Q2 2021 Pinduoduo Inc Earnings Call

[music].

Good day, and thank you for standing by welcome.

To that point toward the second quarter of 2021 earnings conference call.

At this time.

But it's not in any sense.

Only months.

After the Speakers' presentation, there'll be a question and answer session.

So I asked that question during the session.

Need to press star one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference I'll, let you speak out today.

So she please go ahead.

Alright.

Operator, Hello, everyone and thank you for joining us today.

Total earnings release was distributed earlier and is available on the IR website.

Pingo <unk> dot com.

As through globally with wire services.

On today's call are chairman and Chief Executive Officer.

Make some general remarks on our performance for the past quarter and orthopedic focus going forward.

Our VP of finance 20 months.

Elaborate further on specific strategic initiatives and take us through our financial results for the second quarter ended June 30, 'twenty or 'twenty one.

Right.

Before we begin I would like to refer you to our safe Harbor statement in the earnings press release, which applies please call as we will make certain forward looking statements.

So who's calling.

A discussion of certain non-GAAP financial measures.

Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures.

It is my pleasure to introduce our chairman and Chief Executive Officer.

Please go ahead.

Thank you, Jason Hello, everyone and thank you for joining our result announcement that for second quarter of 2021.

Since our users trust.

Total revenue for this quarter, excluding revenue for merchandise sales.

RMB 21.1 billion.

This represents a year on year increase of 73%.

Our annual active buyers reached $849.9 million for the 12 months ending on June 30.

Over the quarter average Mou increased to $738.5 million, representing 80, 87% our annual active buyers.

Our results this quarter demonstrate our enduring commitment to serve our users as well as their trust in us.

We feel fortunate and grateful for their consistent support and we will continue to do our best to Susan and all our stakeholders.

<unk> takes our responsibility to our users and society very seriously.

Without them and their support.

We will not be where we are today.

This is why were always there we've been in for them in the times of need.

After having rings drug I'm probing last month.

We immediately mobilized our network partners.

Provide relief.

Close to 20000 total grocery pickup point.

Didn't docetae help to distribute emergency supplies to residents living in the vicinity.

We could not agriculture.

The price disrupted by Covid, 19, and they're doing well.

We link up clinical total growth with network with maybe doing networks, including <unk> and <unk>.

Sure that residents continued to have a supply they needed a stable prices.

User demand insulin <unk> significantly we also increased our warehousing by four times and doubled our manpower there.

In addition to these efforts, we contributed 100 million RMB towards the rescue and relief efforts.

Our support for <unk> is being with this spirit, our earlier initiatives to leverage our platform to contribute to society.

When COVID-19 disrupted traditional agricultural supply chain last year.

Launched our helping the farmer initiative.

<unk> farmers directly with consumers across the country.

Through all of that with therefore, we have over one point to one 3 million farmers.

So over two six.

6 million tons of agricultural produce by the end of 2020.

This help farmers reduce porridge and losses and the consumers get what they needed.

Lets consumers tend to own like also the shopping to minimize contact existing delivery system become overwhelmed.

Resulting significant backlog.

We responded by launching total grocery next day sell pickup service connect local demand and supply.

Total gross Louie.

The backlog, providing users more affordable and fresher produce in an efficient manner.

He has since become an important offering to our users helping to create and preserve millions of jobs along entire ASP, we've put a downward trend in the present.

He has also proven its worth as a support network in times of need integral.

We will continue to improve it to benefit users farmers and their communities.

Improving agriculture has been a front and center of our business from the very beginning.

Agriculture touches like daily life, everyone and has a relatively low utilization rate.

With many of our team be engineered by training, we hope to apply technology to agriculture, So as to make a large positive impact on society and contribute to our nation national effort to modernize agriculture and vitalize rural communities.

Our prime technology to agriculture is an effective way for us to achieve our mission, which is to benefit or to put people first and to be more open.

Yes.

Well quantify that Peter adore over $16 million of farmers, asking us that portal to a digital economy.

Farmers are the bedrock of equity for the system.

To help them thrive.

Is to help our equity assistant Elsa.

Large thrive.

We have seen firsthand, how OLED agriculture retail at technology have benefited farmers.

We are pleased that farmers and our partners recognize it too which is why they have Brett a word and held a number of partners on our platform grew so quickly.

We want to bring even more farmers onboard in the week.

Then to improve their lives and livelihoods.

This is possible only if you also look for our users and society at large.

This is why we are focusing on playing a role in strengthening strengthening.

Put security safety and technology.

And now let me elaborate.

First for the security.

It's important to secure consumer SaaS to a wide variety of affordable and nutritious food.

This we need to help our farmers sell better and more so that they can cultivate more efficiently and sustainably.

On the supply side, we need to Upskill farmers as we have been doing she will do academy in partnership with local government economic views applied new technology.

I'll, let demand side, we need to create awareness of the produce aggregate demand to the.

While China has a diverse selection of unique agriculture products.

Consumers open to not know about many of them.

We want to track this by promoting the rich offerings nationwide.

This is it is in this spirit that we recently launched our third hobby.

Well.

Leveraging our tech 10 billion program and the fresh sale.

In addition featured over 1000 unique quality produce rone 400 quality agriculture, no production region.

Since inception, <unk> 10 billion program, our Zero Commission policy agriculture produce.

Attracted over 10000 the quality.

Equity a better trend for our program selling over 20000 agriculture Skus.

I want to take this opportunity to pledge that we will maintain our zero Commission policy for agricultural products to help farmers build the more resilient efficient and profitable business.

Second safety.

We want to help improve tender across accurately consistent.

Our supply chain itself, we will continue to help build up the equity focused infrastructure.

We are investing to improve demand and supply matching cogent integration in smarter route planning.

This effort will also reduce agriculture.

Environmental environmental footprint by cutting resource use and emissions from our storage and transportation.

We're still at the very beginning of this infrastructure build up however, we are confident of its long term benefit.

Third foot technology, our <unk> technology.

We can only create a vibrant and sustainable equity position by seeking solutions for the cutting edge of science in it.

Working with farmers are prime based solutions.

I would like to highlight the work we are doing for additional funding.

Earlier this month, we launched our second smart agriculture competition, together with China, Agriculture, Dorothy and third our University.

We challenge the teams for a lot of work to plant Tomatoes.

Last year, we charge a teams to deliver cost effective productivity improvement with Tau bearings.

Technology technology teams performed very well.

Constraining cost addressed to the benefit of adopting precision farming by producing three times more fruit than the experienced farmers.

Two of these teams have things started to commercialize that technology, which will result in real productivity games for farmers.

After last year's successful run.

Second our criteria.

On top of cost effective productivity improvement.

<unk> will need to demonstrate their farming technology improve our commercial nutritional profile.

While exerting less impact only environment.

We will come all interesting teams with relevant skills to Jon Litt competition.

First a quick tech, we will make agriculture more attractive to the tech savvy Internet native younger generation.

We want to have them apply their tax skus in agriculture.

To date, we have directly contributed to over 100000, new farmers, returning and working in their hometown.

We will continue to strengthen our training for new farmers.

And we are targeting to another 100000 of them over the next five years.

While we have made headway in our agriculture improvement initiatives.

There's still a lot to be done to support our farmers.

<unk> technology to agriculture to making smarter more resilient.

Table and benefit all.

As China's last thought this overlap agriculture platform, we launched a dedicated 10 billion agriculture initiative today.

Which seeks to phase three.

The quick co need.

<unk> vectors.

Areas.

Commercial value of our properties are not to go with.

We strive to facilitate advancement of AMETEK promote digital inclusion and provide accurate.

Provide equity tech.

At World with greater motivation and the sales of achievement.

Although the agriculture.

Initiative.

We will clearly impact our short term earnings per share for shareholders.

Already we see well support and approval of the board of directors.

And he will be personally always being overseen by myself.

We hold a shareholder meeting to seek the support of the majority shareholders.

This is an important and challenging task, which we will invest in patiently.

All our profit from Q2 and any potential profit in future quarters, we will firstly allocated towards this initiative and.

In Q1, a total of 10 billion commitment is fulfilled.

Thank you and now at a profit time to time.

Thank you Li Hello, everyone.

Let me begin by providing an update on our progress in improving agriculture by applying technology and elaborate on how we will continue to deploy resources to do so.

So as to achieve our mission to benefit or.

And I will then discuss our financials this quarter.

First our efforts on digital and technological inclusion on farmers and equity markets.

We are firm believers in online agriculture retail.

And have already connected over 16 million farmers.

We are committed to do more of that for them.

And bring more farmers onboard and into the digital economy.

Many farmers smallholders and may not be digital natives.

We will be directing resources to make it a simple and worthwhile for them to embrace tech enabled agriculture.

Our platform helps farmers sell effectively online by making China, rich and diverse agricultural produce discoverable and accessible to our $850 million.

Demand with an aggregate.

As our foundation, we are committed to keeping our 10 billion program completely free for all agricultural credits.

Further to that we will be focusing on promoting quality agricultural produce.

We have seen encouraging results from our third harvest Festival last week.

This year presale orders nearly tripled within the same timeframe.

With our users' learning about and training more special products.

Including vegetables from Shaoguan Midland Crap from wholesale Lake.

And domestic industrial from Shanghai regular.

We see great potential for <unk> to be the go to place to discover unique produce and learn and experience China rich agriculture diversity.

We will continue to invest heavily to make this a reality.

