PDD Holdings Inc. released its latest financial report, showing full-year revenue of 431.8 billion yuan, a 10% year-over-year increase, while net profit declined compared to the previous year. This report marks the first earnings release since the company implemented a co-chairman governance structure. At the shareholder meeting last December, PDD Holdings announced an upgrade to its corporate governance framework, appointing Zhao Jiazhen and Chen Lei as Group Co-Chairmen and Co-CEOs.
Following the earnings release, executives including Co-Chairman and Co-CEO Chen Lei and Co-Chairman and Co-CEO Zhao Jiazhen attended the subsequent earnings conference call to elaborate on the financial highlights and address questions from analysts.
The following are the key excerpts from the analyst Q&A session during the call:
Citigroup analyst Alicia Yap: Good evening to the management team, and thank you for taking my questions. I have two questions. First, regarding the organizational structure adjustments announced at the shareholder meeting late last year: the company now operates in over 90 markets and faces increasingly complex regulatory challenges. How does management plan to maintain team agility and execution capabilities in this environment?
My second question concerns the recent quarter's slowdown in e-commerce platform growth. PDD's advertising revenue growth has also decelerated over the past two quarters. Could management share its perspective on the current state of China's e-commerce market and identify potential sources of growth for the industry in the next phase?
Zhao Jiazhen: I will address the first question. Over the past few years, our global business has indeed achieved breakthrough progress, now covering nearly 100 markets and reaching a significant scale. During this expansion, we found that our corporate governance and internal talent development were struggling to keep pace with the rapid business growth, leading to operational constraints in many areas.
Concurrently, the fast-changing international geopolitical landscape, along with rapidly evolving trade and regulatory policies across different regions, has imposed new demands on our company. Therefore, we believe there is both an opportunity and a necessity to undertake systematic, structural reforms in organizational culture and corporate governance.
Naturally, this is a process that requires time. The announcement of the co-chairman system and the promotion of new leaders at last December's shareholder meeting represent the beginning of this systematic transformation.
Moving forward, we will dedicate greater effort, financial resources, and material investment to upgrade and restructure our supply chain, aiming for a comprehensive overhaul of the supply chain operational model.
Chen Lei: I will take your second question. As you noted, the e-commerce industry has indeed entered a phase characterized by intensifying competition and moderating growth over recent quarters. In this new stage, our strategy of heavily investing in the supply chain stems from the recognition that an e-commerce platform should not merely function as a simple transaction facilitator. It can and should do more by creating additional value for all participants across the supply chain.
Substantial supply chain investment encompasses multiple aspects. Initiatives like "Duo Duo Hao Te Chan" (Quality Local Specialties) and the health product series launched recently are international projects we initiated to empower the supply chain. I would like to highlight two specific programs. The first is "Free Shipping to Villages," a pilot project we started in the fourth quarter of last year. The初衷 was to address the high logistics costs in remote administrative villages and the low willingness of merchants to ship to these areas. We aim to include more remote villages within an inclusive service zone. Currently, PDD has established county-level distribution centers in multiple regions across the country, with the platform covering the second-leg transfer fees for village-bound orders.
Under this new model, platform merchants only need to send goods to these distribution centers. The centers then handle transportation from the warehouse to village-level delivery points. This approach extends the segmented transportation and consolidated shipment model, based on our existing experience, to the last mile in villages, optimizing the shopping experience in remote areas and helping merchants tap into new market segments.
The second initiative is the "New Quality Supply Platform." Targeting quality merchants willing to enhance product standards and optimize services, we assist them through industry insights and supply chain collaboration to upgrade across the entire product lifecycle—from R&D and production to manufacturing and sales—thereby driving a reshaping of the supply chain system.
The platform can contribute significantly here, for instance, in product development. Traditional new product development often involves an element of chance. However, within our current platform ecosystem, key product information, after being integrated by our merchant recruitment teams, is promptly communicated to merchants. Through traffic support, we facilitate new product testing, helping merchants iterate their products purposefully and improve the output efficiency of their R&D investments.
These are two concrete examples of our supply chain upgrade and restructuring efforts. Faced with industry growth moderation and heightened competition, we have proactively chosen to allocate resources towards building a high-quality supply chain. Solid investments in foundational capabilities like the New Quality Supply Platform and Free Shipping to Villages will become drivers for the company's sustainable and healthy growth in the next decade.
UBS analyst Kenneth Fong: Thank you, management, for taking my questions. I have two. First, regarding the company's global business, it has experienced considerable volatility recently. Since last year, we have seen regulatory inquiries in some key markets, alongside significant changes in trade policies relevant to the company's operations. Could management share its views on the current external environment and where the strategic focus for the development of the global business lies within this context?
My second question concerns profit margins. The company's margins have shown some fluctuation this past quarter. Could management discuss how the introduction of various new business models has impacted margins, and how should we think about the company's long-term margin level?
Chen Lei: I'll address your first question. Indeed, we have received inquiries from regulatory authorities recently. As our global business expands rapidly and achieves scale in various countries, it's understandable that this inherent growth might cause surprise, concern, and lead to stricter policies.
However, management believes that the current regulatory scrutiny lays a solid foundation for our entry into the next growth phase and provides direction for iterating our model within this rapidly changing international political and policy environment.
Since embarking on our globalization journey, we have consistently adhered to a philosophy focused on long-term development, leveraging our deep roots in the supply chain, committed to achieving sustainable growth in each market, and creating genuine value for consumers.
