PDD

Thank you for standing by, and welcome to the PDD Holdings Inc. 1Q 2026 earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to our host today. Please go ahead.

Thank you, operator. Hello, everyone. Thank you for joining us today. PDD Holdings earnings release was distributed earlier and is available on our website at investor.pddholdings.com, as well as through the GlobeNewswire services. Before we start, I'd like to refer you to our safe harbor statement in the press earnings release, which applies to this call, as we'll make certain forward-looking statements. This call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. Joining us today on the call are Mr. Lei Chen, our Co-Chairman and Co-Chief Executive Officer, Mr. Jiazhen Zhao, our Co-Chairman and Co-Chief Executive Officer, as well as Mr. Jun Liu, our Financial Director. Lei and Jiazhen will make some general remarks on our performance for the past quarter and our strategic focus.

Jun Liu will then walk us through our financial results for the first quarter ended March 31st, 2026. During the Q&A session, Lei Chen and Jiazhen Zhai will answer questions in Chinese, and we'll help translate. Please note the English translation is for reference only, and in case of any discrepancy, statements in the original language should prevail. Now it's my pleasure to introduce our Co-Chairman and Co-Chief Executive Officer, Jiazhen Zhao. Jiazhen Zhao, please go ahead.

Hello, everyone. This is Jiazhen Zhao. Thank you all for joining the first quarter 2026 earnings call. This year marks the beginning of PDD's second decade. Following my appointment as Chairman, this is also a critical year for the complete reinvention of our corporate organization and culture, which is centered on the high-quality development of the new decade.

We are calling on everyone across all levels of the company to pull together in a sustained effort to drive a deep transformation in our business lines, teams, internal processes, and organizational management. The whole team is required to treat safety, compliance, and social responsibility as the absolute prerequisite for everything we do, and maintain a clear focus on high-quality development. We are committed to stepping up to our responsibilities as a platform enterprise to create positive value for our users, the industry, and society as a whole. In Q1, the company entered a new phase of the three-year strategy to build another Pinduoduo, which was launched last year. Our new first-party brand business is making steady progress, and we are doubling down on our supply chain through innovative models and fresh investments.

At the same time, our long-term Hundred Billion Support Program continues to generate value for merchants and the broader industry. The team is accelerating the rollout of free shipping to rural villages, enhancing platform governance and compliance, and proactively taking on broader social responsibilities. We delivered solid results in the past quarter. Group revenue in the quarter was RMB 106.2 billion, a year-over-year increase of 11%. As communicated in the past, our priority is long-term value creation through sustained investment in the ecosystem and the supply chain, rather than short-term results.

In March, we incorporated a dedicated company in Shanghai, marking the official launch of our first-party brand business with an initial cash injection of RMB 15 billion and a plan to invest RMB 100 billion over the next three years. Currently, our team is steadily advancing this business by going deep into industry hubs to accelerate the consolidation of supply chain resources. We are also collaborating closely with global IPs for deep co-creation to incubate new brands tailored to various markets and product categories.

This holistic approach will empower our supply chain's transition towards brand development, catalyzing a breakthrough across the entire supply chain.

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Throughout the first quarter, our Hundred Billion Support Program continued to see high levels of investment.

Rolling out upgraded iterations of initiatives such as Duoduo Premium Produce, New Quality Supply, and Logistics Support to Remote Regions. In agriculture, we launched the 2026 Duoduo Premium Produce program. Building on last year's support for products and merchants, we are now deepening our support across the entire value chain, including planting and cultivation, cold chain logistics, and deep processing of agricultural products. This helps improve the quality and efficiency of the agricultural supply chain and enables production regions to move up the value chain.

The first phase of this project has been launched in specialty regions such as Nanning oranges, Hainan pineapples, Tongren matcha, Ningxia goji berries, and Lianyungang seafood.

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Within the industrial belt, the latest round of our New Quality Supply initiative continues to deliver tangible results.

