Pinduoduo Inc. (PDD) Q4 2021 Earnings Call Transcript

Pinduoduo Inc. (NASDAQ: PDD) Q4 2021 earnings call dated Mar. 21, 2022

Corporate Participants:

Chong Fung — Investor Relations

Lei Chen — Chairman of the Board of Directors and Chief Executive Officer

Liu Jun — Vice President-Finance

Junyun Xiao — Senior Vice President of Operation

Analysts:

Thomas Chong — Jefferies — Analyst

Yang Bai — CICC — Analyst

Joyce Ju — Bank of America — Analyst

Kenneth Fong — Credit Suisse — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Pinduoduo’s Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being today. I would now like to hand the conference over to your host for today’s conference, Mr. Chong Fung. Please go ahead, sir.

Chong Fung — Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Chong and I will help host the earnings call. Pinduoduo’s earnings release was distributed earlier and is available on IR website at investor.pinduoduo.com as well as through Global Newswire services. Before we begin, I would like to refer you to our Safe Harbor statement in earnings press release which applies to this call as we will make certain forward-looking statements. Also this call contains discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures.

Joining us today on the call are Chen Lei, our Chairman and Chief Executive Officer; Liu Jun our VP of Finance. Lei will make some general remarks on our performance for the past quarter and fiscal year 2021 and our strategic focus. Jun will then take us through our key operating our financial results for the fourth quarter and fiscal year ended December 31, 2021. During the Q&A session Liu will answer the questions in Chinese and I will help translate. Please kindly note that all translations provided are for reference purpose only. In case of any discrepancy between the original remarks and the translated version statements in the original language should prevail.

Now, it is my pleasure to introduce our Chairman and Chief Executive Officer, Chen Lei. Lei, please go ahead.

Lei Chen — Chairman of the Board of Directors and Chief Executive Officer

Thank you, Chong thank you, everyone. Thank you for joining us for our earnings call for the fourth quarter and the fiscal year of 2021. Let me first recap our result in Q4 and full year 2021. Our total revenue in the fourth quarter, excluding revenue for merchandise sales was RMB27.1 billion. This represents a year-on-year increase of 28%. Our annual active buyers reached 868.7 million for the 12 months ended December 31 with 733.4 million average quarterly MAU. Our GMV in 2021 was RMB2,441 billion representing 46% year-over-year growth.

Total revenue for 2021, excluding revenue from merchandise sales was RMB86.7 billion representing 61% growth year-on-year. 2021 was a year of transition for Pinduoduo. Over the course of the year since I took over role of Chairman we shifted our priority from sales and marketing toward research and development. I’m glad to see that this shift is well on track. This will lay the solid foundation for us over the long run. We are grateful to our users’ continued trust and support. To keep up with the evolving and increasingly multi-dimensional preferences we currently ask ourselves, how we can serve them better.

As a team with engineering background, our focus has always been to use technology to benefit all. We were fortunate to be early in identifying opportunities to contribute to increased value in agriculture. Agriculture is a sector that touch everyone’s daily lives yet have low levels of digitalization. Since Pinduoduo establishment in 2015 we have been facilitating agricultural modernization and digital inclusion. An efficient resilient, sustainable and vibrant agricultural sector benefit all stakeholders in the value chain and we remain focused on our goal.

In 2021 we deepen our agricultural digital inclusion efforts in various ways and they include one, helping farmers to expand the access to market; two, advancing the use of smart agriculture and three, encouraging and enable more young and tech savvy talent into agricultural sector. And now, let me elaborate. In the downstream we continue to bring farmers into the digital economy by expanding their market access. We are working hard to be the platform that effectively matches consumer demand with agricultural production across the country. This enables farmers to ship more fresh and the perishable agri food products directly to consumers bypassing layers of distribution to deliver in a shorter timeframe.

The result is higher incomes for farmers, lower price for consumers and the fresh produce consumers who receive. Our platform has opened up the market of nearly 870 million users to farmers and agri producers in China directly. We have also provided them with very good tools to promote their unique agricultural produce. One commitment we have is our zero commission policy of agricultural products. We waived sales commissions and put actually gain more exposure for agricultural products. We plan to continue zero commission policy of agricultural products. We aim to create a virtuous cycle like what we have done for SMEs in the past.

