Pinduoduo Conference Call: Continued Investment in the Supply Chain, In-house Brand Development Slower Than Expected, but "Rebuilding Another Pinduoduo in Three Years" Goal Remains Unchanged

Pinduoduo is allocating more resources to its supply chain and private label business.

During the Q2 2026 earnings call, management revealed that the "100 Billion Ecosystem" support program has moved from a phase of large-scale investment to deeper execution, further expanding into agricultural production areas, industrial clusters, and logistics infrastructure; at the same time, the private label business is now fully underway, but its progress is slower than previously anticipated.

Private label is a key pillar in the company’s strategy to “build another PDD within three years.” Management noted that private label will prioritize core categories where the platform and supply chain have differentiated strengths and will pursue long-term collaboration with manufacturers in product planning, R&D, quality standards, and market validation. However, this business is still at an early stage and will require a long period to achieve supply chain coordination and market validation; the company will also not pursue short-term scale.

Meanwhile, supply chain investment continues to ramp up. Currently, the company is focusing on initiatives like the “New Quality Supply” and “Free Village Delivery” programs: the former dives deep into key manufacturing regions to help manufacturers improve product development and production efficiency, while the latter expands “last-mile” logistics coverage in remote areas via county-level transit centers and village-level pickup points. Management believes these investments may not convert directly into financial results in the short term but will solidify supply chain capabilities and enhance the platform’s long-term competitiveness.

At the same time, the external operating environment remains challenging. The EU will levy provisional tariffs on low-value cross-border parcels starting July, and management anticipates that this will have a “considerable impact” on order fulfillment efficiency and costs in affected markets. To address this, the company will grow the supply of local merchants, build local warehousing and fulfillment infrastructure, and further localize and strengthen the overseas supply chain.

Financially, the company posted Q2 revenue of RMB 112.36 billion, up 8% year-on-year; net income attributable to parent shareholders was RMB 27.2 billion, down 12% year-on-year. Adjusted net income was RMB 28.5 billion, exceeding market expectations; meanwhile, non-GAAP R&D expenses rose 40% year-on-year to RMB 4.3 billion, reflecting continued investment in technology and business capabilities.

“100 Billion Ecosystem”—From Fee Reduction to Supply Chain

Management’s description of the “100 Billion Ecosystem” program has become noticeably more specific.

Over the past year, support for merchants has gradually shifted from fee reductions to platform governance, product development, industrial cluster upgrades, and the agricultural supply chain. Co-CEO Zhao Jiazheng said that these investments are already delivering concrete results, with the support network now extending from merchants to agricultural production areas and upstream/downstream partners in manufacturing clusters.

On the manufacturing side, the company’s “New Quality Supply” team is working directly with producers across key regions, offering traffic, data, market expansion, intelligent manufacturing, and warehouse upgrades. Management noted that some manufacturers have cut production cycles in half under this support, while also boosting their ability to fulfill both bulk and custom orders.

This logic aligns with the company’s current long-term strategy: not only helping merchants “sell more products,” but extending upstream into product development, production efficiency, and brand building. On the agricultural side, projects like “Gold-Label Agri-Products” continue to integrate the company into the value chain. Pinduoduo aims to increase the value-added of agricultural goods via new product development, improved planting standards, and better cold-chain logistics.

Management’s remarks suggest that the “100 Billion Ecosystem” is evolving from a simple merchant support program into a long-term supply-side transformation and supply chain upgrade effort.

Private Label Launch Slower Than Expected, but Remains a Long-Term Focus

Compared with the “100 Billion Ecosystem,” the market is more focused on the company’s strategy to “build another Pinduoduo within three years.”

Management did not shy away from acknowledging the slower progress. Zhao Jiazheng commented that in the past six months, the initial rollout of the private label model was slower than expected, and the business will require more time for product development and coordination.

However, the company remains committed to the direction. Zhao Jiazheng said that they will prioritize core categories where the platform and supply chain have unique advantages, pursuing long-term partnerships with manufacturers in product planning, R&D, quality standards, and market validation.

This means the company is not simply pushing out a number of “Pinduoduo private label products,” but is instead seeking to participate in product development from the supply chain’s very origin. More importantly, management made it clear that private label would not replace third-party merchants, but would complement third-party products to serve different consumption scenarios and market segments.

As a result, this business will have limited short-term impact on revenue and profit. Rather, the strategic value is in whether the company can further master upstream supply chain capabilities and help manufacturers upgrade from contract and traditional manufacturing toward product development and brand management.

