Ladies and gentlemen, thank you for standing by and welcome to Pinduduo Fourth Quarter Fiscal Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, 13 of March, 2019. I would like to hand the conference over to your first speaker today Mr. Christian Arnell. Thank you. Please go ahead.

Thank you, Karina. Hello, everyone and thank you for joining us today. Pinduduo's earnings release was distributed earlier and is available on the IR website at investor.pinduoduo.com as well as through GlobeNewswire services. On the call today from Pinduduo are, Mr. Zheng Huang, Chairman and Chief Executive Officer; and Mr. Tian Xu, Vice President of Finance. Mr. Huang will review business operations and company highlights followed by Mr. Xu, who will discuss financials. They will both be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference contains forward-looking statements made within the meaning of Section 21E of the U.S. -- of the Securities Exchange Act of 1934, as amended and as defined in the U.S. Private Securities Litigation and Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expect, anticipate, future, intend, plans, believes, estimates, targets, going forward, outlook and similar statements. Such statements are based upon management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information future events or otherwise, except as required under applicable law. It is now my pleasure to introduce Chairman and Chief Executive Officer, Mr. Huang. Mr. Huang, please go ahead.

Thank you, Christian, and thanks to everyone for joining us on the fourth quarter and full year 2018 results discussion. 2018 was another strong year of growth, as we continued to lay the foundation for our long-term development. I would like to start off by thanking our 418.5 million active buyers for their continued trust and support in us. Our top priority has always been serving our users, since we founded the company. The faster growth of our user base and GMV demonstrates the differentiated value our platform brings to them. That being said, their needs are constantly evolving, which motivates us to keep innovating and improving. Let me recap our full year 2018 key results. Our last 12 months GMV increased by 3.3 times to RMB471.6 billion. This was driven by: one, a net increase of about 174 million annual active buyers, which brings our 2018 annual active buyers base to 418.5 million; and two, a near-doubling of annual spending per active buyer to RMB1,127. The increase in annual spending per active buyer was driven by the increase in order frequency per annual active buyer from about 18 orders a year ago to 28 order -- 27 orders as of December 31, 2018 with the rest driven by the increase in average order value. Given the increase in both active buyers and active orders -- and average orders per active buyer, our order volume expanded to 11.1 billion in full year of 2018, up from 4.3 billion a year ago, implying average daily orders of 30.4 million versus 11.8 million a year ago. We view this as an indication of users' growing recognition and satisfaction with what we have worked hard and it served as encouragement for us to keep delivering for our users. Simultaneously, with our growing user…

Thank you, Colin. Hello, everyone. Our total revenues in the fourth quarter were RMB5.7 billion, up nearly five times from RMB1.2 billion in the same quarter last year. The main drivers of this growth came from our increasing user and GMV scale and the improvement in our online marketing services over time. About 90% our total revenues or RMB5.1 billion were revenues from online marketing services, which increased significantly from RMB887.6 million during the same period last year and 70% versus third quarter. As our annual active buyer base grows and user engagement increase, merchants on our platform benefit from higher traffic and transaction volumes. To capture the sales potential from our growing user base, we are seeing our merchants start to advertise more on our platform in order to improve their exposure. The remainder of our revenues were transaction services revenue. We decided to adopt this name this quarter as we not only generate commission fees, but also receive other service revenues related to transaction. Our transaction services revenue this quarter were RMB591.5 million more than double from RMB291.8 million during the same period last year and up 49% versus the third quarter. The increase was driven by the growth in our revenue -- in our GMV. Similar to last quarter, we have continued in the fourth quarter with offering preferential rates to selected high quality merchants. By offering traffic with better pricing and charging a lower transaction services fee to this high quality merchant, what we are doing is to accelerate the process of natural selection, whereby, merchants who provide better services and value to our users get more traffic and grow faster. On the other hand, low quality merchants will find it harder to compete and eventually get weeded out. As such, while our merchant base has…