In wage farmers earn more while consumers get fresher and more affordable produce. To amplify its effectiveness, we launched numerous promotional events. In 2021, we work with various regions to create a series of agri-focused shopping festivals that introduce consumers across China to different reach specialty. We also collaborated with key partners such as PCTV to launch live streaming events to promote China’s agricultural heritage. This event, not only enhance user awareness as appreciation of local specialties in able farmers to directly talk to consumers and to consumers preference by that, which help them in brand building and production upgrades for quality agricultural produce.

For instance, we initiated an effective to promote high quality orange specialty for seven major orange produce areas across the country with regional orange variety for consumers nationwide. Anything from rising order volume to our platform, local orange farmers agri merchants in Hunan province witnessed a large increase in sales. This increase in sales not only improved farmers’ living standards but also gave them the confidence to invest into the future. Many of the re-invest in the process into developing further products including shopping machines and packaging design.

We are advancing adoption of agricultural technology to help growers improve their productivity. A full and affordable technology can ultimately in all growth about agriculture competition last year including automated crop monitoring, program dynamic adjustment for changing climate conditions and the indication we have several teams commercialize these technology solutions. Today solutions have been applied in major regions across China such [Indecipherable] Yunnan provinces. They have helped traditional more than double the management capacity.

Such progress is inspiring and variable to entire industry. We regularly organize knowledge sharing sessions to encourage adoption of technology in this sector. Earlier this month we jointly hosted a sharing section with FAO China agriculture to boost food production and security. Representatives from FAO, China Agricultural University, Chinese Economy of Agricultural Sciences, Pinduoduo and finally of the smart agriculture competition presented the insight and a webinar. We are honored to work closely with world-class partners in agriculture sector such as China Agriculture University, [Indecipherable] University, UNFAO, Singapore Astar and [Indecipherable] University.

And we look forward to collaborating with more like-minded organizations and individuals in the future. Another important program of Pinduoduo’s agricultural strategy focuses on encouraging and enabling more young and tech savvy talent into the agricultural sector. We are glad to see more and more young agricultural entrepreneurs choosing to start their businesses with Pinduoduo. As of end October 2021 over 126,000 young farming professionals born after 1995 has joined the Pinduoduo platform. After all 85,700 in 2020 and 29,700 in 2019. Most of these young entrepreneurs are well-educated. They are digital natives who grew up with mobile technology.

Therefore they used to buying things online and use innovations like live streaming. At the same time many of them are motivated by the desire to contribute to their rural communities. To upskill them we have offered dedicated training program on necessary know-how to operate that e-commerce business. We have devoted more resources to support them as we believe it will play a key role in facilitating agricultural modernization and the rural vitalization. Looking back on our efforts in agriculture we are happy with the positive impact that we have generated.

But we have only scratched the surface in a field of technology advancement and digital inclusion in agriculture. Therefore, we are stepping up our investment in this sector as a long-term commitment. The focus of our long-term mission may always translate into near-term results but we will be patient as we used to our part to contribute to agricultural modernization. As mentioned last year, I am personally overseeing our RMB10 billion agriculture initiatives which aim to facilitate advancement of agritech, promote digital inclusion and provide agri-tech talent with greater motivation and sense of achievement.

Profit from this quarter will continue to be allocated to this initiative. Lastly, as a platform that fills over 868 million consumers we’re also shouldering more social responsibility. In July, we rapidly responded to help with flood relief efforts in Henan making donations launching a portal to support emergency relief distribution. In October, we did the same to carry out emergency disaster relief and post disaster construction work in Shanxi. In December, we contributed towards relief efforts in Xi’an and worked with the local government to maintain necessary provisions as with COVID-19 outbreak.

To support the rural communities we launched door-to-door reading month. Today we have donated carefully selected fire reports to rural communities around the country with an organized reading program. We hope that this effort we will broaden the horizon of the youth and contribute to a better future to the community. As we step into another year, we remain laser-focused on our goals and would continue to do our best to serve all our stakeholders. And I would like to thank you all in advance for your continued support.

And now, let me pass the time to Jun. Jun has been with since 2017 and has been recently promoted to VP of Finance as part of our plan to build more young generation leaders. And Jun, please.

Liu Jun — Vice President-Finance

Thank you Lei. Hello everyone. Nice meeting you here. Let me first walk you through our operating results for the fourth quarter and fiscal year ended December 31, 2021. Our annual active buyers for the 12 months ending December 31, 2021 was 868.7 million. This is an increase of 80.3 million from ending 2020 or 1.4 million for the 12 months ending September 30, 2021. In Q4, we observed a quarter-over-quarter decline of MAU. Average MAU in Q4 was 733.4 million. This is 13.5 million increase from the same quarter in 2020 or an 8.1 million decline from Q3 2021. At our current scale we are approaching the [Indecipherable] and do not see it as a meaningful driver of future growth. To us it is more important to focus on meeting our existing users involving this and to serve them in a faster way that we can.