We will apply <unk> to help them cultivate better and build their brands.

Our pioneering CTO and model was recently recognized by the retail Asia Awards for helping many export oriented Oems to pivot to the domestic market. After COVID-19 disrupted the demand from abroad.

So lets EQM the tailored their products to Chinese consumers and build strong brands to sell them.

We will be applying <unk> to agriculture.

We are working with farmers to understand their customers better and to tailor the produce and packaging accordingly.

Thereby increasing demand while reducing waste.

Environmental footprint and advertising spend.

This will also help us access more fresh produce that are better fresher and cheaper.

An early example of our work in this area.

Glenn in key producers in nicely.

<unk> is a premium <unk> T <unk>.

Originated from any shift with Jim.

And tapering from this area is considered to be the best quality within its category.

Under the angi country industry, New brand aliens, we partnered with 10, leading calculate and producers in energy and analyze the consumers preference to provide optimization feedback on site packaging and the price of their product.

In addition, we have them to establish a new brand image of quality is not expensive among consumers.

This helped to increase sales significantly.

Deepening the human capital pool in Agriculture is also key to the long term success of our efforts.

And we seek to empower farmers and equity merchants to grow and sell better. So the total academy and promote new technologies in partnership with local governments and economics.

We also help to nurture and showcase equity tax solutions through our global Smart agriculture competition.

They offer encouraging their wider adoption in China.

After successful inaugural event in 2020, we launched the second addition earlier this month.

We're very honored that China agricultural University, <unk> University have joined us and provided their strong support.

We have also put together a judging panel can post of distinguished experts and growers with backgrounds in horticulture crop modeling algorithm design and policymaking rift.

Reflecting the importance of interdisciplinary collaboration to modernize agriculture to benefit all.

We hope that this year's competition will spotlight ideas and techniques that can be applied by farmers to improve their funding.

Second retooling logistics for agriculture.

We will be allocating resources to improve equity focused the logistics for affordability and efficiency.

And to reduce its carbon footprint.

We will make it well adapted to the online agriculture retail.

We have made good strides in this area.

Incorporating our route planning technology to our network solutions.

At present, our work has already helped to expand the range of delicate fruit and vegetables that can be sold online.

<unk> prices.

With it our user enjoy more options because more farmers and equity merchants have joined the ticket digital economy.

At the same time, our distribution networks.

<unk> sales have also created many new economic opportunities.

Rising over 1 million jobs, along the way.

This improved improvements have also greened that agriculture supply chain by cutting down carbon emission through more efficient routing and matching of supply and demand.

As well as reducing food storage and waste in the distribution profit.

Well, we are encouraged to see the benefits that our logistics solutions have brought to many stakeholders and the environment there.

There is still much to do.

Accomplish.

Nevertheless, we are determined to play our part and are committed to make a significant long term investments in it alongside Likeminded partners.

It is our strategic priority to modernize the every two system to serve all stakeholders better and become more environmentally sustainable.

We are committed to invest any profit and resources into realizing it.

Our efforts are still in early days, and we will be patient for our investment to show results.

Now, let me talk through the financial highlights.

The second quarter of 2021.

We continue to see healthy user growth in Q2 and are happy with the progress we are making in improving trust and winning mindshare with our users.

Our annual active buyers for the last 12 months ending June 32021 increased to $849.9 million.

Up $26.1 million from the prior quarter.

Our <unk> in Q2 reached $738.5 million.

This is up 30% compared to the same quarter in 2020.

Our <unk> as a percentage of our annual active buyers was 87% in the quarter.

Collecting continued healthy engagement with our users.

In terms of P&L, our total revenue in the quarter ended June 32021, or RMB 23 billion up 89% from RMB 12, 2 billion in the same quarter last year.

Excluding revenues from our <unk> trial, our total revenues grew by 73% to RMB $21.1 billion in Q2 2021.

The main driver of this growth was our online marketing services.

Online marketing services revenue was RMB 18, 1 billion this quarter up 864% compared to the same period last year.

Due primarily to continued increase in merchant activities.

We have seen merchant spending more and exploring new ways to engage with users.

And our users browsing more and discovering more items of interest.

We can attribute this at least in part to improvements in the advertising products and analytical tools, we offer to our merchants.

Which have helped us to meet and exceed our targets.

We are pleased to see the growing endorsement by our merchants and our users.

Our transaction service revenues this quarter amounted to RMB 3 billion.

Which is up 164% compared with the same period last year.

The increase in our transaction services revenue was due to two primary factors number one the increase in our <unk> in Q2 and.

And number two the service revenue that we recognized in connection with total cooperate.

We provide fulfillment and other related services.

We also record RMB 2 billion in merchandize sales for our <unk> trials in Q2, 2021 as compared to RMB five $1 billion in the preceding quarter.

As we have stated from the outset.

Our <unk> business is meant to temporarily meet user demand of specific products, which our merchants are unable to fulfill.

Therefore, this number may fluctuate from quarter to quarter, our strategy on lumpy remains unchanged and it will remain a very small part of our business.

Now moving on to costs and expenses.

Our total cost of revenues increased from RMB, two 7 billion in Q2 2020 to RMB seven 9 billion this quarter.

The increase was mainly due to the costs and expenses attributable to <unk> merchandize sales higher cost of payment processing fees cloud service fees and delivery and storage fees.

Total operating expenses this quarter were RMB 13, 2 billion as compared to RMB 11, 2 billion in the same quarter of 2020.

Our total non-GAAP basis operating expenses were RMB 12 billion as compared to RMB $10.3 billion in the same quarter a year ago.

Our non-GAAP sales and marketing expenses this quarter increased 13% to RMB 10 billion from RMB eight 9 billion in the same quarter of 2020.

This was mainly due to an increase in promotion and coupon expenses as we continue to invest in user engagement and mindshare.

June it's traditionally a festival.

Bounds for online retail.

I think total we do not emphasize on a shopping festivals.

Wish to deliver value for money merchandise across all category to our consumers' everyday.

At the same time, we have detailed internal ally guidelines on spending and are committed to make investments that meet such our guidelines.

As a result, we see moderated growth in sales and marketing expenses in this quarter.

Consistent with historical Q2 spending.

Looking forward, we are committed to make a meaningful investment into categories that we think could help to strengthen consumer mindshare and the benefit or in long term.

On this front, we will continue to make it free for agriculture products and fresh produce to be featured in our 10 billion program.

On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenue excluding one P trials this quarter was 47% as compared to 81% and 73% for the same quarter in 2019 and in 2020.

The reduction in sales and marketing expenses as a percentage of revenue is a reflection of our economics of scale and the consistent effort to stick to our high standards of our guidelines.

However, as we continue to invest into our user mindshare and in light of the upcoming festival season.

We expect the sales and marketing expenses to increase hence impact the bottom line.

On a non-GAAP basis, our general and administrative expenses were RMB $214 million, an increase of 57% from RMB 137 million in the same quarter of 2020.

Our non-GAAP research and development expenses were RMB, one 8 billion, an increase of 39% from RMB, One 3 billion in the same quarter of 2020.

The increase was primarily due to an increase in head count the recruitment of more experienced R&D personnel.

And an increase in R&D related cloud services expenses.

To sum up operating profit for this quarter was RMB 2 billion on a GAAP basis compared with operating loss of RMB, One 6 billion in the same quarter of 2020.

Non-GAAP operating profit was RMB, three 2 billion compared with operating loss of RMB $725.1 million in the same quarter of 2020.

Our non-GAAP operating profit as a percentage of our revenue improved from -6% in Q2 2022.

<unk>, 14% in Q2 2021.

Net income attributable to ordinary shareholders was RMB two 4 billion.

As compared to a net loss of RMB $899.3 million in the same quarter last year.

Basic earnings per ads was RMB 193, and the diluted earning per ads was RMB 169, compared with basic and diluted net loss per ads of RMB <unk> 75 in the same quarter of 2020.

Non-GAAP net income attributable to ordinary shareholders was RMB four 1 billion compared with net loss of RMB $77.2 million in the same quarter last year.

Non-GAAP diluted earnings per ads was RMB 285, compared with non-GAAP diluted net loss per ads of.

RMB 0.06 in the same quarter of 2020.

That completes the profit and loss payment for the second quarter.

Net cash flow provided by operating activities was RMB seven 4 billion compared with RMB five 5 billion in the same quarter of 2020.

Primarily due to an increase in online marketing service revenues.

As of June 32021, the company had RMB $92.2 billion in cash cash equivalents and short term investments.

As of the end of July 2021 U S. Dollar is $773.7 million of our zero percent convertible bonds.

In 2024 has been converted into equity.

With that I conclude my prepared remarks operator.

We can take questions now.

Thank you.

Sorry to.

I asked the question do they need to pay.

Okay.

Because it's kind of a good question.

Correct.

Okay.

Please standby.

Sorry, the Q&A roster.

Your first question comes from the line of Eddy Wang.

From Morgan Stanley. Please ask your question.

Thank you management for taking my question.

Congratulations on the strong earnings so I have two quick questions. Firstly about the consumption. So can you share some of your view or do you so far or have you witnessed for the consumption in China.

In the third quarter, because I think some of the e-commerce, leading comms players have indicated that you're comfortable.

Yes, a little bit weak, but another leading e-commerce platform.

Paul.

Yesterday actually.

Very strong resilient consumption. So I just want to check of what you have seen.