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Thomas Chong from Credit Suisse. Please ask your question. Q – Thomas Chong: Hi, thanks management for taking my questions. I have one question about the competitive landscape. Can management comment about how we should think about the competitive dynamics in this year and the next couple of years ahead? Thank you. A – Zheng Huang: Well, we noticed that more and more players are looking at lower-tier cities and they're also trying to mimic what PDD is currently doing. But I think the greater emphasis from the competitors actually is good for increasing the size of the pie. And also I think the greater emphasis given to the lower-tier cities by our peers is also helping awaken underlying demand for consumption that has been dormant in these cities. As a result, the pie expanding and we see healthy consumption growth. As the majority of our users are from these lower-tier cities, we have a build up our value proposition around value-for-money products, delivered in a fun and social setting. We also stand to benefit more from expansion of this particular market. Let me just explain a little bit our value proposition. Our number one priority has always been serving our users and we are constantly working on reinforced to clear differentiated value proposition that we offer to our users. One is unbeatable, which is value-for-money products; and two is an interactive shopping experience that is fun and makes discovery easy. We already have some of the innovative products which demonstrate how to combine the Costco part and the Disneyland part, but it is still in the very early stage. But I guess, a lot of our users already have…

Your next question comes from the line of Grace Chen from Morgan Stanley. Please ask your question.

Thank you for taking my question. My question is about the macro trends and implications on the PDD platform. Could you share with us your observations now versus a quarter ago? Thank you.

Yeah. These days a lot of people are talking about macros, but I think we should just focusing on doing the right things ourselves. From our results and operational data, we sense that, there is still a lot of pent-up consumption demand. I mean a lot. Our annual spending per average buyer has doubled year-on-year to RMB1100 even as we continue to add new users. Judging from the momentum, we have seen thus far, we believe this number will continue to grow steadily. According to NBS data, total retail sales of consumer goods in China was up 9% in 2018, whereas online retail sales of physical goods grew 25% more than doubling the pace of overall retail. We have a good opportunity to meet this demand by leveraging the deep existing manufacturing capabilities of China's manufacturing base. We believe the demand of value for money goods is substantial and universal, regardless what kind of macro economics there is. And this is not just applicable to any specific group of users. We can work with our merchants, to deliver better value for money merchandise, to our users and in so doing – and in so doing nurture further consumption growth. We are also encouraged by some measures the government has been taken, which we think are business friendly and encourage sustained consumption growth. For instance, the government has raised the threshold for personal income tax exemption, which will benefit lower income groups, who also tend to spend more of their disposable income on consumption. And this tax law, I think benefits a lot more our user base than let's say the top niche users in Shanghai or in Beijing. There are also the change of VAT exemption rules. The monthly sales threshold for VAT exemption was also raised in early January…

Thank you.

Your next question comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question.

Thank you for taking my question. And congratulations on the numerous milestones you've attained over the last four years. You talked a lot about fighting counterfeits and what you've been able to attain and your initial presentation was very, very clear. What I wanted to follow up with is, how do you plan to balance the numerous brands on your platform as you continue to grow both the Pin brands and other brands? And do you envisage a scenario where you would need to do a Tmall/Taobao kind of thing as Baba has done over the last couple of years? Or would you be able to balance that on one platform? My second question is could you talk through the C2M opportunity in terms of size in particular? And third very quickly, how would you measure the progress you have made with convincing merchants to bring more SKUs on your platform? Thank you.

So the -- your last -- second question is C2M, right?

Yes.

