Ladies and gentlemen, thank you for standing by and welcome to Pinduoduo First Quarter 2019 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 would now like to hand the conference over to our first speaker today, Mr. Victor Tseng. Please go ahead, sir.

Thank you, operator. Hello, everyone and thank you for joining us today. Pinduoduo's earnings release was distributed earlier and is available on our IR website at investor.pinduoduo.com as well as through GlobeNewswire services. On the call today from Pinduoduo are, Mr. Zheng Huang, Chairman and Chief Executive Officer; and Mr. David Will [ph], Vice President of Strategy. Mr. Huang will review business operations and company highlights followed by Mr. Will [ph], 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 Securities Exchange Act of 1934, as amended and as defined in the U.S. Private Securities Litigation 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 statements 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. Zheng, please go ahead.

Okay, thank you, Victor, and thanks to everyone for joining us on our first quarter 2019 results discussion. I am happy to report that we kicked off this year with a strong quarter thanks to our team's hard work and strong execution across the board. I also wish to thank our users for their continued support. As I mentioned in my letter to shareholders several weeks ago, Pinduoduo is turning four this year. We are still very much a startup, but I'm confident that our young company will continue to make significant progress this year as our new e-commerce model is well aligned with the industry evolution and the best interests of our e-commerce participants. By focusing on benefiting all, putting people first, and being more open, we keep delivering differentiated value to our users and our merchants. We will continue to prioritize investments to pay long-term return such as sales and marketing and R&D at this early phase of our development to build a long lasting foundation. Our objective is not only to realize our near term goal of expanding and deepening the relationship with our 443 million and new active buyer base, but also to further strengthen our foundation to achieve our vision of new e-commerce. Let me begin by sharing with you our key financial and operating metrics for the first quarter. Last 12 months GMV ending March 31, 2019 grew 181% year-over-year to RMB557 billion. On a quarterly basis our GMV growth surpassed the 21% year-over-year increase in total China online retail sales of physical growth in the first quarter by market performance. This was driven first by a strong increase in annual spending per active user, and secondly by continuing to grow in our annual active buyer base. Annual spending per active buyer grew 87%…

Thank you, Colin and hello everyone. For the March 2019 quarter, we reported strong results across major operating and financial metrics. Our last 12 months GMV grew 181% over the past year to reach RMB557.4 billion. Total revenues grew 228% year-over-year to RMB4.5 billion up significantly from RMB1.4 billion a year ago. Our strong revenue growth was driven by our writing GMV and improving monetization rate despite low seasonality from the Chinese New Year holidays. We derived 87% of our total revenues or RMB3.9 billion from online marketing services. This represents a more than three-fold increase from RMB1.1 billion for the same period last year. Our last 12 months online marketing take rate increased for the sixth consecutive quarters in a row, to reach 2.6%. Several factors contributed to the growth of our online marketing services revenue. First of all, we continue to attract more merchants to join and advertise on our platform. The rapid growth in our user base, our traffic volume and GMV, these two strong advertising ROIs for our merchants. Secondly, as our merchants become more familiar with our advertising products and analytics tools, they also become more willing to spend aggressively towards achieving their ROI targets. To give you an example, we introduced a number of new marketing tools this past quarter, including our market trend analysis and keyword trend analysis tool. These tools are designed to help merchants benchmark their app performance against the industry and to adjust their investments as appropriate to achieve better results. We have many more features of such nature planned in our pipeline. Lastly, we continue to invest in our merchants through Duo Duo University. This is an online program that we launched in July 2018. Over two million merchants have access to over 1300 online courses available to date.…

Certainly sir. [Operator Instructions] We have our first question coming from the line of Grace Chen from Morgan Stanley. Please go ahead.

Thank you. Thank you for taking my question. The question is about sales and marketing strategy. I just want to dig a bit further. It will be the great if the management will share your plan to increase sales and marketing efficiency and also your strategies specifically, with coupons and coupons versus spending? Thank you.