On the consumption side, especially for.

For the third quarter to date situations. This is the first question and the second question actually just about your profitability I think.

I remember correctly.

Just for the first time that we have.

We're bidding for your profitability for PDD.

And.

Non-GAAP net margin is 18% that's very impressive so given that our business model has been.

More and more mature so we expected that to your profitability pattern in this quarter to be more stable going forward and it's more.

Expected going forward. Thank you.

Okay. Thank you Andy for the question.

Let me try to answer these two questions regarding your first question on the consumption I think before we go to the third quarter.

Just to recap what happened in Q2, I think in general with the COVID-19 pandemic under control in Q2.

It is natural to see offline retail actually rebounded faster.

At the same time.

In 2020, the second quarter represent.

Higher base.

Online retail grow faster due to the COVID-19 related stay at home measures.

We are encouraged to see the continued a normalized growth in Q2. This year, considering Q2 is usually a busy quarter for e-commerce players.

In the past quarter, we continued to see healthy improvement in our user engagement and growth on our platform.

Our revenue in this quarter grew 89%.

Year over year as a whole.

If we take out the one key merchandise sales increased 73% year over year, So I would say.

Profit.

Still very strong.

But coming to your question on the third quarter Q3.

I think we are still small compared to some of our peers in this sector. So we might not be a good barometer of the overall market growth.

We are more focusing all of our cells.

Because our growth is.

Fueled by two main drivers one is the user growth.

As well as the mindshare.

And as we stated in the remarks.

Our user base has already reached $850 million.

And this growth will be in evidently slowdown.

So we could shifted the focus.

Really our service out of serving our users.

Better.

Steadily steadily building and getting strengthened on the mindshare with the platform and we.

We see this.

<unk> much room to further build and strengthen the trust.

That are used to having us.

And such a progress will take time.

And coming to your second question on the profitability and our profit in this quarter was mainly attributable to the operating leverage from the sales and marketing expenses.

As I just stated in the remarks due to the seasonality. It is a unique quarter. As Q2 is typically a low season for us with less sales and marketing spending and we.

We do not think that this quarter's profitability and it should be indicators referenced for our future investment in user mindshare in.

As far as the equity focused infrastructure.

We are seeing more investment coming.

In the coming quarter.

And as we invest more into agriculture, we do not expect profit ability to continue.

Andrew.

Let me just add one more comment on this.

We will.

Keep maintain the zero Commission policy.

Our agriculture produce to help more farmers and agri merchant and this type of investment will continue.

Thank you.

Thank you Tony Thank you.

Yes.

Yes.

Operator, we can take them back the question. Please.

Anthony.

Your next question comes from the line.

Natalie.

From Haitong International Please ask your question.

Hi, good evening Les downtown Ian Thanks for taking my question and congratulations on that.

Solid quarter, so I have two questions on my side.

Last quarter, we touched on your views regarding the competitive landscape given that historically, we've noticed that you have.

Spanning more aggressively and.

Firefly Gabelli are also gaining traction in E. Commerce. So just wondering if you can elaborate more on the maintenance.

That is the landscape dynamics and how do you think.

That same strategy.

Secondly regarding the <unk>.

With that I'm going to I'll say.

No.

Just wanted to share a bit more color on this program how will this impact.

The company's financial statements looking forward.

Thank you.

And Natalie welcome I hadn't you wouldn't hear institutional changes through the <unk> Macquarie team.

<unk>.

Thanks for your question Natalie.

My address your question I believe your first question is related to the competitive landscape.

Q2, <unk> just so you can feel entirely behind you.

Each new initiatives to continue to grow <unk>.

<unk>.

Johnny.

As regard to the shipping the machine we took the lead.

Yes.

<unk>.

So if we were to look at e-commerce as a whole this is a fairly large industry.

As we mentioned we think the rifles players like short video E. Commerce is not really surprising given they have huge user base high usage frequency and they also have very high user. Thank.

Thank you <unk>.

Sure.

Goodnight.

Choosing that he will start his towards it.

Underpinning type you shouldn't that geologically.

Qunar to get jeans and.

You Shouldnt agenda until you achieve.

<unk> strategic agenda.

So based on our sort of operating observation, we are seeing the competition, becoming more intensified there are more and more platform companies that joining E. Commerce, that's entering e-commerce and not only specific to the.

The short videos I expect we expect more players to enter this field.

Sure sure.

Through mutual.

Particularly as you continue to charge. If you included took ashish.

Is that looking at IPO.

<unk>.

Dunion immune to new channel due to reduced store to redo energetic at the enzymes to transform returns are good.

<unk>.

So consumer demands actually a very multi dimensional and constantly evolving.

Six years six years ago. When we started when we first started we chose to build a mobile omni platform that is not in our model and this is a model that we built that was quite distinct from the other players.

This is a Washington, although she is a nice win in the high <unk> III launching the <unk>.

<unk> within the sugared omission.

With me it's enabled jetblue.

Among the <unk>.

<unk> pharma for the country's attrition.

So if you were to US is this model is still the most innovative one.

Customers demand.

So constantly discussing this.

And I think you may observe this from the decelerating trend of our user growth.

That will be looked upon doing dual.

Focus will continue in case of the casino <unk> and the <unk> quite a true total salaries.

Humans, which hoping to secure.

The more sooner and in Windows.

What we ask for one year <unk>.

Hello, normally until immuno Chongqing Wuhan.

Because of the clinic.

So as you know that we have been undergoing a management transition in the past couple of months.

And the new management is asking.

The question about what our team can adjust with the maximum speed to meet the evolving needs of our users and also with our current model still be relevant maybe five seven or 10 years later.

We are working really hard on it.

There will be managed challenges.

Foreseeable difficulty.

So.

You showed the hardest all Judah.

Due to the tool versus <unk> 300 <unk>.

<unk> 3002, <unk> versus hone immuno <unk>.

200 <unk>.

<unk> Honda mainly astonishing.

To the <unk> homes, when the algorithm the jewelry.

But I'll also like to add.

The Chinese market is extremely dynamic and vibrant.

In the worlds largest consumer retail market.

The emergence of new business models actually do demonstrate.

Appeal and innovation potential of this market.

Number one some neuromodulation, which youre doing well.

Actually on the <unk>.

<unk> and <unk>.

How much of it is it seems.

In terms of people who want to use.

So regardless of the competition I think is really important for us to stick with our principle of benefit all people first.

And being more open.

Same time, we should continue to be a user centric and focus on the needs of our consumer and this in the end it will be more important than the competition itself.

The tioga wouldn't tiara to Europe.

No.

Goodbye.

Two quick ones here.

<unk> John the issue.

Tony which even easier than doing the GCG.

So on your second question regarding.

10 billion aggregate initiatives, let me first give.

I'll give you some color on this and Tony will follow up with more detail.

<unk> 3000 homes hunting some extent geography.

It sooner some is surely let you buy either to the ammonia according to Asia.

So cumulative China's largest online agriculture platform and we launched a dedicated 10 billion agriculture initiatives. This time.

No. It's a good buy emoji and as long as you all know chooses designs.

Sure.

The year sounds when the industry.

And when that boosted <unk> selling of jobs you need to go with more data.

<unk> you could see the gene pool.

Could you tease with.

<unk> you soon to grow could you concluded in Arkansas.

Two changing duly hooker.

So we hope this initiative.

Too faced and address the critical needs in the agriculture sector.

Areas.

And commercial value of our profit and not the goal, but rather we strive to facilitate the advancement of Agri Tac.

Promote digital inclusion and provides.

Top talent and workers with greater motivation and the central achievement.

Good morning Judah.

Trudeau has squeezed to the insurance income.

<unk>.

And will your.

Senior <unk> award, which seem to dial into the shop with US we call it.

We do some.

This initiative will clearly impact the short term.

Earnings per share for shareholders.

We have received.

To support an approval.

The board of directors and I personally will be leading this program.

<unk> improved the teaching liquid Comstock Wheaton Chita.

This is a computer.

And the decision to Yahoo transaction of controlling them.

<unk> 19 of total.

Next we will convene the shareholder meeting to see the support of a majority shareholder.

This is a very important and challenging task, which we will invest in patiently.

Tommy <unk> charges 31 title from users.

Okay.

I think let me add some color onto this naturally on your question on the <unk>.

Impact on our financial.

<unk>.

I think.

As Lee mentioned in his remarks basically the idea is to reinvest the profit of this quarter and.

Any future potential profit.

Into this.

10 billion equity initiative.

And in terms of the areas of anxious offsetting investment.

Identifying three key pillars, namely to security to safety and accurately technology.

And these investments.

It will certainly have an impact on the bottom line.

In the.

Medium to long term.

But in terms of which line.

We will be affected in the P&L it really depends on the nature of the spending.

It could be.

On the research and development expenses or intangible assets when the software or technology is capitalized.

It could be sitting in our balance sheet agriculture investment.

Alright, I'll take over from here.

Thank you.

Okay.

Thank you.

Your next question comes from the line of Thomas Chong.

From Jefferies. Please ask your question.

Hi, Good evening, Thanks management for taking my questions I have.

Two questions. The first question is about the online marketplace takeaways outlook as low as the measures.

To support the merchants in coming quarters and my second question is about the competitive landscape in the online grocery space.

Management is J about the recent developments as well as the business trends.

Thank you.

No Tom.

Tom solution.

Thiago <unk> quanta.