The initiative has been introduced to manufacturing hubs such as Zhangzhou snacks, Zhengzhou skincare, Yiwu accessories, Jingdezhen porcelain enamel, Zhongshan lighting, and Tianjin chocolate. Merchants and factories are starting to move away from the homogeneous competition of selling whatever others are selling, and shifting towards a consumer-centric, R&D-driven model. They are uncovering highly specific and differentiated consumer demands on platform and successfully building their own brands. Former screwdriver factories are rapidly growing into automated smart factories.

The efficiency and quality achieved through this transformation offers a new roadmap to industry upgrades.

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In addition, our logistics support to remote regions has also unlocked new growth opportunities to a wide range of merchants.

Take the lighting industry in Zhongshan as an example. Shipping a large ceiling light from Zhongshan to Gansu used to cost RMB 40-RMB 50. By covering the transshipping fees for the merchants, the platform is able to cut the shipping cost to around RMB 10.

Many merchants are seeing order volumes to western provinces growing at an annual rate of over 30%.

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Since the beginning of this year, building on our logistics support to remote regions, we are rolling out the free shipping to villages initiative at full speed, and have achieved some initial results.

Taking some counties in Henan as an example. By setting up last-mile delivery networks such as county-level transfer warehouses and village pickup points, we have expanded the direct to village coverage to over 70% of local villages by March. The daily order volume at these transfer warehouses has approached 10,000 orders.

This not only brings more rural areas into free shipping zones, but also creates more local job opportunities, injecting greater vitality into county and rural economies.

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Regarding platform governance, multiple rounds of initiatives have been rolled out to continuously strengthen platform oversight, enhance our compliance capabilities, and improving the overall experience for our users and merchants. In the first quarter, the platform introduced over 20 food safety initiatives. These include compliance review of business qualifications, food advertising content moderation, food live streaming monitoring, and building a dedicated food database. We have also enhanced compliance inspection of live streaming, upgraded food safety reporting channels, and strengthened automated and manual monitoring. Further, the turnaround time for handling store violations has been shortened to within hours, safeguarding food safety for consumers.

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Initial challenges are inevitable, but these difficulties will be the very fuel that powers our self-transformation. This new phase of growth also provides a good opportunity to build new teams, new systems, and culture. Our current leadership team will tackle these challenges head-on, putting our heads down and working diligently. We will answer the public concerns and expectations with concrete actions and measurable results, and live up to the trust and support that are placed in us by all stakeholders.

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Now, I will hand it over to Lei Chen for further remarks.

Thank you, Jiazhen, and hello everyone. This is Chen Lei. Thank you all for joining our earnings call today. At last year's annual general meeting, we officially put forward a three-year strategy of building another Pinduoduo, focusing the company's strategic priority on investment in the supply chain. In the first quarter of this year, dedicated company was established to launch the first-party brand business, making the first full quarter under the three-year strategy. In the first quarter, steady progress was made in our first-party brand business. The teams went deep into the industrial belt across different product categories to raise the integration of high-quality supply chain resources and to lay the foundation of the first-party business model. Deep collaborations are taking place with merchants and manufacturers across different categories to design and develop first-party brand products tailored to different global markets.

These initiatives aim at raising supply chain standards and driving the transformation and upgrade the supply chain. This quarter, our global business continued to grow at a steady pace, opening great market opportunities. At the same time, the continuous investment under the Hundred Billion Support Program have yielded valuable insights and firsthand experiences, which will guide the future investment in the supply chain. Since the beginning of this year, we have stepped up our investment in our platform and a wider ecosystem through multiple initiatives under the Hundred Billion Support Program to enhance the overall experience for our merchants and customers, making agriculture supply chain more efficient and resilient. We have merchants upgrade their business model, extending free shipping coverage to more remote areas and rural regions. The company is consistently delivering value to both supply and demand side of our platform.