Our GMV for the last 12 months ended December 31, 2021 was RMB2,441 billion an increase of 46% compared to 2020. Average annual spending per active buyer for the last 12 months ending December 31, 2021 which is the result of GMV divided by the number of active buyers over the same period increased 33% year-over-year to RMB2,810. We’re encouraged by their growing trust and are committed to serve them better. Last year, our platform generated a total 61 billion orders, an increase of 59% from a year ago.

There has been a significant increase in agriculture orders on our platform in line with not step up forecast and the results on the sector. As average order value for agricultural products is lower this resulted in a decrease in AOB over the same period. Our AOMV came down 8% to RMB40 in 2021 as compared to RMB44 in 2020 where average number of orders per active buyer was 70 in 2021, an increase of 45% from 2020. We are glad to see that our investment in the agriculture is addressing our users’ real needs. We plan to deepen our efforts in agriculture.

Next, I will go through our financial performance in the quarter ended December 31, 2021. In terms of P&L, our total revenue in the quarter was RMB27.2 billion, up 3% from RMB26.5 billion in the same quarter of 2020. This was mainly driven by an increase in revenues from online marketing services and revenue from transaction services offset by decrease in revenue from 1P trials. Excluding revenue from our 1P trials, our total revenue was RMB27.1 billion in Q4, 2021, up 28% from RMB21.2 billion in the same quarter of 2020. Revenue from online marketing services and others were RMB22.4 billion this quarter, up 90% compared to the same period of 2020.

This was preliminary due to increase in merchant activities attachments of our platform’s capability to help them reach their target customers effectively and efficiently. Our transaction services revenue this quarter were RMB4.7 billion, up 108% compared with the same period of 2020. The increase in our transaction services revenues was due to first, the increase in total transaction processing fees as a result of higher GMV; second, more diversified services that we provide to merchants such as fulfillment services. Moving to cost and expenses, our total cost of revenue decreased from RMB11.5 billion in Q4 2020 to RMB6.5 billion this quarter.

The decrease came mainly from the reduction of 1P trials and decreased several quarters due to one-off rebate offset by increased fulfillment fees. Total operating expenses this quarter were RMB13.8 billion compared with RMB17.1 billion in the same quarter of 2020. On a non-GAAP basis our total operating expenses as a percentage of revenue excluding 1P has been declined from 90% to 76% to 45% for Q4 of 2019, 2020 and 2021 respectively. As we observe slower user and the topline growth we proactively controlled our expenses.

This resulted in lower operating expenses in the quarter. As we face more competition from existing and new players, we expect relevant expense items to increase in the future. Looking to specific expense items, our non-GAAP sales and marketing expenses this quarter RMB10.8 billion, down 25 versus the same quarter 2020 as we continue to shift away from our previous forecast on sales and marketing. On top of this, as I mentioned we further controlled our expenses in the face of slower user and revenue growth. As a result on a non-GAAP basis our sales and marketing expenses as a percentage of our revenues in this quarter was 40% compared with 84% and 54% for same quarter in 2019 and in 2020.

Our non-GAAP general and administrative expenses were RMB195.8 million compared with RMB153.1 million in the same quarter of 2020. Our non-GAAP research and development expenses were RMB1.3 billion, a decline of 16% from RMB1.6 billion in the same quarter of 2020. The decrease in non-GAAP R&D expenses was due to one-off rebate from one of our service providers. If we take out impact of this rebate R&D expenses will have risen, would not expect rebate to recur. As a result operating profit for quarter was RMB6.9 billion on a GAAP basis compared with operating loss of RMB2 billion in the same quarter of 2020.

Non-GAAP operating profit was RMB8.4 billion compared with operating loss of RMB1.1 billion in the same quarter of 2020. Net income attributable to ordinary shareholders was RMB6.6 billion compared with a net loss of RMB1.4 billion in the same quarter of 2020. Basic earnings per ADS was RMB5.26 and diluted earnings per ADS was RMB4.66 compared with basic and diluted net loss per ADS of RMB1.13 in same quarter of 2020. Non-GAAP net income attributable to ordinary shareholders was RMB8.4 billion compared with net loss of RMB184.5 million in the same quarter last year.