So my title to it teams into one.

Thomas Let me address the second question.

Competitive landscape for total cost wafers.

The putumayo centric Michel module.

So much in the detail to challenging task.

Andrew or myself a call.

But on the streets.

A woman.

<unk>.

Awesome.

So from the data was started and total grocery where have been saying that intention behind this business has to move.

And the difference in each of our user and it's a natural extension of our business.

<unk> solutions leader.

<unk>.

It's also part of our continued effort in agriculture.

Took michelle moves from Tyson to Winchester Goldman Junior <unk> goods.

Here with us today, we tightened it.

Firstly could you answer that one.

<unk> sciences, since where it wasn't on our portal initiatives mucci as far as eager to digital.

So we know that this is this business. The total closer business is quite different from what we have been doing for six years I can model.

The growth rate is Javier operation and our team is also constantly learning through trial and error.

I think we are doing every day.

Jerome.

<unk>, how would you still be hyatt listener wouldn't tier.

To some good some good mean.

Took a civil domain, which offers at the Shanghai, Guangzhou Shanghai the future Europe.

Views for Florida.

Yeah.

So I think.

It's not really necessary and important for us to pay too much attention on the competition right now, but rather we should focus on.

User demand and how to better serve them and whether our services.

Their expectation.

So they will keep particularly for people who want to grow Japan, <unk> and with Houston. We May tell you. She said to go to Katanga as Sundar Titanfall, but just wanted Taiwan multi accordion that she said all week. She income it would appear as we fulfill image if you want to sell to them.

So let me give you a specific guidance call for in terms of fulfillment experiences.

In the business on board with Wall Street.

Why they are talking it off too early or too late at a pickup points for consumers, we will attack their user experiences.

I'm gonna to fruitful noninterest income Bob Hull.

<unk> for the Bahama Difonzo assortment <unk> handle that we have gone through their Apis.

One two.

Zero.

So how we should serve volumes, it's better and to improve in the areas that we are not doing a great job.

These are the areas that we as management are focused on focusing on on a daily basis, rather than paying attention to the competition with others.

Tom do you think with ICR.

Yes sure. Thank you.

Regarding your question on take rate Thomas.

Our strategy has always been serving our users.

Believe that growth and monetization a natural result of that.

Merchant ally is.

Already reflected in our revenues as you can see our revenue this quarter continued to grow which is an affirmation of the healthy online merchants are seeing as they sell more on our platform.

We also keep launching new features that merchants can use to help themselves.

Understand that targa users better and therefore enhance their ally.

Specifically on our 10 billion program, we continue to be committed to delivering the best value for money products through this channel.

As we mentioned in the prepared remarks, we are raising the bar on the quality of merchants and products to meet our users' needs.

That being said we are committed to keeping a zero commission policy for agriculture in fresh produce and in fact, we will increase our investment in agriculture.

Products, and we will see some of the impact in the near future.

To give you. An example in Q1 this year the number of agricultural produce skus.

With more than 100000, others exceeded 2600.

And in the recent launched.

Harvest festival, the pre sales data of quality agriculture produce showed over 200% growth year over year.

On a single day.

We are very encouraged by this and are committed to do more.

So coming back to your question on the take rate growth, we do not focus on this on a quarterly basis as we believe monetization as a result of user satisfaction and merchants ally and our monetization rate has fluctuated in the past.

Got it thank you.

Operator, we can take the next question.

Thank you.

Your next question comes from the line of Robin Zhu.

From Bernstein. Please ask your question.

Thank you. Thank you management can I just have two questions. Please the first one on ARPA growth in cohort groups among your users, especially.

Any color on where our who is now on the platform excluding reverse new users.

During the North <unk>, one year, we're not milestones where do you think about it can go.

Second question.

We've noticed that when you.

Personal information protection regulations.

And then some of the Brooklyn gain does make it more difficult for merchants to grow user information.

I want to get your thoughts on all that.

The merchants reliance on the coupon.

Four.

Since demand for advertising on your platform.

Ill.

You guys plan to address their needs to capture.

Direct to consumer.

<unk>.

Yes.

Okay.

Well hopefully.

Dr. Cohen <unk> to see you wanted the data protection.

Let me address the second part of your question related.

Data protection.

Sure.

<unk> foods lunch.

Finally factory no.

No. If you didn't have the tourism, which institute for your digital strategy this year that equally.

Police have noticed with Uber.

Well I think the recently issued laws and regulations around data security and data protection.

Provided.

Hotline for all companies dealing with data.

Now moving into the nurse's towards <unk>.

To achieve.

<unk> Michel Visa Europe.

<unk> encountered partners have either.

We think these guidelines are beneficial to the long term healthy developmental company platform and consumers within that entire sector.

And with <unk>.

Arnaud.

We'll continue to grow which impact the performance.

This is beyond partner with ally.

Two soluble Z of Hong Kong.

<unk> and <unk>.

<unk> hundred <unk> I kind of went through the season.

So in the short to medium term I do think that we will see some impact from these changes depending on the different model, whether that's advertising that you mentioned, but in the longer term. We think these measures are beneficial.

It's the Eli no one should also feel young.

And along with the same quanta through June <unk>.

Peter.

Jim Guangdong, Fujian <unk> put online so that won't keytruda and <unk>.

Oh wait.

Cool.

<unk>.

<unk>.

Sure.

As you know we have always been strictly compliance with China data Security Center.

Regulators and the industry as a whole continue to raise the bar on data security and data protection.

We'll also keep holding ourselves to the highest standards.

This is to help provide to our users and merchants.

A safe and efficient shopping environment.

<unk> noted to society.

Puma.

Between the two parts into the sheets.

Millions of charging the shipper issues associated.

<unk>.

So of course, we will consume some quantity.

So we are currently working diligently to master the detailed policy requirement and adjust.

Hi, Jeff.

Operational protective benefits of data our clients.

Sure.

Okay.

Robin Let me come to your question on the App.

First London.

Let me clarify as we continue to improve our product offering and the user experience on users on our platform tends to trust us more and therefore support ethanol. This is a function of our users gaining greater commonality and building more trust with our.

Platform.

We are also working to increase the breadth and depth of our product selection across all product categories and price points. We believe that as we provided users with more options and keep meeting their demands to Apple will naturally increase.

You put it a very.

Right.

Half.

Enormous.

Number of new users coming.

Less than 12 months and this is actually our key task and it's a challenge for us as well to under this understand the needs of these new users. It takes more time for the new users to get familiar with our platform.

The beauty of mindshare with the platform and even for users more than two years three years. Their demands are also evolving.

Putting the user needs at the heart of our strategy.

And to fulfill their experience providing the better service.

And therefore, we.

We will continue to invest in the coming quarters, when the high seasons coming up a bit.

Sales and marketing spending or other investments and these are our priorities to come and not just the absolute key to itself.

The focus.

Okay.

Okay. Operator, we can take last question.

Thank you. Your last question comes from the line of Piyush.

From Goldman Sachs. Please ask your question.

Thank you Larry Tony for taking my question.

When I look at your 10 billion Yuan initiated.

You were talking about spending a profit on agriculture, and monetization modernization as well as the rule.

By utilization and I look at that in combination with the fact that your customer growth numbers on reaching that point, where further growth is going to be harder and harder.

And the visible profitability.

Second quarter are we at that point of time, where the business model outside the 10 billion initiated is at that stage, where the continued profitability is inevitable and it's going to be harder to hide away from and that $10 billion is going to come from further profit or is that $10 billion going to be over and above the profitability that the business is like.

To generate well between the lines. It re derived when you said that sales and marketing spend is likely to rise in the third and the fourth quarter potentially taking over eating away.

Profitability in the next couple of quarters. So I wasn't sure I understood fully if you could just elaborate to the extent you can I'd be grateful. Thank you.

Thank you for the question.

<unk>.

In January.

The overall agriculture investment you are talking about.

COVID-19 has really challenged.

So current logistic logistic and distribution network and surface to some of the traffic issues. So this demand for a new logistic network that could better support the distribution of fresh produce and agriculture product.

And this is a complex system that requires innovation and some trial and error.

To give you some color let me give you some questions that we have.

Keep asking ourself.

In the management when think of the improvement in the sector.

Which obviously is the number one priority a strategic priority for us for now.

Examples like how can we use technology to reduce waste.

Rental footprint.

And what type of route planning cut the food waste and transportation emission.

Transportation and storage condition could ensure longer shelf life and better preservation of nutrition.

<unk> of the agriculture produce and what technology might be needed to realize such conditions.

This is a huge wide space that requires patience and long term investment.

This a lot of areas. We are looking at for the moment and we are at the very beginning of it.

So.

I think in latest remark, we mentioned that the $10 billion.

Aggregate initiative actually profitability in any commercial.

<unk>.

Kpis are not being considered.

So.

We are only.

At the very beginning of this stage, we are very committed to investing into the future and into this sector for a long term period of time.

Thank you and could I just off the scale.

Grocery in the quarter will give us a feel for agriculture in terms of importance are the percentage of <unk> or any other metric could share with us that would be great.

Thank you for the question, but as you know at the end of Q4 last year.

We adopted a market practice, we stopped disclosing any GNP, so I'm not in a position to share this number.

Thanks.

Okay. Operator, thank you so much this concludes.

The earnings call for this season. Thank you so much for everyone joining and have a good day.

Thank you.

Thank you this concludes our conference today.

