PDD Holdings, Inc. Q1 FY2025 earnings call

• Accelerated high-quality development strategy, extending efforts from platform operations to a broader ecosystem, including initiatives like the 10 billion fee reduction program, logistics support for remote regions, and high-quality supply initiatives.
• Launched the 100 billion support program to increase merchant support, including further fee reductions, investment in small and medium-sized merchants, enhanced support for agriculture products (e.g., 2025 Duoduo Specialty Initiative), and consumer giveback initiatives (e.g., RMB10 billion consumer coupons).
• Visited frontline manufacturing bases, with merchants transitioning from traditional models to user-oriented and brand-driven approaches, reinvesting fee savings into new product development and supply chain transformation.
• In agriculture, launched tailored strategies for different product categories, enabling digital system implementation in agriculture product operations to address industry pain points.

In the first quarter, PDD Holdings' revenues were RMB95.7 billion. Revenues from online marketing services and others were RMB48.7 billion, up 15% year-over-year, and revenues from transaction services were RMB47 billion, up 6% year-over-year. Total cost of revenues increased 25% to RMB40.9 billion from Q1 2024. On a non-GAAP basis, total operating expenses increased to RMB36.5 billion from RMB25.6 billion in Q1 2024, with non-GAAP operating expenses as a percentage of total revenues at 38% compared to 29% in the same quarter last year. Non-GAAP sales and marketing expenses were RMB32.8 billion, up 44% year-over-year, research and development expenses were RMB3 billion non-GAAP (up 23% y-o-y), and net income attributable to ordinary shareholders was RMB14.7 billion compared to RMB28 billion in the same quarter last year.

• Revenue growth slowed due to business scaling and emerging challenges.
• Profitability likely to face challenges in the near term due to sustained ecosystem investments and mismatch between business investment and return cycles, but focus on long-term intrinsic value over five, ten, or longer years.
• Plan to expand the reach of merchant support initiatives to benefit more small and medium-sized enterprises and drive high-quality growth.

• Intensified competition in Chinese e-commerce, with third-party marketplace facing limitations in passing on policy incentives to consumers compared to first-party business competitors.
• Radical external policy changes in global business, such as tariffs, creating pressure for merchants who lack quick adaptation capabilities.
• Mismatch between business investment (e.g., expanded fee reduction program) and return cycles, impacting short-term profitability.

Q: Impact of recent macro policy changes on merchants and business model adjustments?

A: Proactive actions taken while upholding regulatory compliance, focusing on core business, enhancing competitive strength via supply chain and ecosystem investments, and the 100 billion support program to support small and medium-sized merchants.

Q: Factors contributing to decline in net profit margin and future outlook?

A: Slowdown in revenue growth, mismatch between business investment and return cycles, but focus on long-term intrinsic value rather than short-term quarterly financial performance.

Q: Delivery of 100 billion support program and impact on financials?

A: Substantial financial commitment, support for small and medium-sized merchants, with short-term impact on profitability but long-term benefits for ecosystem and consumers.

Q: Competition and third-party model strengths/limitations, and June promotion update?

A: Platform's role in merchant ecosystem, third-party model limitations in policy incentives, but focus on real savings and quality in June promotion with initiatives like price drop protection service.