay.
And that to be.
Net adds.
And.
And that can take that one day one.
Thank you Natalie.
So as we have.
The.
Discussed.
You can see total grocery and really as an integrated part of our marketplace right. So it is an extension of the experiences of our reaching offers and it is an extension of our ability to address more of consumers' needs and use.
And.
And are you.
From listening to what we have said about being focused on building on the infrastructure. The idea is really to figure out how we can address their needs better post review of <unk>.
Range of leveraged on the the.
And the existing express delivery infrastructure and network.
Well as to the.
Hello.
Less than 20 of our type of fulfillment infrastructure for total gross free.
If we can organize both of these delivery logistics on the.
Very efficiently and actually be able to forecast and recommend the appropriate of skus to consumers based on their desirable use case and fulfillment case, we actually see a lot of opportunities to drive synergies between the platform and.
The marketplace today, and the total gross free scenarios and certainly on the supply chain side as I mentioned earlier most of the fee.
The pirates today are local.
They are 12 million farmers on the PD on.
<unk> today, who are sourcing and who are supplying to our users on a nationwide basis. These will all be potential sellers of suppliers into.
The total grocery scenario provided that they have enough support around logistics and coordination and so.
Certainly over time, I think we see the and infrastructure being able to support not only locally driven supplier, but on the nationwide basis, the really leverage the supply chain of available on pdd's marketplace. The.
Also extend beyond pure agricultural produce and this is the reason why and made during his remarks.
Pointed out we are on.
And our vision is really to become China's largest agricultural producer and by doing so in the process become the largest grocer for the world.
Got it.
Thank you we have our next question from the line.
Right.
Goldman Sachs. Please go ahead.
Very much of my first question is about the comment on Collins letter to shareholders, but he mentioned about traditional approach to competing.
Competing through scale and efficiency has its inevitable limitations I wonder if you could elaborate and.
And the interest of time I Wonder if you could talk through the impact of the build of grocery.
On the broader business all of you when I look at your take rates and a record high of free 23, and you expanded on that.
And when I look at your sales and marketing spend is that it's one of the lowest we've seen at 77 eight if you strip out the merchandize sales and just look at marketing services.
But that seems to be the thought and the right direction.
Maybe you could just expand on that and also elaborate on the possible and the limited time the.
The impact of the grocery on the gross profit line that would be great. Thank you.
Yeah.
And if you wish.
I think the way you should think about the go to grocery saw impact on the business model.
Overall, yes.
<unk> synergistic in a sense.
Thanks Dara.
How have and the incremental.
The scenarios of being able to fulfill.
The user's needs that we previously weren't able to address so that increases our ability to.
Address the need overtime and.
And so the nuc and.
And because of that we certainly expect the engagement overall on the platform to continue to improve and as more users become more familiar with our platform. We also expect their spending will continue to improve so one of the things guys, Inc. You may notice that pharma and the average order value perspective for.
For the year. It is actually increased while the way over the prior year, but you need to take that and the context of the significant number of user on and also the increase of order number. So we're quite confident and actually as the business continues or the users continuing to mature on our platform with an improvement of the engagement level.
We'll continue to trend and the right direction and resulting in more operating efficiency that you should have identified.
Okay and.
And the interest of time, we're the only take one last question and.
And.
And definitely we have.
The next question from the line of F N B.
Lung.
From Morgan Stanley. Please go ahead.
Okay.
Thank you management for taking my question or the car.
And also the nature to the at the plethora of bidding and so as I mentioned that the.
Total of Baltimore yet.
On the famous but if we looked at the.
Competition for.
Most of the cloud actually you're competing with each other on the good purchase meters.
Yes.
And you said that you know.
The next step will be in the back.
And this is kind of at the have the wheelhouse and agricultural focus on logistics. So just want to know the all sorts of whether or not you know in terms of the oldest new York the op.
And now the.
The focus will be the infrastructure and last month and user engagement and instead of the.
The acquisition, maybe the Iraq lots of the deposits of six months and how what's.
And what's your view on the of competition.
And in terms of basketball and all of that is much closer.
And this year. Thank you.
Okay.
Sure. Thank you for that.
On.
So we are obviously not on your position to comment on other players strategy, but as we are so I would say you know and says let's focus on what we're doing the right. So if you look at where PD. The use today, we are and e-commerce platform with 789 million users highly.
Highly active users.
And at that range. So the Mou for the quarter was the $720 million that almost 90% of my and.
And they are active user and we are confident that the user engagement metrics will continue the trend.
As we have communicated to the past quarters.
Growing user base has never really being a priority by the entire year was really focused on engagement with better engagement with better <unk>.
Building on our platform the user number of has grown and we have seen very strong growth momentum and that but as Larry mentioned, given the scale of our user base today, it's inevitable that user growth.
Start to trend down and it's much more important that we are focused on engagement and focus on satisfying the.
Sure.
And he's on our platform and then total grocery provides us the opportunity sure I wish you say incremental opportunity to address that additional aspect of the need for groceries afford closely on a more timely basis and at <unk>.
More compelling value and I think it's important to recognize and.
And the fact that to do bolt on grocery appropriately we have the apartment do we need to become more heavy and it is an operational heavier business. We are getting involved and warehousing operations, we're getting on involving delivery logistics operations. So the investments in the offline operations will be and import.
And part of the success factor, but I would say is you know.
And thinking through the competitive dynamic, it's important and I couldn't lose sight the.
And the strategic advantage that we as the platform with several hundred of almost 800 million users have over.
And this business model right. So we will continue to focus while we have been doing well, which is understanding what consumers are looking for recommending them. The most of appropriate product based.
Based on our understanding of what their needs are what the expectation of value for money, yes, and except the differences now instead of having to rely only on express delivery, we actually happen and additional fulfillment mechanism that can actually in April of shorter tenor around of delivery for a particular categories of product where at that time.
The sensitivity actually matters and so we are fully committed to.
Two making sure that we have the right infrastructure in place to win and this business because we think by doing this right. The opportunity is immense and is highly synergistic and anticipated to the marketplace business that we continue to see of very long runway for.
Thank you for that.
The wrap up the call for the evening. Thank you very much everyone for your time and look forward to speaking again in the next quarter.
Thank you.
Thank you.
Ladies and gentlemen, the bedroom groups of countries for today. Thank you for your participation.
Thank you.
[music].
Okay.
[music].
[music].
[music].
[music].