You for participating you may all.

Disconnect.

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Good day, and thank you for standing by.

I'll come to that Pinto outdoor second quarter 2021 earnings conference call.

At this time.

These are in a listen only mode.

The speaker's presentation, there will be a question and answer session.

Ask that question fingers session.

Do I need to press star.

One on your telephone.

Yeah.

Okay.

Today's conference is being recorded.

If you require any further assistance please press star two.

I would now like to hand the conference.

If you go today.

Please go ahead.

Alright, Thank you operator, Hello, everyone and thank you for joining us today.

<unk> earnings release was distributed earlier and is available on the IR website.

<unk> Dot com.

Through Globe Newswire services.

On today's call are chairman and Chief Executive Officer will make some general remarks on our performance for the past quarter and our strategic focus going forward.

<unk> final Tony will elaborate further on specific strategic initiatives and take us through our financial results for the second quarter ended June 32020.

<unk>.

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 certain non-GAAP financial measures.

Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures.

So now it is my pleasure to introduce our chairman and Chief Executive Officer. Please go ahead.

Thank you, Jason Hello, everyone and thank you for joining our result announcement for our second quarter of 2021.

Thanks to our users trust our total revenue for this quarter, excluding revenue for merchandise sales.

B $21.1 billion.

This represents a year on year increase of 73%.

Our annual active buyers reached $849.9 million for the 12 months ending on June 30.

Over the quarter, our Mou increased to $738.5 million, representing 80, 87% our annual active buyers.

Our results this quarter demonstrate our enduring commitment to serve our users as well as their trust in us.

We feel fortunate and grateful for their consistent support and we will continue to do our best to serve them and all our stakeholders.

<unk> takes our responsibility to our users and society very seriously.

Without them and their support.

Will not be where we are today.

This is why were always there we've done for them in the times of need.

After heavy rains drug Hunan province last month.

We immediately mobilized our networks our partners too.

Provide relief.

Close to 20000 total growth will pick up points and then.

Does it help to distribute emergency supplies to residents living in the vicinity.

With <unk>.

Agriculture surprise disrupted by COVID-19 and agree with.

We link up.

Total growth with network with labeling networks, including <unk> and <unk>.

Ensure that residents continued to have a supply led needed a stable prices.

User demand <unk> significantly we also increased our warehousing by four times and doubled our manpower there.

In addition to this effort, we contributed 100 million RMB towards the rescue and relief efforts.

Our support for <unk> is seeing the same spirit, our earlier initiatives to leverage our platform to contribute to society.

When COVID-19 disrupted traditional agricultural supply chain last year.

We launched our helping the farmer initiative.

Net income farmers directly with consumers across the country.

Through our various therefore, we help over one point to one 3 million farmers.

So over 2.06.

6 million tons of agricultural produce by the end of 2020.

This help farmers reduced borrowings and losses and the consumers get what they needed.

Lets consumers tend to unlike also the shopping to minimize contact existing delivery system become overwhelmed.

Resulting significant backlog.

We responded by launching total grocery next day sell pickup service connect local demand and supply.

Total gross Louie.

The backlog, providing users more affordable and flasher produce in an efficient manner.

He has since become an important offering to our users helping to create and preserve millions are job alone entire agrifood value trend in the process.

He has also proven its worth as a support network in times of need in terms of.

We will continue to improve it to benefit users farmers and their communities.

Improving agriculture has been a front and center of our business from the very beginning.

Agriculture touches the daily life of everyone and has a relatively low rate.

With many of our team be engineered by training, we hope to apply technology to agriculture, So as to make a large positive impact on society and contribute to our nation the national effort to modernize agriculture and Vitalize rural communities.

Our prime technology to agriculture is the best way for us to achieve our mission.

As to benefit or to put people first and to be more open.

We are gratified that can do a door.

$16 million of farmers, asking us that portal to a digital economy.

Farmers are a bedrock of equity for the system.

To help them.

<unk> is to help our equity to system LSI.

Large thrive.

We have seen firsthand how <unk>.

Agriculture retail at technology have benefited.

<unk>.

We are pleased that farmers and our partners recognize it too which is why they have Brett a word and help in a number of partners on our platform grew so quickly.

We want to bring even more farmers onboard and the work we've done to improve the lives and livelihoods.

This is possible only if we also look for our users and society at large.

This is why we are focusing on playing a role in strengthening strengthening.

Put security safety and technology.

And now let me elaborate.

First for the security business.

Importantly, secure consumer SaaS to a wide variety of affordable and nutritious food.

This we need to help our farmers sell better and more so that they can cultivate more efficiently and sustainably.

On the supply side, we need to up your farmers, but we have been doing she will total academy in partnership with local government economic views applied new technology.

I'll, let demand side, we need to create awareness of the produce aggregate demand to the.

While China has a diverse selection of unique agriculture product.

Consumers open to not know about many of them.

We want to transit by promoting the rich offering nationwide.

This is it is in this spirit that we recently launched our third harvest Festival.

Leveraging our tech 10 billion program and the flash sale lease.

Additionally, featured over 1000 unique quality produce rone 400 quality agriculture, no production in region.

Since inception, <unk> 10 billion program, our Zero Commission policy agriculture produce.

Attracted over 10000 quality.

Equity merger into the program selling over 20000 agriculture No skus.

I want to take this opportunity to pledge that we will maintain our zero Commission policy for agricultural products to help farmers build a more resilient efficient and profitable business.

Second food safety.

We wanted to help improve tender across accurate with it.

Our supply chain itself, we will continue to help build up the equity focused infrastructure.

We are investing to improve demand and supply matching cogent integration in smarter Rob Penni.

This effort will also reduce agriculture.

Environmental environmental footprint by cutting resource use and emission from our storage and transportation.

We're still at the very beginning of this infrastructure build up however, we are confident of its long term benefit.

Third put technology are accurate with technology.

We can only create a vibrant and sustainable equity position by seeking solutions for the cutting edge of science.

In working with farmers are prime based solutions.

I would like to highlight the work we're doing in precision farming.

Earlier this month, we launched our second smart agriculture competition, together with China, Agriculture, Dorothy and third our University.

We challenge our teams for a lot of work to plant Tomatoes.

Last year, we challenge the teams to deliver cost effective productivity improvement with Tau battery.

The Tech net technology teams performed very well demonstrating the cost adjusted benefit of adopting precision farming by producing three times more fruit than the experienced farmers.

Two of these teams have things started to commercialize that technology, which will result in real productivity gains will farmers.

After last year's successful wrong, we are setting our criteria.

On top of cost effective productivity improvement.

<unk> will need to demonstrate the farming technology improve tomatoes nutritional profile.

While exerting less impact only environment.

We will come all interesting team with relevant skills to Jon Litt competition.

First a quick tech, we will make agriculture more attractive to the tech savvy Internet native younger generation.

We want to have them apply their tech skills in agriculture.

To date, we have directly contributed to over 100000, new farmers, returning and working in their hometown.

We will continue to strengthen our training for new partners.

And we are targeting to another 100000 of them over the next five years.

While we have made headway in our agriculture improvement in nature, It's David.

There's still a lot to be done to support our farmers and apply technology to agriculture to making smarter more resilient.

Renewable and the benefit of.

As China's let's start with agriculture platform, we launched a dedicated 10 billion agriculture initiative to date.

Which seeks to phase.

A quick co need.

<unk> vectors and rural areas.

Commercial value prop is not a goal, but rather we strive to facilitate advancement of AMETEK promote digital inclusion and provide accurate.

<unk> provides equity.

Orders with greater motivation and sales of achievement.

Although the agriculture.

Innovative.

We will clearly impact our short term earnings per share for shareholders.

<unk> already received the support and approval of the board of directors.

And he will be personally always being overseen by myself.

We do hold a shareholder meeting to seek the support of a majority shareholders.

This is an important and challenging task, which we will invest in patiently.

All our profit from Q2 and any potential profit in future quarters, we will firstly allocated towards this initiative and to a total of 10 billion commitment is fulfilled.

Thank you and now at a profit time to time.

Thank you Li Hello, everyone.

Let me begin by providing an update on our progress in improving agriculture by applying technology and elaborate on how we will continue to deploy resources to do so.

So as to achieve our mission to benefit or.

And I will then discuss our financials this quarter.

First our efforts on digital and technology code inclusion on farmers and equity merchant.

We are firm believers in online agriculture retail.

And have already connected over 16 million farmers.

We are committed to do more of that for them.

And bring more farmers onboard and into the digital economy.

Many farmers smallholders and may not be digital natives.

We will be directing resources to make it simple and worthwhile for them to embrace tech enabled agriculture.

Our platform helps farmers sell effectively online by making China, rich and diverse agricultural produce discoverable and accessible to our $850 million.

Demand with an aggregate.

As a foundation, we are committed to keeping our 10 billion program completely free for all agricultural credits.

Further to that we will be focusing on promoting quality agriculture operative.

We have seen encouraging results from our third harvest Festival last week.

This year presale orders nearly triple within the same timeframe.

With our users' learning about and training more special products.

Including vegetables from Shaoguan Midland Crap from wholesale Lake.

<unk> industrial from Shanghai regular.

We see great potential for <unk> to be the go to place to discover unique produce and learn and experience China rich agriculture diversity.

We will continue to invest heavily to make this a reality.

We will apply <unk> to help them cultivate better and build their brand.