Okay, I'll take that one. Well, since last quarter your past few questions, surrounding sales and marketing. But, the purpose of sales and marketing spending is really focusing on building greater brand recognition and developing strong user engagement. There are two important points I'd like to make about the sales and marketing. We view sales and marketing as a discretionary investment, from which we expect to realize meaningful long term value. Second, our sales and marketing investments must meet the stripped our wild [ph] comments, we set internally. For the investors who haven’t read my letter to shareholders, I strongly recommend to read that because at this stage although PDD is due is off - it's not small anymore, but it's still early stages. We are still sort of a startup, and we have a larger user base and good user retention and fairly decent brand recognition. But, the brand awareness is not fully cemented in users brand yet. So, at this stage, we actually want to spend the money we earned to increase user awareness and also increase the mind-share of PDD in users mind. We added a lot of new users in the past year, who are still forming their shopping habits on our platform. We have seen our youth, our older cohorts of users spending a few times more than when they joined. So, retaining and cultivating existing users, our platform is all the more important as well as attracting new users. Over time, we hope Pinduoduo would be the platform they think of when they want to browse during their scanner [ph] times and also when they want to - want value for money products, where they become seasoned users. So, if you look at our different types of sales and marketing spend, you can see…

Thank you.

Thanks.

We have our next question coming from the line of Natalie Wu from the CICC. Please go ahead.

Hi, good evening management. Thank you for taking my question. I have two questions here. The first question is that we see quite online marketing take rate improvement this quarter. So could management share some color on drivers of our monetization ramp up and how should we think about the trend for monetization for remaining of the year? That's my first question and my second question I guess, I have a follow-up on our sales and marketing spending. So what is our sales and marketing plan for the full year 2019? Thanks very much.

Thank you, Natalie. Let me start with the online marketing services take away question that you referred to. We really view our online marketing service take rate it's a reflection of the value that we bring to our merchants. It is ultimately driven by our user satisfaction and our differentiated value proposition. So we do not focus at this moment on take rate, but instead we focused on improving our SKU offerings to our customers, we focused on customer service which we believe will lead to more user interactions within the platform and among themselves. This translates into more exposure for our merchants. So, as much as our increases with exposure and sales they naturally want to spend more on our platform and from a results perspective we have seen our take rate increase over time. We're still at a very early stage of monetizing our platform and we will continue to help merchants serve our users better and make money, but we want to be mindful and we will be mindful on balancing between monetization and growth. For now we'll continue to prioritize growth, but we know that the underlying drivers of monetization remain healthy as we see our merchant base continuing to expand and our merchants becoming more active in marketing as they become more familiar with our platform.

Well I want to add a little bit to David's answer. Actually I think the increase you see right now is just a very small fluctuation. I personally I don’t encourage our investors to measure the monetization rage on a quarter by quarter basis. Instead we should just look at this on a longer time frame at least for a half year or a year on a yearly basis, and for seasonal reasons and our politics changes, I mean platform politics changes maybe, this kind of small fluctuation I think you can do that and but over the long haul I think in terms of monetization we're still at a very early stage, yes.

Natalie, I think you also had a question on the 2019 sales and marketing. Given our fast growth it is very hard for us to give you guidance. We are pleased with the results of our marketing campaign thus far and as we have mentioned a number of times we will continue to make investment as long as we think the expected returns meet or exceed our ROI targets. So we believe we're in a good position to do so, as we see our GMV monetization continue to grow.

Yes, I also want to add a few sentences. Basically if the market is good and we're doing a good job then you should expect us to spend more, with that you may see more deficits. But if we're doing a mediocre job then probably you will see sort of that will be more in line with a lot of expectations maybe, but internally we do have a very strict metric for every penny we spend. And that is really based on a carefully calculated ROI of audit marketing campaigns. So that is more based on whether – since we're treating a lot of the marketing as the investments, so the philosophy will be yes, there is a good deal then we'll invest. But if the price is too high then we'll just refrain from that. So with that mentality in mind it is pretty hard for us to kind of predict or to precisely calculate how much we will spend. We're budgeting. Okay?

Thank you. Thank you, management.

[Operator Instructions] You have the next question coming from the line of Alicia Yap from Citigroup. Please go ahead.

Hi, good evening management. Thanks for taking my questions and congrats on solid results. My question is related to the competitive landscape, so can management share with us how do you see the impact or potential threat from your bigger peer going after more aggressively in growing more new user, right from the lower tier cities and have you seen any rising difficulty in retaining new user that you acquired over the last few months? And then, in terms of what are some of the measures you believe could be effective to counter the compacted - to counter the competition and or are you not really worried about the competition, so any colors on that would be helpful? Thank you.