In the industrial belt, many merchants are leveraging our platform support to build their own brand. Many merchants have been optimizing their product portfolio to be more focused and curated, and transitioning from standard batch manufacturing to demand-driven customization. This transition is enabling them to quickly grow into emerging brands in their respective categories. At the same time, many traditional OEM factories are also moving beyond basic productions, investing in product development, technology, branding, and distribution channels that's evolving from a volume-driven model to quality-driven, bringing more resilience and value to the supply chain, acting as a new catalyst for the industry transformation. The results from our Hundred Billion Support Program demonstrate that brand development is the next major opportunity for supply chain upgrades, which gives us conviction in the first-party brand model.

Branded products are only getting started on our global platform, with consumer demands still underserved in different markets. This creates significant potential in launching branded products in various product categories. Through the first-party brand model, our goal is to systematically incubate a portfolio of globally recognized brands, which in turn will drive transformation of the supply chain. This year has been continued investment in agricultural research. Just recently, we launched the finals of the fifth Smart Agriculture Competition. The four finalist teams have designed and built their own plant factories. Relying on these facilities, the participants will explore strawberry cultivation solutions and maximize yield and quality, minimizing cost, energy use. This year marks the sixth iteration of the Smart Agriculture Competition. Over the years, it has evolved from an industry contest to a testing ground for turning agricultural technology innovations into real-world applications.

It has also become an incubator for the next generation of agricultural research talent, making its own contribution to the modernization of agriculture. 2026 marks the new starting point for PDD's next decade. Jiazhen just mentioned, we have reflected carefully on our shortcomings and have taken decisive steps to rectify our operations. Restructuring our internal management and strengthening our team's compliance awareness. We are building a foundation that benefits the long-term health growth of the company and the industry. Grounded in gratitude and a deep sense of duty, we move forward with the firm belief that staying true to our roots is the foundation, prerequisite, and a guiding principle for all our future undertakings, and it will serve as a compass for the next phase of our journey. We will increase investment in the new business, resolutely advance the first-party brand business, and step up investments in the supply chain.

Through these efforts, our objective is to build another Pinduoduo in next three years and to drive the transformation of the supply chain as a whole. Now, let me hand it over to Liu Jun, who will walk you through our financial performance for the first quarter of 2026.

Well, thank you, Lei. Hi, everyone, this is Zheng. Let me walk you through our financial performance for the first quarter ended March 31st, 2026. In terms of income statement, in the first quarter, our total revenues increased 11% year-over-year to RMB 106.2 billion. This was mainly driven by the increase in revenues from transaction services. Revenues from online marketing services and others were RMB 49.9 billion this quarter, compared with RMB 48.7 billion in the same quarter of 2025. Revenues from transaction services were RMB 56.3 billion, up 20% from the same quarter of last year. Moving on to costs and expenses. Our total costs of revenues increased 15% from RMB 40.9 billion in Q1 2025 to RMB 46.9 billion this quarter, mainly due to increase in fulfillment fees, bandwidth and server costs, and payment processing fees.

On a GAAP basis, total operating expenses this quarter were RMB 39.8 billion, compared with RMB 38.6 billion in the same quarter of 2025. On a non-GAAP basis, total operating expenses increased to RMB 38.3 billion this quarter from RMB 36.5 billion in Q1 2025. Our total non-GAAP operating expenses as a percentage of total revenues this quarter was 36%, compared to 38% in the same quarter last year. Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter were RMB 33.4 billion, compared to RMB 32.8 billion in the same quarter last year. On a non-GAAP basis, our sales and marketing expenses as a percentage of revenue this quarter was 31% versus 34% for the same quarter last year. Our non-GAAP general and administrative expenses were RMB 872 million versus RMB 735 million in the same quarter of 2025.

Our R&D expenses were CNY 4 billion this quarter on a non-GAAP basis, up 32% year-over-year. On a GAAP basis, operating profit for the quarter was CNY 19.6 billion versus CNY 16.1 billion in the same quarter last year, up 22% year-over-year. Non-GAAP operating profit was CNY 21.1 billion versus CNY 18.3 billion in the same quarter last year. Non-GAAP operating profit margin was 20% this quarter, compared to 19% for the same quarter last year. Net income attributable to ordinary shareholders was CNY 12.5 billion for the quarter, compared to CNY 14.7 billion in the same quarter last year.