Non-GAAP diluted earnings per ADS was RMB5.88 compared with non-GAAP diluted net loss per ADS of RMB0.15 in the same quarter of 2020. To conclude, profitability in the past quarter was mainly attributed first, controlled spending in the face of a slow growth; and second, reduction of costs and expenses due to one-off rebate. We expect profits to flat rate as we continue to invest in agriculture space including agricultural technology. As Lei mentioned in previous quarters we are also facing more competition. Therefore, we do not expect the profitability in Q4 to serve as a benchmark for the following quarters.

Similar to previous quarters, profit from this quarter will be allocated to the RMB10 billion agriculture initiative. That completes the profit and the loss statements for the fourth quarter 2021. Our net cash flow provided by operating activities was RMB16.4 billion compared with RMB14.9 billion in the same quarter of 2020. As of December 31, 2021 the company had RMB92.9 billion in cash, cash equivalents and short-term investments.

With that, I conclude my prepared remarks.

Chong Fung — Investor Relations

Thanks Liu Jun. Next, we will move on to the Q&A session. For today’s QA session Lei and Jun will take questions from analysts on the line. We could take a maximum two questions per analyst. Lei will answer questions in Chinese and I will help translate Lei’s remark for easier reference. Operator, we may now take question on the line.

Questions and Answers:

 

Operator

[Operator Instructions] Our first question is from Thomas Chong with Jefferies. Your line is open.

Thomas Chong — Jefferies — Analyst

Thanks management for taking all my questions. My first question is more about the macro uncertainties that we are facing. How should we think about the impact to the consumers as well as to Pinduoduo? And my second question is about our RMB10 billion agriculture initiatives. Can management comment about the progress so far, the P&L impact this year KPI, as well as of course if there will be a step-up in investment going forward. Thank you.

Lei Chen — Chairman of the Board of Directors and Chief Executive Officer

Thank you Thomas for the questions. Let me take your questions. You ask about macro economy, well for us we always look internally and see what areas we can improve through technology. And for us a big area is agriculture. So there are many aspects and areas in agriculture that one can improve. In production, we can increase yield, reduce the environmental impact and also help farmers get higher and stable income. In terms of consumption through our efforts we can provide consumers with fresher and more affordable agricultural produce and reduce waste at the same time.

In addition, another area of interest for us is in distribution. We can use technology to improve the distribution efficiency of agriculture produce and also strengthen the rural logistics system. In the agriculture sector along, which is so fundamental and crucial we see so many opportunities. This reflects that we remain confident about the potential of industry and future development. Investments in agriculture take time, and the process is gradual.

So we have to be very patient in the process. And with that this naturally brings us to your next question on our RMB10 billion agri initiative, we announced the RMB10 billion agri initiative in Q2 last year. And for this initiative profitability or commercial value is not the aim. We hope that this initiative address the critical needs in the agriculture sector and rural areas. As for where we would put our investment in, I hope this initiative can facilitate the advancement of agritech, promote digital inclusion and also give more motivation and the sense of achievement to agri talent and workers. We really hope the RMB10 billion agri initiative can maximize its potential and impact in the advancement of agritech and digital inclusion. Therefore, we are diligently evaluating different proposals and projects and also take into account of our — and make those evaluations based upon our past experiences in agriculture, as well as our technical background.

Here I can also share some examples of our focus areas. Some examples, some of which I have mentioned include that how to improve distribution efficiencies through technology? How to reduce the transportation time, as well as reduce the environmental impact with logistic technology and also how to use technology in production to improve the efficiency, as well as quality. To use technology to enable different lengths along the agriculture value chain is really a long-term project that requires long-term dedication and patience. We are still in the early days of this and hope everybody can have more patience, as we invest, we also look forward to share with you our progress on the RMB10 billion agri initiative and hope what I have said — have addressed your question. [Foreign Speech] Operator, we may take a question from the next telephone line.

Operator

Our next question comes from Yang Bai with CICC. Your line is open.

Yang Bai — CICC — Analyst

Thank you, management for taking my question. My first question is regarding to the future competitive landscape. I notice that Pinduoduo always focus more on the value to consumers, instead of pressure from competitor. So on your perspective, what is needed or what kind of improvement should be emphasized for the company to make the cut? And my second question is regarding to your branding strategy, for the past six years Pinduoduo is very distinguished from other competitors, especially for your value for money merchandise. However, moving to — come to branding it seem that the past advantage is kind of becoming the bottleneck. So I like to know your future strategy how to efficiently help brand business in Pinduoduo’s platform? Thank you.