Our pioneering CTO and model was recently recognized by the retail Asia Awards for helping many export oriented Oems to pivot to the domestic market. After COVID-19 disrupted the demand from abroad.

So we seek to earn the tailored their products to Chinese consumers and build strong brands to sell them.

We will be applying in situ and to agriculture.

We are working with farmers to understand their customers better and to tailor their produce and packaging accordingly.

Thereby increasing demand, while reducing waste environmental footprint and advertising spend.

This will also help us access more fresh produce.

Better fresher and cheaper.

An early example of our work in this area <unk> key producers in nicely.

<unk> is a premium <unk>.

Originated from energy Fujian.

And cabling in from this area is considered to be the best quality key within this category.

Under the Angi country T industry, New brand aliens, we partnered with 10, leading gateway introduces in energy in.

And the annualized the consumer's preference to provide optimization feedback on site packaging and the price of their product.

In addition, we have them to establish a new brand image of quality is not expensive among consumers.

Helped to increase sales significantly.

Deepening the human capital pool in Agriculture is also key to the long term success of our efforts.

And we seek to empower farmers and equity merchants to grow and sell better. So the total academy and promote new technologies in partnership with local governments and economics.

We also help to nurture and showcase equity tax solutions through our global Smart agriculture competition.

They offer encouraging their wider adoption in China.

After successful inaugural event in 2020, we launched the second addition earlier this month.

We are very honored that China agricultural University towards young University have joined us and provided their strong support.

We have also put together a judging panel composed of 15 wish to experts and growers with backgrounds in horticulture crop modeling algorithm design and policy, making.

Reflecting the importance of interdisciplinary collaboration to modernize agriculture to benefit all.

We hope that this year's competition will spotlight ideas and techniques that can be applied by farmers to improve their stocking.

Second retooling logistics for agriculture.

We will be allocating resources to improve equity focused the logistics for affordability and efficiency.

And to reduce its carbon footprint.

We will make it well adapted to online agriculture retail.

We have made good strides in this area.

Incorporating our route planning technology to our network solutions.

At present, our work has already helped to expand the rank of delicate fruit and vegetables that can be sold online.

Notable crisis.

With it our user enjoy more options because more farmers and equity merchants have joined the ticket digital economy.

At the same time, our distribution networks that support these cells have also created many new economic opportunities capitalizing over 1 million jobs along the way.

These improvements have also green the agriculture supply chain by cutting down carbon emission through more efficient routing and matching of supply and demand.

As well as reducing food storage and waste in the distribution profit.

Well, we are encouraged to see the benefits that our logistics solutions have brought with many stakeholders and the environment.

There is still much to do and accomplish.

Nevertheless, we are determined to play our part and are committed to make a significant long term investments in it alongside like minded partners.

It is our strategic priority to modernize the <unk> system to serve all stakeholders better and become more environmentally sustainable.

We are committed to invest any profit and resources into realizing it.

Our efforts are still in early days, and we will be patient for our investment to show results.

Now, let me talk through the financial highlights for the second quarter of 2021.

We continue to see healthy user growth in Q2 and are happy with the progress we are making in improving trust and winning mindshare with our users.

Our annual active buyers for the last 12 months ending June 30th.

21 increased to $849.9 million.

Up $26.1 million from the prior quarter.

Our <unk> in Q2 reached $738.5 million.

This is up 30% compared to the same quarter in 2020.

Our <unk> as a percentage of our annual active buyers was 87% in the quarter.

Reflecting continued healthy engagement with our users.

In terms of P&L, our total revenue in the quarter ended June 32021 were RMB 23 billion up 89% from RMB 12, 2 billion in the same quarter last year.

Excluding revenues from our <unk> trial, our total revenues grew by 73% to RMB $21.1 billion in Q2 2021.

The main driver of this growth was our online marketing services.

Online marketing services revenue was RMB 18, 1 billion this quarter up 64% compared to the same period last year.

Due primarily to continued increase in merchant activities.

We have seen merchant spending more and exploring new ways to engage with users.

And our users browsing more and discovering more items of interest.

We can attribute this at least in part to improvements in the advertising products and analytical tools, we offer to our merchants.

Which have helped us to meet and exceed our targets.

We are pleased to see the growing endorsement by our merchants and our users.

Our transaction service revenue this quarter amounted to RMB 3 billion.

Which is up 164% compared with the same period last year.

The increase in our transaction services revenue was due to two primary factors number one the increase in our <unk> in Q2 and.

And number two the service revenue that we recognized in connection with total cooperate.

We provide fulfillment and other related services.

We also record RMB 2 billion in merchandize sales for our <unk> trials in Q2, 2021 as compared to RMB five 1 billion in the preceding quarter.

As we have stated from the outset.

Our <unk> business is meant to temporarily meet user demand of specific products, which our merchants are unable to fulfill.

Therefore, this number may fluctuate from quarter to quarter, our strategy on lumpy remains unchanged and it will remain a very small part of our business.

Now moving on to costs and expenses.

Our total cost of revenue increased from RMB, two 7 billion in Q2 2020 to RMB seven 9 billion this quarter.

The increase was <unk>.

Due to the costs and expenses attributable to one key merchandise sales higher cost of payment processing fees cloud service fees and delivery and storage fees.

Total operating expenses this quarter.

The $13.2 billion as compared to RMB 11, 2 billion in the same quarter of 2020.

Our total non-GAAP basis operating expenses were RMB 12 billion as compared to RMB $10.3 billion in the same quarter a year ago.

Our non-GAAP sales and marketing expenses this quarter increased 13% to RMB 10 billion from RMB eight 9 billion in the same quarter of 2020.

This was mainly due to an increase in promotion and coupon expenses as we continue to invest in user engagement and mindshare.

June is traditionally a festival months.

For online retail.

In total we do not emphasize on shopping festivals, but we still deliver value for money and merchandise across all category to our consumers' everyday.

At the same time, we have detailed internal ally guidelines on spending and are committed to make investments that meet our guidelines.

As a result, we see moderated growth in sales and marketing expenses in this quarter consistent with historical Q2 spending.

Looking forward, we are committed to make a meaningful investment into categories that we think could help strengthen consumer mindshare and the benefits are in long term.

On this front, we will continue to make it free for agriculture products and fresh produce to be featured in our 10 billion program.

On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenue excluding <unk> trial. This quarter was 47% as compared to 81% and 73% for the same quarter in 2019 and in 2020.

The reduction in sales and marketing expenses as a percentage of revenue is a reflection of our economics of scale and a consistent effort to stick to a high standard of Allied guideline.

However, as we continue to invest into our user mindshare and in light of the upcoming festival season.

We expect our sales and marketing expenses to increase hence impact the bottom line.

On a non-GAAP basis, our general and administrative expenses were RMB $214 million, an increase of 57% from RMB 137 million in the same quarter of 2020.

Our non-GAAP research and development expenses were RMB, one 8 billion, an increase of 39% from RMB, One 3 billion in the same quarter of 2020.

The increase was primarily due to an increase in head count the recruitment of more experienced R&D personnel.

And an increase in R&D related cloud services expenses.

To sum up operating profit for this quarter was RMB 2 billion on a GAAP basis compared with operating loss of RMB, One 6 billion in the same quarter of 2020.

Non-GAAP operating profit was RMB, three 2 billion compared with operating loss of RMB $725.1 million in the same quarter of 2020.

Our non-GAAP operating profit as a percentage of our revenue improved from -6% in Q2 2022.

14% in Q2 2021.

Net income attributable to ordinary shareholders was RMB two 4 billion.

As compared to a net loss of RMB $899.3 million in the same quarter last year.

Basic earnings per ads was RMB 193, and the diluted earning per ads was RMB 169, compared with basic and diluted net loss per ads of RMB <unk> 75 in the same quarter of 2020.

Non-GAAP net income attributable to ordinary shareholders was RMB four 1 billion compared with net loss of RMB $77.2 million in the same quarter last year.

Non-GAAP diluted earning per ads was RMB 285, compared with non-GAAP diluted net loss per ads of RMB 0.06 in the same quarter of 2020.

That completes the profit and loss payment for the second quarter.

Net cash flow provided by operating activities was RMB seven 4 billion compared with RMB five 5 billion in the same quarter of 2020.

Primarily due to an increase in online marketing service revenue.

As of June 32021, the company had RMB $92.2 billion in cash cash equivalents and short term investments.

As of the end of July 2021, U S dollar $773.7 million of our zero percent convertible bonds.

In 2024 has been converted into equity.

With that I conclude my prepared remarks operator.

We can take questions now.

Thank you.

Alright.

That's a question do you have any.

I guess any SEC.

Can I get a question.

Correct.

Okay.

Please standby.

Hey, Ross.

Your first question comes from the line of Eddie.

From Morgan Stanley. Please ask your question.

Thank you management for taking my question.

Congratulations on the strong earnings so I have two quick questions first you asked about the consumption.

Can you share some of your view or do you. So far we'll have you witnessed for the consumption in China.

In the third quarter, because I think some of the e-commerce, leading players have indicated that the consumption.

Yes, a little bit weak, but another leading e-commerce platform.

Paul.

Yesterday actually.

Indicate very strong resilient consumption. So I just want to check what you have seen.

On the consumption side, especially for the third quarter to date situation.

This is the first question.

The second question actually just about your profitability I think if I remember correctly.

Just for the first time that we have seen.

Very meaningful you know your profitability for PDD on quarterly basis.