Basic earnings per ADS was RMB 8.94, and diluted earnings per ADS was RMB 8.48, versus basic earnings per ADS of RMB 10.59 and diluted earnings per ADS of RMB 9.94 in the same quarter of 2025. Non-GAAP net income attributable to ordinary shareholders was RMB 14.1 billion versus RMB 16.9 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB 9.51 versus RMB 11.41 the same quarter of 2025. That completes the income statements. Now let me move on to cash flow. Our net cash generated from operating activities was RMB 16.4 billion, compared with RMB 15.5 billion in the same quarter last year. As of March 31st, 2026, we had RMB 436.1 billion in cash equivalents and short-term investments. Thank you. This concludes my prepared remarks.

Well, thank you Jun. Next, we'll move on to the Q&A session. Today's Q&A session, Lei, Jiazhen and Jun will take questions from analysts on the line. We could take a maximum of two questions from each analyst. Lei and Jiazhen will answer questions in Chinese, and we'll help translate for convenience purposes. Operator, we're open for questions.

Your first question today comes from Alicia Yap with Citigroup. Please go ahead.

Thank you.

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Thanks management for taking my questions. The company has been positioned as an e-commerce platform. We saw the company launched the new first party brand initiative last quarter. Could management elaborate on the key considerations behind doing this at this current moment? Should we interpret this as a major pivot in the company overall strategy? Number 2, second question is from the third party data that we see, PDD's global business has achieved good user growth. What will be the primary focus for the business moving forward? Has user growth met expectation, and how does the company plan to retain and serve these consumers well? Thank you.

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Hi, this is Jiazhen Zhao. Regarding your first question, since the beginning of this year, we have been driving a deep restructuring for our organization and internal management. These efforts are centered on safety, compliance and social responsibility. We are striving to create greater value for our users, the industry and the society. The formation of the dedicated company in the first quarter and the launch of the first party brand model represents a continuation in this direction.

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Through years of deep engagement with the industrial fields, it has become clear to us that supply chain is facing certain challenges at the moment. Many good manufacturers are constrained by factors such as talent, information and scale, have not yet completed their brand transformation and are caught in homogeneous competition.

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As a platform, we have both the responsibility and the capability to deepen our investment in the supply chain and bring our own solutions to the challenges that is faced by the industry. The formation of the dedicated company aims to consolidate platform resources to advance the new first party brand business model by taking a deeper and more active role in product development and standard setting.

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Through the first-party brand model, the platform takes on greater responsibility and also risks, allowing our industrial belt partners to focus on high quality production. We believe this is necessary in order to drive the platform and the entire e-commerce ecosystem towards the next stage of high quality growth. Leveraging the platform scale, we will take on more risks while sharing rewards with the supply chain manufacturers, providing certainty for the participants across the whole ecosystem.

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We believe this certainty will significantly enhance the overall efficiency of the supply chain, and empower factories to reinvest into product development and R&D and driving a positive cycle. In a complex and fast changing market environment, the platform must take on greater responsibility and deepen our operations. We will remain highly focused, continue to invest heavily in the supply chain and drive the next phase of high quality development for the supply chain.

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Hi, this is Lei Chen. Let me take your second question. After nearly three years of growth, our global business have received support from many consumers worldwide. As the business grows, the management team has also been reflecting on how to create more sustainable and differentiated value for consumers in a highly competitive global market. We believe the key is to return to the roots of e-commerce, which is supply chain capabilities.

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Center on this core priority, we will direct our efforts on two fronts. First, we will advance the integration and optimization of our supply chain, eliminating bottlenecks from end to end. This will not only expand the platform's product offerings, but also meaningfully enhance the consumer shopping experience. Throughout this process, we will actively onboard high quality merchants and ecosystem partners, integrating the platform into the business ecosystem of various markets.