Well, for competition, it is a hot topic last quarter and even it's continuing this month. And I have to say that the competition we see at this moment and a lot of the actions our competitors have taken, for instance like the forced [ph] exclusivity in Chinese [indiscernible] it's unprecedented I have to say, but it is becoming more and more interesting. You rightly pointed out that a very important factor is the users. So, if we look at our user base and if you look at our users the behavior and the retention, I think we're very happy about the current status and not only it's healthy, but I guess the competition even increased users' kind of engagement and support. So, of course in a short while the competition, especially some of the forced exclusivity will have some effect on our merchants in a negative way, but in the long run I don't see any sustainable measures they can take. And as a side effect of all these negative movements, the competitors are doing, we also see some positive side effect. A lot of the merchants and the brands start to realize how important our platform is. So, looking at this in another way as we grow bigger, the opportunity cost merchants incur by not being on our platform also increases. Merchants like our users, ultimately want more sales from more channels rather than forcing merchants to go against their best interests. We think a more sustainable way to stay competitive in the long term is to build up our intrinsic value by focusing on serving our users well. We don't think China e-commerce has to be a zero sum game. I also, personally write quite few paragraphs in the letter to shareholders about the recent the competition…

Thank you.

We have our next question coming from the line of Piyush Mubayi from Goldman Sachs. Please go ahead.

Thank you for taking my question. Colin, for a relatively new company, as we approach the one year anniversary of your listing, could you look at areas where PDD has surprised you on the upside and you've done very well as well as areas where you still need to address, and by that I mean, areas such as your bench and this point of time? And my second question if I may slip in one, in your sales and marketing spend, could you detail which channels have proven to be those that are very effective on conversion for instance? And related to that, if I look at the magnitude of spend for the sponsorship of the CNY Gala [ph], should we think of SG&A for the rest of the year based on the 103% of revenue in the third quarter or the 63%, if I exclude the CNY spend based on my estimate? Thank you.

Okay, I will leave the second question to David. For the first question, well, I have to say that we're extremely lucky as a young company and we have been growing very fast and we have - we are buoying a good age with this model. One thing that surprised me a little bit is that, I do see the power of this platform to solve some of the social problems, the existing problems and I feel very proud of our initiatives and efforts in the agriculture industry because this is a big area for China, especially meaningful, because there are still more than 300 million people, peasants working on the fields directly excluding the peasants working in the cities building the houses. So when we've changed agriculture upstream model a little bit, that does improve the efficiency a lot and today with increasing user base and the increasing influence of PDD, I - and also the increasing intensity of the competition, I gladly to see basically the whole industry start to study our agriculture efforts and they're trying to put more emphasis and the resources into that area. So that is really good and I feel so happy about that. One thing that the negative surprise, not a big surprise, I guess I had sort of pretty good kind of sort of prepared for that, but it's still when we are in a position which is not understood especially for some of the wrong reporting and those kind of things, when you're in a situation you are misunderstood and cannot stand out to actually explain, that actually presumably makes me a little bit sad, but that's the fact and that's also kind of the lesson we have to learn and have to grow. But with all that said, I think I already feel very fortunate and I think I'm - the whole team got excited by what we have done, especially when we see the good things happening on a few - in a few.

Piyush and in terms of your second question regarding sales and marketing, as you know, we do not give guidance for the full year because the situation that we are in today remains to be quite dynamic, not only do the opportunities varies from time to time, the pricing of such opportunities also move around. What does not move around really is how we think about ROI in terms of our investment in sales and marketing. So as we think about the spending that we make in sales and marketing, we focus now in particular on responses by our users. So looking at the promotions and the coupons that you know for example recently we have had some very successful campaign that generated excitement and sharing and conversion on our platform. So we will continue to assess opportunities as they arise going forward the rest of the year and we will and you should expect us to remain, continue to remain very disciplined as we think about return on investment.