<unk>.

Non-GAAP net margin.

18%, that's very impressive so given that our business model has been more and more mature so we expected that to Europe.

<unk> ability pattern in this quarter.

B.

More stable going forward and it's more.

Practice going.

Going forward, yes. Thank you.

Okay. Thank you Andy for the question.

Try to answer these two questions regarding your first question on the consumption I think before we go to the third quarter, let's just recap what happened in Q2.

I think in general with the COVID-19 pandemic under control in Q2.

It is natural to see offline retail actually rebounded faster.

At the same time.

In 2020, the second quarter represent a much higher base.

As online retail grow faster due to the COVID-19 related stay at home measures.

We are encouraged to see the continued and normalize the growth in Q2. This year, considering Q2 is usually a busy quarter for us.

E Commerce players.

In the past quarter, we continued to see healthy improvement in our user engagement and growth on our platform.

Our revenue in this quarter grew 89%.

Year over year as a whole.

If we take out the one key merchandise sales increased 73% year over year.

I would say.

Gross.

Still very strong.

Got it.

Coming to your question on the third quarter Q3.

I think we are still small compared to some of our peers in this sector. So we might not be a good barometer of the overall market growth.

We are more focusing all of our cells.

Because our growth is.

Fueled by two main drivers one is the user growth and that's why we ask the mindshare.

And as we stated in the remarks.

Our user base has already reached $850 million.

And this growth will be in evidently slowed up.

So we have shifted the focus.

Really our third how to serving our users.

<unk> and <unk>.

Steadily steadily building and getting strengthened on the mindshare with the platform.

We see this much.

Much room to further build and strengthen the trust.

Our user having us.

Such progress will take time.

And coming to your second question on the profitability and our profit in this quarter was mainly attributable to the operating leverage from the sales and marketing expenses.

As I just stated in the remarks due to the seasonality. It is a unique quarter. As Q2 is typically a low season for us with less sales and marketing spending and.

We do not think that this quarter's profitability and it should be an indicator referenced for our future investment in user mindshare in.

That's why we asked the equity focused infrastructure.

We are seeing more investment coming.

In the coming quarter.

And as we invest more into agriculture, we do not expect profit ability to continue.

Andrew.

Let me just add one more comment on this.

We will.

Keep maintain the zero Commission policy.

Our agriculture produce to help more farmers and agri merchant and this type of investment will continue.

Thank you.

Thank you Tony Thank you.

Yes.

Yes.

Operator, we can take the next question please.

Anthony.

Your next question comes from the line of Natalie <unk> from Haitong International. Please ask your question.

Hi, Good evening late John Tony and Thanks for taking my question and congratulations on that.

Solid quarter.

So I have two questions on my side.

Last quarter, we touched on your views regarding the competitive landscape given that recently, we have noticed that she is spending more aggressively and.

Slide <unk>.

We're gaining traction in Columbus, So just.

Wonder if you can elaborate more on the maintenance competitive landscape dynamics and how do you think there's more of that.

That strategy.

Secondly, regarding a candidate and backend programming to other countries now.

I just wanted to share a bit more color on the web.

This impact.

The Companys financial statements looking forward.

And Natalie wherever it I hadn't wouldn't PR institutional changes through the <unk> Macquarie team.

Sure.

Thanks for your question Natalie.

The address your question I believe your first question is related to the competitive landscape.

Q2 <unk>.

Yeah. So so you can feel entirely gone year.

I'm Gonna each initiative to continue to grow <unk>.

So jumping on.

Johnny.

As regard to the planned shipping the machine we took the lead.

<unk> and <unk>.

So if we were to look at e-commerce as a whole. This is a fairly large industry. So as you mentioned, we think the rifles play.

Here's like short video E. Commerce is not really surprising given they have huge user base.

<unk> usage frequency and they also have very high user. Thank.

Thank you <unk>.

Sure.

Okay.

She is in the queue is started towards it.

Underpinning type it shouldn't accumulatively.

Qunar to contingent.

You Shouldnt get shut off.

<unk>.

With the strategic agenda.

So based on our sort of operating observation, we are seeing the competition, becoming more intensified there are more and more platform companies that joining e-commerce at entering e-commerce and not only specific to.

Short videos I expect we expect more players to enter this field.

Sure.

Through mutual.

Particularly as you continue to Shanghai to Ashish.

That's looking at IPO.

What should the junior in EMEA to New channel will do two things with Stuart you don't run into any with Dsos to try and the returns are good.

<unk>.

So consumer demands actually a very multi dimensional and constantly evolving.

Six years six years ago. When we started when we first started we chose to build a mobile only platform that does not in our model and this is a model that we feel that that was quite distinct from the other players.

This is just a Washington, C&I as Rhonda <unk> III launching the global.

Global <unk> within that.

What we see now.

With me, it's I think it was implemented.

Among the <unk> issue.

<unk> pharma for the country's attrition.

So if you were to US is this model still the most innovative one.

Customers demand.

So constantly discussing this.

And I think you may observe this from decelerating trends of our user growth.

That will not undoing focus will continue in case, the casino quantities from <unk>.

So it <unk> quite as true total sundries humans.

A few months, which also has a future.

The more sooner and in Windows.

One year tenure at <unk> you can choose.

Hello.

Until immuno challenging we will continue to horizontal.

Yeah.

So as you know that we have been undergoing a management transition in the past couple of months.

And the new management is asking.

The question about what our team can adjust with the maximum speed to meet the evolving needs of our users and also where our car model still be relevant maybe five seven or 10 years later.

We are working really hard on it.

There will be managed challenges.

<unk> difficulties.

Oh, sorry.

You showed the Hodges.

Two <unk> versus <unk>.

You will see good fit onto your whole EDA and usage.

So three times, because homebuilding sources honeymoon types of simple share, though is in the house.

Honestly, we've seen some use in <unk>.

<unk> got some questions on the mainland astonishing.

To the Swiss homes, when they look at home that Julien.

But I'll also like to add that.

The Chinese market is extremely dynamic and vibrant.

In the worlds largest consumer retail market.

The emergence of new business models actually do demonstrate.

The appeal and innovation potential of this market.

Number one some neuromodulation, which are the highest.

So quick.

<unk> and <unk>.

Well no profit.

In total sequencing revenue.

So regardless of the competition I think is really important for us to stick with our principle of benefit all people first.

And being more open at the same time, we should continue to be user centric and focus on the needs of our consumer and the and it will be more important than the competition itself.

Well in the Tioga wouldn't Johan do you want to.

Normally you guys took up by email.

Two quick ones here.

<unk> patient geology.

<unk>.

Tony boutique <unk>.

Second question regarding.

10 billion aggregate initiative, let me first give.

I'll give you some color on this and Tony will fall off with more detail.

<unk> uses of this equals retarded hunting somebody's going to European time.

Sooner some will surely let you buy either took a nonlinear quickly to Asia.

So not only is China's largest online agriculture platform and we launched a dedicated 10 billion agriculture initiatives. This time.

Not at the Bayou, Louisiana as long as you're on the <unk>.

Sure.

The year sounds when the industry.

Bruce Lee Sarnia jobs continue to grow with more data.

Pushing us to be accretive in fiscal.

You could see the team.

Of course it is quick.

<unk> to grow in Europe.

Could you point to a lot of them too.

<unk>.

So we hope this initiative, we will seek to faith and address the critical needs in the agriculture sector and rural areas.

Commercial value or profit and not a goal, but rather we strive to facilitate.

The advancement of Agri Tac.

Promote digital inclusion and provides.

Agri Tech talent and workers with greater motivation and their sense of achievement.

Good morning Judah.

Trudeau has squeezed to the insurances.

Sure.

And when you're a.

Senior <unk> pizza.

It seems to dilute the shareholders holding two qualities of the film.

This initiative will clearly impact the short term.

Earnings per share for shareholders.

We have received.

<unk> approval of the board of directors and I personally will be leading this program.

<unk> put the teaching the gluten wheat and cheap relative to conclude.

Computer and the decision to transact.

Looking for an amount of a week.

2019 totaled.

Next we will convene the shareholder meeting to seek the support of a majority shareholder.

This is a very important and challenging task, which we will invest in patiently.

Tony <unk> from you.

Okay.

I think let me add some color onto this naturally on your question on the <unk>.

The impact on our financial.

<unk>.

I think.

As Lee mentioned in his remarks basically the idea is to reinvest at the profit of.

This quarter and.

Any future potential profit.

Into this.

<unk> 10 billion equity initiative.

And in terms of the areas of interest of this investment.

Identifying three key pillars, namely to security to safety and accurately technology.

And this investment.

We'll certainly have an impact on the bottom line.

The.

Medium to long term.

But in terms of which line.

Will be affected in the P&L it really depends on the nature of the spending.

It could be.

On the research and development expenses or intangible assets when the software or technology is capitalized.

It could be sitting in our balance sheet I can also have investment.

Alright, I'll turn it over.

Thank you.

Okay.

Thank you.

Your next question comes from the line of Thomas Chong.

From Jefferies. Please ask your question.

Hi, Good evening, Thanks management for taking my questions I have.

Two questions. The first question is about the online marketplace take rate outlook as well as the measures.

To support the merchants in coming quarters and my second question is about the competitive landscape in the online grocery space.

Management is J about the recent developments as well as the business trends.

While my time.

Thank you.

No Tom.

Tom solution.