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Second, we will deepen the development of the first-party brand model. In the global market, brands are particularly crucial in strengthening consumers' mindshare of the value proposition of great quality and great value. At the same time, brand development is also an important pathway to raising product quality standards, enabling us to strengthen the platform's compliance capabilities in an increasingly complex regulatory environment.

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The e-commerce industry is highly competitive with low switching costs for consumers. While people often see platforms winning over consumers through marketing, the true driver of long-term and sustainable competitive advantage lies in the supply chain capabilities that are often unseen.

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Supply chain investment is a long-term systematic undertaking. Regardless of the challenges we may face, we will stay true to our roots, continue to drive deep transformations across our teams, business process and organizational management, and continue to grow our global business with tangible supply chain improvements. Thank you.

Thank you.

All right. Thank you, Alicia. Operator, let's move on to the next analyst on the line.

Thank you. Your next question comes from Ronald Keung with Goldman Sachs. Please go ahead.

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Thank you, management, for taking my question. Two questions. One is we know the announcement of the three-year RMB 100 billion investment plan for the first-party brand initiative. So my question is in which areas do the company plan to allocate these investments?

When can we expect this to begin to reflect in the company's financials? How should we evaluate the incremental growth potential driven by their strategy? My second question is we've seen from the National Bureau of Statistics consumption growth in the first quarter was quite solid. Online penetration rate for physical goods is still rising. In that backdrop, we see the online marketing service growth rate slowed in the first quarter for PDD. Could you outline just where the future growth for GMV and online marketing services from here? Thank you.

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Hi, this is Jiazhen Zhao. To your first question. First, brand building involves a range of capabilities from product design, standard setting, manufacturing to quality control, warehousing and fulfillment, legal and compliance, customer service, and so on. Each requires long term and patient investment. Many SME manufacturers in the industrial belt are very good at mass production and cost control. However, due to a lack of branding capabilities, they have not yet moved up the value chain.

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Through the creation of the dedicated company, we are leveraging the platform's strength in technology, scale, and organization to build the foundational capabilities that are required to help our supply chain partners in developing brands. Under our first party brand model, we provide a certainty of sales volume to the supply chain and empowering the manufacturers to confidently invest in R&D and process innovation, and significantly cutting down the cost and risks that are inherent in the innovation and brand building.

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We believe it is the right strategic direction for the platform to step in and to play this role. Our advantages in technology, scale and market insights allows us to take on and digest these uncertainties. By internalizing some of the risks faced by the manufacturers, we empower the supply chain with certainty, creating a win-win situation for the industry ecosystem. The manufacturers are enabled to break free from the homogeneous competition and focus on quality upgrades. Consumers can enjoy quality products at reasonable prices, and the platform further deepens its supply chain capabilities, enabling the reinvention of the platform.

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Looking back at our history, from the early initiative of improving agricultural supply chain to later efforts such as Duoduo Grocery, the global business, and the Hundred Billion Support Program, the platform has continuously deepened its operations in the supply chain through the process of identifying and solving problems. If we are to fundamentally address the challenge of homogeneous competition that is faced by platform merchants, we must take on greater responsibility and enable deeper supply chain integration. We believe this is an inevitable path in the evolution of the platform ecosystem.

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This year kicks off a new decade of high-quality development. We will start afresh, taking this opportunity to reshape our organization and internal management and focus on building supply chain capabilities. The first-party brand initiative is the first strategic move that we implemented after announcing the strategy of heavy investment supply chain a few months ago. As we roll out more supply chain initiatives, we believe we will have the opportunity to build another Pinduoduo over the next three years.

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To your second question, the online retail market continues to hold great potential, and there is much more that we can do. However, at the same time, the industry has entered a critical phase of high-quality development, and the only way to realize sustainable and healthy industry growth is to take the necessary initiatives to deeply empower the supply chain.