Chong Fung — Investor Relations

Thank you, Bai Yang for the questions. I’ll share my views on those fronts. As for competition, since the day Pinduoduo was established, we are in this highly competitive space. And China e-commerce space is a huge industry and it has always been highly competitive. We now see more large platforms entering e-commerce and they provide different options to consumers. As technology continues to upgrade, consumers needs will also continue to evolve. And we expect more engagement form as well emerge and more platform companies will join e-commerce.

As you have mentioned in your question, internally we would focus on users and whether we are serving their needs well. So we target to offer users a unique, more savings, more fun shopping experience. This is our company’s benefit. Indeed we do not focus too much on competition. But with that said I think over the past period of time, in terms of understanding and catching up with the rapidly changing user needs and addressing their needs, effectively and efficiently, there is still a plenty of room for us to improve. And admittedly, many of our competitors have done a better job in some of these aspects and we need to learn from them.

Especially under intensified competition, we still need to look into ourselves on how to do better, improve our services and raise our user satisfaction. I also mentioned a quarter — a few quarters ago that Pinduoduo cannot always be perfect or be the best. And we will evitably slowdown as we go through transitions in leadership and when we make adjustments. But these are all part of our company’s development. In addition, we have chosen to investing agriculture. And this is different from a pure Internet technology. In this sector, we need to be more patient with our investment due to its nature.

We will continue to invest in agriculture. We see that compare with categories that have been digitized earlier or categories that now have higher on a penetration rate, the online penetration rate for agriculture is still very low. And on the existing fulfillment experience many consumer needs have not been met. This is why we are investing agriculture and without hesitation, as well as a core agricultural technology with the goal to promote agritech and digital inclusion. For our companies mid to long-term development outlook, my team and I are confident. At the same time, in order for our confidence to translate into actual results, we need dedication and hard work from everybody in our team.

As for your next question on brand, our platform now has nearly 870 million users and their need is continuing to diversify. We hope to satisfy our users need and also give them a better shopping experience on our platform. And in this process, brand is definitely one, one part we need to work on. However, store opening does not happen overnight. Instead, it takes time. Essentially, I believe that the ultimate goal for brands and for us are the same and that is to serve consumers well. So we will continue to be very patient and down to us to do our parts within our capability on what we should do.

In this process of cooperation, we see a trend that brands who seize opportunities first would generate higher returns. And this would in turn attract more brands to learn more about us and see collaboration. As for whether more brands would help increase the ARPU or AOV, that is not our core focus, instead we focus on user satisfaction. We will stick to our principles of benefit/or people first and and more open and I believe this would have a positive impact brands users, as well as our platform. Operator, we may now take question from next analyst.

Operator

Our next question comes from Joyce Ju with Bank of America. Your line is open.

Joyce Ju — Bank of America — Analyst

Good evening Lei Chen and congrats on the solid quarter and thanks for taking my questions. My first question is first we have seen continued leverage and decline in sales and marketing expenses this quarter. Is there any expenses reason this quarter, which lead to the company to further control the South marketing spending or it’s simply an improvement on your sales marketing ROI? And my second question is PDD has delivered another quarter of strong profit. Could you share with us how management team are looking at balance between profitability and growth. Are we seeing a pervert in strategic priority, also should investor expect future — how should we expect the future profitability trend and how much was the one-time rebate that contribute to this quarter’s higher profitability?

Lei Chen — Chairman of the Board of Directors and Chief Executive Officer

Thank you for your question, Joyce. Well for sales and marketing expenses you may see that we are actually changing our investment direction. There is no [Indecipherable] results and during Q1 and to Q3 last year, our expenses showed consecutive quarter-on-quarter decreases in terms of absolute dollar amount. And in Q4 our selling and marketing expenses decreased by 23% Y-o-Y, which represented a 42% of revenues. Well, that is our lowest level in our history. We think it is a strategic shift as Lei just mentioned, we need to focus and invest more in technological developments such as agri-tech. And meanwhile with slowing growth rate, we are more cautious, so we have proactively controlled expenses. This is also we are seeing higher profitability margin in the past quarter and recent fluctuation in user activities and slowing revenue growth is reflection that we are not well enough in terms of satisfying users’ needs.