Global Business Faces Regulatory Change, Moves Toward Local Supply Chains

The overseas business faces more direct external pressure.

Regarding the EU’s temporary tariff on low-value cross-border parcels, effective from July, co-CEO Chen Lei said that in the short term, cross-border orders in affected markets will see lower fulfillment efficiency and higher costs, which will have a “considerable impact” on this business.

Still, the company will not shift its globalization direction; instead, it plans to further localize overseas supply chains and reduce its reliance on cross-border models. On the one hand, the company will introduce more local merchants and enrich local product supplies; on the other hand, it will speed up construction of local warehousing and fulfillment facilities, expanding the coverage of local fulfillment.

At the same time, Chen Lei emphasized that compliance and platform governance will be fundamental to the long-term development of global business. The company is strengthening intellectual property protection via technological screening and manual review, and further raising standards on product quality and consumer rights.

In other words, in response to global regulatory changes, Pinduoduo is not contracting its overseas business, but rather aiming to improve localization through local merchants, warehouses, and fulfillment.

The following is the full transcript from the earnings call:

Ladies and gentlemen, thank you for waiting, and welcome to the PDD Holdings Inc. Q2 2026 Earnings Conference Call. Currently, all participants are in listen-only mode. The meeting will begin with prepared remarks, followed by a Q&A session. Please note, today’s call is being recorded.

Now, I will hand over the meeting to today’s host. Sir, please proceed.

Joining us on today's call are: our Co-Chairman and Co-CEO Mr. Chen Lei; our Co-Chairman and Co-CEO Mr. Zhao Jiazheng; and our CFO Ms. Liu Jun. Mr. Chen and Mr. Zhao will provide a general overview of our performance and strategic highlights over the past quarter. Afterwards, Ms. Liu will provide a detailed financial overview for the quarter ended June 30, 2026.

Some management statements during today’s call will be delivered in Chinese, and simultaneous translation will be provided. Please note, the English translation is for reference only. In case of any discrepancy, please refer to the original language. Now, I’d like to introduce our Co-Chairman and Co-CEO, Mr. Zhao Jiazheng.

Zhao Jiazheng, Co-Chairman & Co-CEO:

Hello, everyone, this is Zhao Jiazheng. Thank you for joining us for our Q2 2026 earnings call. Before we begin, we would like to take a moment to express our deepest condolences on the passing of our independent director, Professor Ivonne Rietjens, and to pay the highest respect for her significant contributions and dedicated service to the company.

Professor Rietjens served for many years as the head of the Department of Toxicology at Wageningen University in the Netherlands and enjoyed an international reputation in food research and pharmaceutical effects. Since joining the company as an independent director in August 2023, Professor Rietjens provided valuable professional advice on our governance and development. Meanwhile, as a long-term partner in our “Duoduo Agricultural Research Technology Competition,” Wageningen University has also brought global vision and expert guidance, helping our event become an important international platform for agricultural technology innovation and talent development.

We will carry on her passion for agricultural research and continue to increase our investments in agriculture. Through these long-term commitments, we honor her professional legacy and hope to make an even greater contribution to global agricultural and food safety research. Now, let us return to our quarterly results.

This second quarter marks a new stage for high-quality development, ushering in a new decade for us as we move from initial launch to deeper execution. Our “100 Billion Ecosystem” initiative entered a new phase, with sustained investment beginning to yield tangible results. Positive effects are being released more rapidly across the platform and industry, improving quality and efficiency on both the supply and demand sides.

At the same time, we are steadily advancing our strategic goal to “build another PDD in the next three years.” Over the last six months, the private label model rollout was slower than expected, due in part to external factors, but overall momentum remains positive. Operations are now fully underway and progressing smoothly. We are committing ourselves to supply chain transformation to drive higher quality growth, facilitate traditional industry upgrades, and continuously unlock new growth potential in the supply chain. Additionally, we have established a dedicated company in Xiong’an New District and purchased an office building to focus on opportunities created by intelligent technology for supply chain transformation and upgrading. We’ve also built data processing and integrated service centers for traditional industries, helping manufacturers move up the value chain and pursue high-quality development.

We achieved solid performance this quarter. Total group revenue reached RMB 112.4 billion, representing 8% year-on-year growth, while net profit was RMB 27.2 billion, a 12% decrease year-on-year. This mainly reflects ongoing investments in our platform and the broader industry ecosystem, which impacted this quarter’s financial performance. In the first half of this year, competition within e-commerce remained intense. The evolving and complex market environment posed new challenges for platform governance and industry development. We continue to increase investments in our platform and industry ecosystem, with coordinated governance, fee reduction, and merchant support measures aimed at building a platform ecosystem that creates value for all participants.