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Based on this understanding, following the launch of the Hundred Billion Support Program in April last year, we rolled out a series of supply chain support initiatives. Our team has gone deep into the agricultural regions and industrial belts. By solving practical supply chain issues, we are unlocking further growth for both the industry and the platform.

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For instance, our team is in the process of upgrading the village pickup points to a multifunctional digital rural micro hub. This new model operates as both a parcel pickup point and a first-mile logistics node for the distribution of local specialty agricultural products. By giving farmers a one-stop solution for packaging and shipping, we're actually helping quality agricultural goods reach the broader markets. Through the creation of direct employment and sale of agricultural products, these micro hubs are increasing the income of local communities.

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Another example is the logistics support for remote regions. Our team is bringing more consumers from remote areas into the free shipping zones by creating transit warehouses and by covering the transshipping costs. Through tangible supply chain improvements like these, logistic costs for shipping to some remote regions have been reduced by nearly 80%, leveling the operational costs between the different regions. Many merchants are saving millions of RMB in shipping costs alone. With these substantial investments, the platform is bridging the gap between supply and demand and creating more effective demand.

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These are just a few examples. Looking ahead, we will continue to work on concrete supply chain projects and through these initiatives, deliver more value to our users, the industries and the society.

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Okay, thank you, Ronald. Operator, let's move on to the next analyst on the line.

Thank you. Your next question comes from Joyce Ju with Bank of America. Please go ahead.

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First, we have seen the continuous emergence of new e-commerce models in the e-commerce industry, including live streaming commerce and quick commerce. How does the company assess the impact of these new models on the broader industry landscape?

Are there any plans of the companies to expand into these areas? Second is, in the first quarter, we saw a slight increase in sales and marketing expense ratio of the company alongside a fluctuation in overall profit margin. How should we expect margin trends going forward, and what will be a reasonable expectation as to a steady-state profit margin level?

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Hi, this is Jiazhen Zhao. Compared to traditional retail, e-commerce has much lower switching costs, which leads to faster industry evolution and more intense competition. The management team is also closely monitoring the development of new technologies.

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However, regardless of the innovations in frontend business models, the core needs of consumers remain unchanged, which are wider product selection, competitive prices, and better services. As we mentioned earlier, competition among the different e-commerce platforms or business models ultimately boils down to competition in the underlying supply chain capabilities.

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This is why we set a clear group strategy at the end of last year to focus on and invest heavily in supply chain. Under this strategy, we are steadily advancing various supply chain initiatives, particularly the first-party brand business. Currently, our dedicated teams are working in major industrial belts to accelerate the integration of high-quality supply chain resources and building the framework for the first-party brand business. We are working closely with manufacturers to design and develop first-party brand products for the different global markets while elevating the transformation and upgrading of the supply chain.

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The coming period represents a critical window for our supply chain investments, and we will advance the first-party brand initiative at full speed, step up the investments in the foundational supply chain capabilities. We will also navigate the evolving industry landscape by constantly creating our unique value to the supply chain ecosystem.

Hi, this is Liu Jun. Let me take your second question. As we have regularly communicated in the past, our objective is the long-term sustainable growth of the platform's intrinsic value. In this process, due to seasonality and our own investment cycle, it is normal to see some fluctuation in our quarter-to-quarter financial results. The long-term value of the platform is fundamentally tied to the value we create for consumers and the broader ecosystem. That's why we remain steadfast in our commitment to long-term supply chain investments. Whether it's our first-party brand strategy, direct to village delivery, or New Quality Supply chain initiatives, these are all high impact projects that unlock long-term value and new growth for the industry. We will continue to invest in them resolutely.

Instead of focusing on short-term financial performance, we prioritize the healthy development of the platform ecosystem and the accumulation of foundational supply chain capabilities. These more enduring sources of competitive advantage will determine the trajectory of the platform's intrinsic value. Thanks.

Thank you, Liu Jun. Thank you, Joyce Ju. Thank you all once again for joining us today. I think it's about time. We look forward to speaking to you again next quarter. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.