Thiago <unk> quanta.

<unk>.

Thomas Let me address the second question.

Competitive landscape, our total grocery first.

<unk> tends to be sharing module should assume that the ethane to challenging task.

And through all phases of course, the boots on the street.

Women.

<unk>, yes.

Yeah.

So from the data was started and total clustering where have been saying that intention behind these businesses to meet.

And the diverse needs of our user and it's a natural extension of our business.

So vishal <unk> solution will lead us to go deep water.

It's also part of our continued effort in agriculture.

I'm going to be someone who's from Tyson to Winchester Goldman Junior Dominion is looking into goods.

We tightened it.

Firstly just on the yield.

No one doing analysis.

Wilson joined up with the initiatives.

I just wanted to go to digital.

So we know that this is this business. The total closer business is quite different from what we have been doing for six years I can model.

Javier operation and our team is also constantly learning.

We'll try an hour and I think we are seeing it every day.

Income genome with hopefully.

<unk>, how would you still be high <unk>.

To some good some good mean.

Took a civil critical months, which offices, the Shanghai, Guangzhou Shanghai to the future.

Views for Florida.

Yes.

So I think.

It's not really necessary are important for us to pay too much attention on the competition right now, but rather we should focus on.

User demand and how to better serve them and whether our services.

Their expectation.

This is particularly due to short.

Japan, <unk> got reasonable SKU and with Houston.

You will note she said to go to <unk> Sundar Titanfall, but just wanted Taiwan not <unk> at all we should internally with the Tms, which was sold in Q1 to do wholesale toward them.

So let me give you a specific guidance in terms of fulfillment experiences.

In the business of order growth rate.

And whether talking it off too early or too late at a pickup points for consumers will affect their user experiences.

I'm gonna to functional noninterest income Bob vertical haul.

<unk> for the <unk> phones, so the assortment <unk> handle that.

Through the IPO.

Subsequent to that.

<unk>.

So how we should serve volumes is better and to improve in the areas that we are not doing a great job.

These are the areas that we as management are focusing focusing on on a daily basis.

Paying attention to the competitions with others.

Tom do you think with ICR.

Yeah sure. Thank you.

Sure.

Regarding your question on take rates on us.

Our strategy has always been serving our users.

We believe that growth in monetization a natural result of that.

Merchant ally is already reflected in our revenue as you can.

Can see our revenue this quarter continue to grow which is an affirmation of the healthy online merchants are seen as they sell more on our platform we.

We also keep launching new features that merchants can use to help them sell and understand their target users better and therefore enhance their ally.

Specifically on our 10 billion program, we continue to be committed to delivering the best value for money products through this channel.

As we mentioned in the prepared remarks, we are raising the bar on the quality of merchants and products to meet our users' needs.

That being said we are committed to keeping a zero commission policy for agriculture in fresh produce and in fact that we will increase our investment in agriculture.

And we will see some of the impact in the near future.

To give you. An example in Q1 this year the number of agricultural produce F. Skus.

With more than 100000, others exceeded 2600.

And in the recent launched.

As the festival the pre sales data of quality agriculture produce showed over 200% growth year over year.

On a single day.

We are very encouraged by this and are committed to do more.

So coming back to your question on the take rate growth, we do not focus on this on a quarterly basis as we believe monetization as a result of user satisfaction and merchants ally and our monetization re has fluctuated in the past as you know.

Got it thank you.

Operator, we can take the next question.

Thank you.

Your next question.

First from the line of Robin Xu.

From Bernstein. Please ask your question.

Thank you. Thank you management can I just have two questions. Please the first one on ARPA growth in cohort growth among your users, especially.

Color on where <unk> is now on the platform excluding river new users.

During the last one year.

Milestones, where do you think that can go.

Second question.

We've noticed that when you.

Personal information protection regulations.

And some of the Brooklyn gain does make it more difficult for merchants to grow user information.

Wanted to get your thoughts on all that.

And blogs.

Merchants reliance on Q4.

<unk>.

But since demand for advertising on your platform.

Ill.

You guys plan to address the needs to meet.

Direct to consumer.

Thank you.

Okay.

Yes.

Dr. Cohen <unk> to see you wanted the data protection.

Let me address the second part of your question related data protection.

Total issue Luca.

<unk> foods lunch.

No no she didn't know the tourism, which institute for your digital strategy through this year that equally.

Please Hannah.

Well I think the real.

<unk> issued laws and regulations around data security and data protection.

<unk> and.

Scott lines for all companies dealing with data.

Our move into the nurse's rewards to it.

To achieve.

<unk> Michel Visa Europe.

TTM content partners either.

We think these guidelines are beneficial to the long term healthy development of company platform and consumers within that entire sector.

And kind of what we do this as we continue to grow which impacted performance.

So if you partner with ally.

Two soluble Hong Kong.

<unk> and <unk> I kind of went through the season.

So in the short to medium term I do think that we will see some impact from these changes depending on the different model, whether that's advertising that you mentioned, but in the longer term. We think these measures beneficiary.

I know you said also figure Yang.

And along with the same quanta through June <unk>.

Peter.

Number three is Jim Groch.

200, <unk> put online so that won't in Keytruda and <unk>.

<unk>.

Oh wait.

So on the <unk>.

And you are keeping amigo entrant you were.

Sure.

As you know we have always been strictly compliance with China data security standards.

Regulators and the industry as a whole continue to raise the bar on data security and data protection.

We'll also keep holding ourselves to the highest standards.

This is to help provide to our users and merchants.

A safe and efficient shopping environment.

Three teenagers.

You bet.

Between the two cuts into the sheets.

With me is that charged <unk>.

<unk>.

So those will contribute to some corner.

But we are currently working diligently to master the detailed policy requirements and adjust.

Hi, Jeff.

Operational processes when it hits the data are clean.

Sure.

Okay.

Robin Let me come to your question on the App.

First London.

Let me clarify as we continue to improve our product offering and the user experience on users on our platform tends to trust us more and therefore support ethanol. This is a function of our user gaining greater commonality and building more trust with our.

Praful.

We're also working to increase the breadth and depth of our product selection across all product categories and price points.

Believe that as we provided users with more options and keep meeting their demands to Apple will naturally increase.

You put it very.

Right we have.

Enormous.

Number of new users coming.

Less than 12 months and this is actually our key task and it's a challenge for us as well to understand understand.

The needs of these new users it takes more time for the new users to get familiar with our platform.

The beauty of mindshare with the platform and even for us as more than two years three years. Their demands are also evolving.

So putting the user needs at the heart of our strategy.

And to fulfill their experience providing better service.

Therefore.

We will continue to invest in the coming quarters, when the high seasons coming up.

Sales and marketing spending or other investments and these are our priorities.

And not just the opposite.

Keep your itself.

Okay.

Okay.

Okay. Operator, we can take last question.

Thank you. Your last question comes from the line of Piyush.

From Goldman Sachs. Please ask your question.

Thank you Leigh Tony for taking my question.

When I look at your 10 billion Yuan initiated where youre talking about spending a profit on agriculture and monetization modernization as well as the rule.

Utilization and I look at that in combination with the fact that your customer growth numbers on reaching that point, where further growth is going to be harder and harder and the visible profitability in the second quarter are we at that point of time, where the business model outside the $10 billion initiated is at that stage, where the continued pro.

<unk> ability is inevitable and it's going to be harder to add away from and that $10 billion is going to come from further profit or is that $10 billion going to be over and above the profitability that the business is likely to generate well between the lines re derived when you said that sales and marketing spend is likely to rise in the third and the fourth quarter potentially taking on.

We're eating away.

Profitability in the next couple of quarters. So I wasn't sure I understood fully if you could just elaborate to the extent you can I'd be grateful. Thank you.

Thank you for the question.

<unk>.

I think in general.

About the overall agriculture investment you are talking about.

The COVID-19 has really challenged.

Current logistic logistic and distribution network and surface to some of the pressing issues.

This demand for a new logistic network that could better support the distribution of fresh produce and agriculture product.

And this is <unk>.

Complex system that requires innovation.

Some trial and error.

To give you some color let me give you some questions that we.

Keep asking ourself.

In the management when think of the improvement in the sector.

Which obviously is the number one priority a strategic priority for us for now.

Examples like how can we use technology to reduce waste.

Rental footprint.

And what type of route planning can cut the food waste and transportation emission.

Transportation and storage condition could ensure longer shelf life and better preservation of nutrition, no value of agriculture produce and what technology might be needed to realize such conditions.

This is a huge wide space that requires patience and long term investment.

This a lot of areas. We are looking at for the moment and we are at the very beginning of it.

So.

I think in last remark, we mentioned that the $10 billion.

Aggregate initiative actually profitability in any commercial.

<unk>.

<unk> not being considered.

<unk>.

We are only.

At the very beginning of this stage, we are very committed to invest into the future and into this sector for a long term period of time.

Thank you.

Just off the scale.

Grocery in the quarter.

Give us a feel for agriculture in terms of importance are the percentage of <unk> or any other metric could share with us would be great.

Thank you for the question, but as you know at the end of Q4 last year, we adopted the market practice, we stopped disclosing any GNP, so I'm not in a position to share this number.

Alright. Thanks.

Okay. Operator, thank you so much this concludes.

Earnings call for this season. Thank you so much for everyone joining and have a good day.

Thank you all.

Thank you. This concludes our conference today, Thank you for participating.

May all disconnect.