We've substantially increased R&D investments in platform governance, upgrading our tech-driven risk prevention and control systems, expanding the trust & safety team, and enhancing oversight across all categories. By implementing targeted governance actions that account for specifics of each product category, we are making ecosystem governance more systematic, refined, and rules-based.

To date, the platform has launched over 150 comprehensive trust and safety measures. In June alone, we introduced over 50 targeted actions for key areas including product listing controls, food and pharmaceuticals safety, qualification reviews, advertising compliance, IP protection, misleading marketing, live commerce standards, and prevention of technology misuse. We are committed to high compliance standards and strict rules, employing a systematic approach to reshape the governance framework and nurture a safer, more regulated, and reliable shopping environment.

In food safety, we initiated a dedicated governance campaign banning the sale of freshly made food and beverage products. We further tightened qualification reviews and disclosure requirements for merchants to prevent and mitigate risks as early as possible. There are also more detailed requirements around food products sold via live streaming, anchor conduct, and product descriptions and displays. From product evaluation to live streaming, we guide merchants to operate with integrity and authenticity so that consumers can shop and consume with peace of mind. (In Chinese) In early June, we also produced and published a series of video courses highlighting common challenges and pain points in platform governance. The courses encourage merchants to familiarize themselves with industry-related rules, avoid violations, and protect their legal rights per platform rules. For example, a video about frequently asked questions on business licenses received 340,000 views within 24 hours.

Building on upgraded governance, we continue to increase our investments in the “100 Billion Ecosystem” initiative. Our support now extends beyond our broad merchant base to upstream and downstream stakeholders in agricultural production areas and manufacturing clusters, helping upgrade the entire supply chain. In agricultural areas, the “2026 Duoduo Gold-Label Agri-Products” initiative covers dozens of specialty agricultural regions, including freshwater products in Jiangsu, plums in Chongqing, pineapples in Hainan, cured duck in Hunan, and crayfish in Hubei. We help these areas develop new products, improve planting standards, and enhance cold-chain logistics, thus unlocking greater value for their agricultural goods.

Take Thailand’s pineapple-producing region as an example. In recent years, local merchants have started introducing a new variety called “Golden Diamond Pineapple.” Unlike traditional varieties, it has a unique sweetness and requires neither core removal nor soaking in saltwater before eating. With platform traffic boosts from flash sales and “10,000 Group Buys,” it quickly gained market attention and became one of the season's most popular foods. The certainty brought by e-commerce orders also gave farmers the confidence to expand production. As of now, Golden Diamond pineapple’s local cultivation area has grown from scattered trial plots to over 100,000 mu.

Our “New Quality Supply” team has reached out to manufacturers from various regions and industries, including home textiles in Nantong (Jiangsu), tent manufacturers in Shenzhen, outdoor products in Xing'an, cosmetics in Guangzhou, and textiles in Xing'an. Support includes traffic, enabling data, market expansion, cost reduction, smart manufacturing, and warehouse upgrades. Manufacturers have, as a result, halved production cycles and significantly improved fulfillment capabilities. Now, they can quickly process mass and custom orders, enabling a transformation from traditional manufacturing to private label, and accelerating the shift from traditional growth to new drivers of growth within industrial clusters.

Xinjiang’s textiles industry offers a relevant example. Once primarily a source of labor—with over 200,000 Xinjiang residents working in the textile industry in Jiangsu and Zhejiang alone—the local younger generation has now begun to set up their own factories and sell textile products nationwide via Pinduoduo. Their annual sales have grown by 4 to 5 times on average, and they’ve become leading brands in niche categories like mosquito nets, exporting to Southeast Asia and Europe during the summer. Today, the local economy has moved beyond dependence on labor export and developed a comprehensive path integrating capital, technology, talent, and sales channels.

Additionally, since its launch six months ago, our "Free Village Delivery" initiative has continued to see positive results. A last-mile delivery network covering county-level transit centers and village-level pick-up points has been established across over ten provinces. This network creates significant employment opportunities in rural communities while accelerating the delivery of consumer goods, home appliances, agro-supplies, and agricultural equipment to countryside markets. In doing so, we help merchants unlock new growth and enable remote village consumers to improve their quality of life. In Shandong—one of China’s largest agricultural provinces and a key area for the “Free Village Delivery” program—previous pilots in Xinjiang saw village order volume increase several times over. Xinjiang, a major producer of water-soluble and innovative fertilizers, now sees many agro-supply firms using this momentum to distribute more products to villages across the country.