So, I'll talk about the C2M first. I had been thinking about some variant of C2M for a couple of years already, even before I found PDD. To boil it down to a sentence, the idea revolves around the concept of connecting the supply and demand end points more closely with each other and in doing so, improving production, cutting out waste and better serving user needs. So during our earnings call, since last quarter, I talked a lot about how we are helping China's agriculture industry and manufacturing industry. These are many -- there are many examples today of how we have helped these partners achieve greater sales volume through better production and logistics efficiency. We have worked with over 7 million farmers in China and created 600 hit products so far that have each sold over 100,000 units. In doing so, we helped to connect farmers directly with consumers. We are also applying C2M across more and more industries. As you can see our new brand initiative partners set up a wider variety of goods ranging from electronics to ceramics and glassware to mops. As we work with more partners, we believe we can also apply C2M to other industries in the future. In terms of investment in this effort, we already have existing vertical specialist teams in place who have expertise in different industries that are helping these merchants. This year, we will be adding more specialists to flesh out our business development teams, while working with our new brand initiative partners. Apart from sharing our industry knowledge and user understanding, we will also give marketing support such as more favorable placements in the recommendation feeds or lower commission rate. We believe this helps to build the user satisfaction as they find products with better quality and…

And can I ask a question on -- with the run rate of GMV growth that we've seen in 4Q and with the end of the year, how do you think about the sort budgets you want to set aside for sales and marketing into 2019 and 2020? Just a framework would be helpful for us. Thank you.

Hi, Piyush, this is Tian. I can address the sales and marketing issue. Currently, we all know this RMB6 billion is a sizable number. We did have like Singles' Day event and New Year Countdown event, et cetera. And yearly the fourth quarter is the important season for e-commerce. So, if you're looking to -- this sales and marketing issue, a couple of points on how we think about this. In summary, I would stress this is what we see every dollar spend as an investment because as Colin mentioned, we have unique value for money -- we have unique proposition as a value-for-money products in a fun and a social setting. And we have a bit over 400 million annual active users. But what we see is there are over 900 million online payment users in China today and this number is still growing. And these online payment users are definitely potential buyers on Pinduduo platform. And we want to reach them and we believe the right combination of sales and marketing and word of mouth can really help us to realize this opportunity. On the other side, we are still a very young company with a budding brand. It will take us some time to deepen our mind share with users and cultivate a strong brand awareness. And we will invest in order to achieve this goal. So, while we continue to be opportunistic with all these investments in sales marketing, we will keep an eye on ROI we spend. We started -- we focus on the behavior of users, for example the purchasing frequencies. We see -- you see the 50% of increase in terms of how many times the user buy per year. Now, it's 27, 28. This is kind of indicator to the return as this can cater to the lifetime value of a customer we acquired. This is something we are looking to now we have been looking into rather than the pure financial return. So, for each money coming back for each dollar we spend whether it is on TV show or event, traffic acquisition, or coupon, or promotion, we have different standards of ROI and we keep tracking or monitoring this spending. So, you asked about like 2019, we cannot provide exact number or figure right now. But, in general, for the first quarter we have Chinese New Year. So, there is still some spending there and we will see how it goes to get -- with the ROI in our mind. Okay

Thank you.

Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question,

Hi. Thank you. Good evening management. Thanks for taking my questions. Congrats on solid result. I have questions on the take rate. How should we be thinking about the monetization ramp in the next few quarter? And also overall take rate trend in the next two years? If you could elaborate what will be the drivers for improving take rate trend. Is that coming from increased ad inventory potential or is it more merchants bidding on higher pricing on the existing inventory? Thank you.