As our business scale expands and regulatory environments evolve quickly worldwide, we have gained a profound understanding that compliance is the baseline. As an international enterprise, we believe we must align with local needs, return to our original aspirations, and remain steadfast in our core responsibilities. Contributing to local societies is a fundamental duty of an e-commerce platform. Consequently, the management team has made substantial investments in internal compliance.
Nevertheless, we observe significant ongoing changes in trade policies, taxation, data, and product compliance regulations across different countries and regions. Requirements vary greatly, sometimes even appearing contradictory or mutually exclusive, inevitably bringing greater pressure, challenges, and increased uncertainty.
In response, we are diligently learning, actively adapting to changes, and continuously enhancing our compliance operational capabilities to create sustainable value for society. You mentioned changes in global trade policies. Since last year, we have witnessed policy shifts in many markets. Our teams, while prioritizing business core objectives, have rapidly iterated our business models based on the regulatory environment and market conditions in different regions. We have maintained reliable consumer service, a feat made possible by the supply chain capabilities accumulated over many years.
Therefore, going forward, the development focus of our global business will likely remain on investment. Every link in this chain directly impacts the consumer shopping experience, making this direction a key area for our focused investment.
Zhao Jiazhen: I will answer your second question. First, I want to clarify that the company remains committed to strategic investments. The current external environment and regional landscapes are changing rapidly. To meet consumers' evolving needs, we are closely collaborating with platform merchants to continuously explore and launch business models adaptable to the new environment.
Any new model, from inception to full-scale rollout, requires determined resource investment from the platform in its early stages. However, whether it's exploring new business models or making strategic supply chain investments, these are fundamental, long-term endeavors. The time lag between investment and return will inevitably directly impact our performance in specific periods.
We have communicated this multiple times: when faced with a choice between short-term financial performance and the long-term value of the platform ecosystem, we will resolutely choose the latter. Therefore, as we continue with substantial investments, and within the current complex and volatile macroeconomic environment, future profit margins will continue to exhibit fluctuations and volatility across different quarters. This will be the new normal.
Over the past few months, the major strategies announced at the shareholder meeting are being translated into concrete project implementations. Our business and organization are undergoing profound transformation. We advise against over-focusing on margin metrics for any single quarter, but rather paying more attention to the high-quality development of our platform ecosystem. Only a healthy platform ecosystem and a robust supply chain platform can generate long-term, sustainable, endogenous value growth.
Bank of America Securities analyst Joyce Ju: Thank you, management, for the opportunity to ask questions. My first question relates to profit margins. Since last year, the company has launched several ecosystem investment plans, including support initiatives. Management also emphasized heavy investment in the supply chain. Could you discuss how the company views the return周期 for these projects and what long-term impact they are expected to have on business performance?
My second question: The growth momentum for online retail in the first two months of this year has been very strong. Could management share its view on consumer market trends? For product categories showing faster growth, does the company have targeted strategies to better capture these market opportunities?
Zhao Jiazhen: I will address your questions. Approximately over a year ago, we further recognized the importance of long-term sustainable development for the platform ecosystem. Consequently, we successively launched a series of plans, including "Billions in Relief" and "Hundreds of Billions in Support." We have committed significant capital to support merchants and industries, creating ample room for supply chain renewal and upgrading.
Management unanimously believes that as the platform grows into a public platform with societal influence, we should consider the enterprise's development from the perspective of broader public interest and the long-term health of the industry's ecosystem.
The overall strategy clearly focused on core operations and heavily investing in supply chain upgrades, announced at the shareholder meeting late last year, is an extension and intensification of this direction. After years of development, the industry's ecosystem has continuously matured. Merchants now have diversified demands from the platform. Evolving from a mere transaction platform to a comprehensive business partner, the support merchants need most has extended from direct traffic allocation to aspects like R&D, production, and sales.
This requires us to operate with greater granularity, developing targeted solutions tailored to different industry characteristics to build a more competitive supply chain. Such investments involve countless merchants across the industrial chain and cannot be achieved overnight. Therefore, we are prepared for long-term, patient investment. We are pleased to see that some investments are already yielding results. For example, with support from the New Quality Supply Platform project I mentioned earlier, some merchants have chosen to reinvest the cost savings from platform relief into expanding R&D teams and long-term upgrades. Combined with the platform's digital empowerment, they are embarking on a path of product differentiation transformation.
This type of long-term, structural investment will not be immediately reflected in short-term financial performance, but it is a crucial component for the long-term sustainable growth of the platform and e-commerce ecosystem in the future. We will steadfastly execute these long-term investments, genuinely reinvesting in the ecosystem to reduce merchant costs, enhance supply chain quality, and optimize the consumer experience. Through the core lever of the supply chain, we aim to achieve platform reinvention and drive a leap in the value of the entire ecosystem.
Regarding your second question, we are very pleased to see the overall consumer market continuously improving. However, we also clearly recognize the challenges we still face amidst intense competition. The future performance of e-commerce platforms will increasingly depend on the incremental value they can create for the entire supply chain, rather than relying solely on simple traffic acquisition and distribution.
Therefore, at this critical juncture, we have made a firm decision to deeply invest in the supply chain and across different product categories. Our merchant development teams will work closely with sellers, providing them with tailored industry solutions based on our insights. This is to help merchants achieve high-quality transformation and drive high-quality development.
We firmly believe these investments are essential for propelling the e-commerce supply chain into the next stage of high-quality development. We are committed to this path for the long term. Thank you.