So, our team is working hard to explore how to meet user needs better and quicker. And we think this will require continued investment and expense will very likely increase in the future. For second questions, which is about profitability. Well, I would like to point out that we’re not changing our strategy to focus on profitability. This quarter’s higher profit was due to one-off rebate as mentioned before and controlled spending in the face of slower growth. To further elaborate, first, we are as we encounter slow growth and are concurrently making adjustments, we are taking a cautious approach and proactively controlling our expenses. On top of this portion of this quarter’s profit was due to our cost and expense reductions related to one-off rebate from our service provider. And this one-off rebate has resulted in a lower cost and expenses and higher profitability in the quarter.

But if we strip out the one-off rebate, cost and expenses will be higher than the reported number and profitability in the quarter will also be lower. And second, as competition intensifies and user demand becomes more diversified, we do expect continued investment in agriculture and in core technology which will result in higher expense line items, hence impacting profitability. And in your question you also emphasized the rebates. Well, I think the one-off rebates, yes, it’s in one-off nature. It is based on case-by-case negotiation with now service providers. We do not expect it will recur in the future and for the amount due to confidentiality obligation, please the service provider, we could not come out on specific amounts. But what we can say is that, it contributed a meaningful portion of this quarter’s profit.

Chong Fung — Investor Relations

We have time to take question from one analyst.

Operator

Our last question comes from Kenneth Fong with Credit Suisse. Your line is open.

Kenneth Fong — Credit Suisse — Analyst

Hi. Thank you, Management for taking my question. I have a question on the online market service revenue, which in Q4 record a slower growth rate of only 19% compared with the previous quarters, what’s the reason behind, is this mainly due to a slower GMV growth or due to change in take rate policies and have we carry out more versions of port measures in the recent quarter that’s also depressed our take rate? And as a investor, how should we think about the growth outlook for first quarter and then the next few quarter? Thank you.

Chong Fung — Investor Relations

Kenneth, let me take your question and offer some insight on our revenue growth and then Junyun will supplement with some insights on take rate. First of all, for us to reach our current scale, investors should not expect continuous and ultra high growth. As for our future growth, I believe we need a strategic upgrade and we also went through adjustment last year to focus more agriculture and core technology in order to pursue a long-term high quality development.

For example, we are looking into how to apply our core technology to improve the efficiency and reduce waste in agriculture, so that consumer can get affordable and high quality produce and farmers at the same time can increase yield, enjoy improvement in income and benefit from digital inclusion. We believe our focus in agriculture and investment in core technology creates long-term value.

We are fortunate to have nearly 870 million customers who choose to leaving us to serve our users well, address their constantly and changing needs and improve their satisfaction level is our long-term focus. So, in the past year, we have seen many different platforms entering e-Commerce, as well as new e-Commerce formats. As I have said, we need to learn from them and also improve our services. It also serves as a good reminder for us to iterate and promote more young talent to our management team and to keep up with the market development.

For these adjustments to show result, it takes time and in the process, our growth rate would may be affected. As we develop, you may see that our business cycle and financial reporting cycle do not necessarily correspond smoothly to each other. So we do not recommend investors to use one quarter’s of result to predict in next. Now, Junyun may supplement with some insights on take rate.

Junyun Xiao — Senior Vice President of Operation

Okay. Thank you, Kenneth. As you mentioned about SMEs, so before I answer your question about the take rate, I would like to talk more about SME. As we started Pinduoduo with our corporate principles of benefit all, people first and more open, addition — agriculture is our core end and many agriculture merchants, our SME merchants themselves. So we have always been looking for ways to support SME merchants and the products. And for take rate, well, it’s not a metric that we focus on. In the past three quarters as you already know that we continue to implement the zero commission policy on agriculture products.

We actually extend support to agriculture merchants and SME merchants and offer more exposure and traffic to agricultural products. All of this would affect our take rates that where we are — we have down and our [Indecipherable] and in the long run our revenue and monetization depends on how much value we create. As we — as our user experience and user share improve, our platform could provide more value to merchants and merchant will find investments on our platform more attractive results. That I think it’s a percentage of our agriculture products with increases, the monetization rate unlikely to grow [Indecipherable] as all scale. The trials in our user well is our number one priority. As mentioned before, agriculture is those core and strategic direction and we will stick to it.

Chong Fung — Investor Relations

Thank you, very clear.

Operator

Thank you. I would now like to turn the call back over to Chong Fung for closing remarks.

Chong Fung — Investor Relations

All right, thank you everybody for joining us on the conference call today. If you have any further questions, please feel free to reach out to the IR team. Thank you. Have a great day.

Operator

[Operator Closing Remarks]