Hi, this is Tian. Our monetization efforts are still in the early stage as we only roll out this product first -- in the first half of 2017. And we did make some good progress and we believe it will grow steadily as our merchants derive increasing value from our platform. So, the past year 2018, our GMV and buyer base both grow dramatically and our active buyer -- merchant base increased to 3.6 million. And many of our own merchants have been growing their business on our platform and more importantly, benefiting from our unique demand-aggregation capabilities. So, what I want to address here, for example, when we launched this new brand initiative as Colin mentioned, we received thousands of applications. They wanted to be our -- the first batch of 20 partners to pilot test the brand cultivation. And we launched our brand channel last September another example. Now, we have 700 brands participating. So, -- I mean the growth of our merchant base and this proactiveness of these merchants wanting to work with us on deeper basis indicate that we have a healthy ecosystem and deliver meaningful value to our -- to this merchant. So, monetization we believe follows after we demonstrate this value to user, the merchant and we want to be really thoughtful about how we ramp up. As discussed, I remember last quarter, we continue to prioritize good quality merchants as we want to ensure our users are getting better services and shopping experience on our platform. And a better user experience will draw more users increase our conversion and drive our GMV growth, which will improve merchant ROI on our platform. So, in short, we are very optimistic about our long-term opportunity, but we are holding back a little bit for now. We will continue all the efforts we have done in the past. And monetization or increasing take rate will naturally be a by-product of our increasing user growth and increasing user spending. So, at the end of the day, we do not manage to achieve a particular take rate each quarter, we don't do that, nor we satisfy -- sacrifice our user experience for higher monetization. That pretty much I can provide for the -- like I say -- you ask us two years down the road. Thank you.

But what about 1Q? Is it just a seasonal issue? Should we expect it to continue to trend down a bit because of 1Q seasonally?

For the revenue figure, we cannot provide exact figure, right now, for 1Q.

Okay. Thank you.

Thank you.

Your next question comes from the line of Natalie Wu from CICC. Please ask your question.

, : On top of that how do you see the channel take rate, both commission take rate and online marketing take rate in 2019? And since when can we see a stabilizing or take rate decline? And also on a full year level, just to give us a rough sense, should we anticipate the sales and marketing budget -- I mean sales and marketing expenses to grow at similar pace with GMV? Any color on that would be appreciated. Also lastly, just to confirm, the gap between your net GMV and gross GMV, is still remain unchanged, right? Thank you.

Alicia, this is Tian again. In terms of GMV, we believe there is a long runway for growth. As consumption continue to increase and more user come onto our platform, more often, our order volume has more than doubled year-on-year. We are fulfilling over 30 million orders on average a day. This is driven on our user base and also higher annual spending per active user. And this annual spending per active user is now like RMB1,100, more than RMB1,100 more than doubled last year. So, underlying this growth is the fact that users stay longer on our platform and they also become more familiar with us spending steadily increase. We are seeing more user buying more stuff within categories and also broadly across categories as they come to trust our platform. All these are factors to drive our GMV up. So, users now are able to see and try products. They may not have access to it in the past. That's something new. For instance, our data shows that a growing number of users in the lower city – lower tier city are starting to explore a more diverse selection of products, such as small luxuries, like cherries and affordable coffee makers. Such demand may have been unformed or unmatched in the past, but now they are crystallizing and being fulfilled on our platform. So, in short, we are confident in the growth opportunity in the GMV. And we'll continue to invest and innovate in order to bring the most like value-for-money quality product with our unique and fun shopping experience to our users. Your question about commission take rate or other take rate, commission take rate is depend on the payment processing discount we get. So, we have always said, it's hard to give guidance ahead of time, because our payment processing is kind of actually changing. Also we have this new concept of a -- we adopting this new name transaction services. But for now, we don't -- on top of the commission revenue, we have limited number to report to you, because that also showcase the potential we are providing more transaction related service to our merchants in the coming few years. That's one of the indicator to improve our take rate. For the gap, you mentioned between the nominal GMV and the payment GMV, it's unchanged. What else?

And for the sales and marketing budget planning, will that be growing at a similar pace versus GMV in 2019?

-- :

So, can I add up some question? On the sales and marketing spending in the fourth quarter, how much of that is related with the promotional stuff and how much is related with brand advertising or like ...?

In terms of percentage, it's similar to what we provided before, so no big change.

Got it. Thank you. Very helpful.

I would like to hand the conference back to today's presenters. Please continue.

Thank you very much for joining today's call. If you have any other questions or concerns or comments, please don't hesitate to reach out to the Pinduduo IR team. This concludes the call. Have a good night.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.