Can I just specifically, should we use 63 or 103 as a thinking point, especially given that CPMs across the industry have pulled back dramatically into the second quarter? And also if I look at certain data points that are getting released by third party vendors that track you, it appears that you had a very strong April and that's why I asked the question is that same spend translating to much more effective growth in the month of April and hence going forward?

Well I cannot comment specifically on that, but when you talk about the macro environment in the advertising industry, I don't think that is fully kind of revealed yet, and it is also fluctuates and when it comes to our industry the e-commerce, I think because of the competition is too fairly severe. So I don't think those macro numbers that have significant meaning or significantly useful when you do the calculation. Again regardless what kind of outside macro is, we will just use our internal metric to measure the ROI just like you are investing while you are following the value investing policy. So it doesn't really matter what the stock price is, you just look at the intrinsic value and a contract if the price is good and then you will just buy it.

Okay, thank you.

Shall we move to the next question sir?

Yes, move on to the next question.

We have the next question coming from the line of Joyce Ju from Bank of America. Please go.

Good evening management, thanks for taking my questions. My question is actually related to cost of revenue. First, may we get more colors on the payment rebate from Tencent this quarter? Is this actually a one quarter event and related to just quarter expenses only or this was actually for a longer historical period? And how shall we expect an implied you know payment costs for this quarter or like for the rest of the year? Secondly, of course Colin mentioned that this year company will continue to invest a lot to strengthen the merchant services, which were also related to the cost of the revenue but not directly correlated to the GMV. Could you elaborate more in terms of like what the investment will be and how shall we expect the amount or the scale of the investments and how this will affect the gross margin for this year? Thanks.

Thank you for the question. First of all, the question regarding the rebate, the rebate that we receive from Tencent is one off in nature. I would not say that it is not something we would not expect in the future, but that is based on a case by case negotiation and it is not something that we would expect to be seeing every quarter. Secondly, in terms of cost of revenues overall, our costs of revenues have increased over the last few quarters as we made investments in cloud services and other - building out our team to in order to provide better services to our platform. One of the examples that we can point to is on the merchant support services such as Duo Duo University, so we are spending a lot of efforts educating our merchants on how to better utilize our platform. And at the moment we are not charging anything for such services and these are naturally falls into our cost of goods sold, cost of revenues. These investments can be quite lumpy as we mentioned in our earlier script, because we believe that they actually are necessary to support our longer term growth of our platforms. As such our gross margin may likely to fluctuate between 70% to 80% range depending on the timing of our investment. I would also point out that the first quarter, this quarter is lower, our gross margin on adjusted basis is lower because of the Chinese New Year impact. If you think of it as having the investments against a lower revenue, so hopefully that helps too.

Yes. Sure thanks.

Thank you. We have our next question coming from the line of Ms. Monica Chen from Credit Suisse. Please go ahead.

Hi, good evening management, thank you for taking my question and congratulations on the strong results. Can management just give us more color on your logistics will be your initiative for example what's like so far the feedback from the merchants? And how do we expect that help us to improve our logistics efficiency over time? Thank you.

Okay. So, I'll answer that first and David you can add, if you have something to add. So, I think we rolled out our e-waybill just in March 2019 and the merchants' adoption has been very, very rapid. So although it's only like several months out the system since it's online, it's already the second largest in China and probably in the world as well. So, we can do this or we have done this in this rapid fashion, it's because we do have the volume in the first therefore and secondly, the merchants and the delivery companies all welcomes another alternative. Actually, this all initiative it is very important for the long term healthy sustainability and independence of delivery companies and it is also very important for the merchants. As for the users, you know without this e-waybill system there are merchants who are trying to fake the mailing address or trying to fix the route of the delivery or trying to fake the delivery time or something like that, but with this e-waybill system in place the detection of those kind of misconduct is much easier and the end to end information flow is much clearer than before. And it is also a tool against the brushing, it makes merchants much harder to fake orders so that they will no longer be able to see sort of brushing their orders and create fake orders so that they can rank up higher. So with all that, I think the launching of the e-waybill system has been pretty successful. The team has been working very hard and the results have been satisfactory at this moment. Thank you.

Thank you. Ladies and gentlemen, I would now like to hand the conference back to our speaker to end the call and for any ending remarks.

Thank you for your call everybody and we look forward to next quarter's earnings call.

Thank you, sir. Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may all disconnect now.