As a platform serving the public, we are committed to fulfilling our social responsibility and giving back to society. Recently, several areas were hit by typhoons and heavy rain, resulting in severe floods. To support frontline relief efforts, we donated RMB 10 million in cash to the affected regions. These funds are used for procurement of aid materials and equipment, providing assistance and temporary shelter to affected residents, and supporting post-disaster recovery and reconstruction.

As we embark on our next decade, we believe more than ever that high-quality development requires not only the intensity of a sprint but also the perseverance of a marathon. We will stay committed to the long term, patiently executing our high-quality development strategy, and making solid progress step by step. We will continue to invest in our supply chain, empower merchants and industries, and provide consumers with better products and services. With concrete actions, we aim to create more positive value for users, merchants, and society as a whole.

Now, I’ll hand over to Chen Lei for more details.

Chen Lei, Co-Chairman & Co-CEO:

Hello, everyone, this is Chen Lei. Thank you for joining our Q2 2026 earnings call. In the first half of this year, we made substantial progress under our new decade strategy for high-quality development, laying a solid foundation for long-term growth. As Jiazheng just mentioned, we focused on two key areas. First, via the “100 Billion Ecosystem,” we continued to reward consumers and merchants while upgrading the platform governance framework.

These measures help foster a healthier environment across our platform and the broader industry ecosystem. Second, we continue to work toward our “build another PDD in three years” goal. We’ve ramped up supply chain investment and aided our partners in building and growing their own brands. This quarter, our long-term investments in the “100 Billion Ecosystem” began translating into results within a healthier platform ecosystem.

On the supply side, merchants are benefiting from a mix of fee reductions, merchant support, and stronger governance. These efforts are enabling greater innovation, fueling the launch of new products and brands, which in turn helps drive incremental demand and new sources of growth. Many manufacturers are adopting digital and intelligent technology to enable customization, drive higher supply chain quality and efficiency, and make the leap to new business models.

On the demand side, we continue to meet consumers’ evolving needs for a wide variety of products and diverse consumption scenarios. This trend is especially pronounced in rural areas where the “Free Village Delivery” program offers broader product selection and helps improve quality of life. Building on the supply chain capabilities and brand expertise gained through the “100 Billion Ecosystem,” we further integrated our supply chain this quarter.

Our team has studied the supply chain in different product categories and initiated early collaborations with high-quality suppliers. By setting explicit standards for products, manufacturing processes, and quality control, we help merchants and manufacturers adjust their operations and develop a portfolio of higher-quality, higher-margin products. Through these efforts, we continue to unlock supply chain strengths and potential, supporting manufacturing to move up the value chain.

Since the start of this year, there have been major changes in the global regulatory and compliance landscape. These changes bring both challenges and opportunities, as well as greater responsibility. We find ourselves at a unique intersection of global trade, continuously adapting to diverse international regulatory frameworks. Our presence is unique, impacting the lives of billions worldwide. While growth potential is tremendous, so are expectations and accountability. We will remain mission-driven, diligent, and disciplined in everything we do. First, we will further strengthen compliance capability and fine-tune platform governance. To protect intellectual property, we combine technical screening and expert review to monitor and assess product listings in real time. This allows us to resolve IP risks early and has resulted in systematic improvements in platform protection.

Second, we continue to invest in the supply chain. By executing these structural upgrades, our goal is to build a highly resilient e-commerce platform that consumers worldwide can trust for competitive prices and outstanding quality. Entering the next decade, we remain focused on our core e-commerce business. Through deepening supply chain investment, we will continue to empower our merchants and the wider industry with a broader selection of higher-quality products and services.

We are confident that our “build another PDD in three years” initiative will yield tangible and verifiable results. In doing so, we aim to help traditional supply chains seize new opportunities in this era of intelligent technology, enabling them to move up the value chain and build globally influential brands.

Now, I’ll hand over to Liu Jun, who will discuss the Q2 2026 financial performance.

Liu Jun, CFO:

Thank you, Chen Lei. Hello, everyone, this is Liu Jun. Let me walk you through the financial performance for the quarter ended June 30, 2026.

First, the income statement. In Q2, our total revenue grew 8% year-on-year to RMB 112.4 billion, mainly driven by transaction services. Online marketing and other revenue reached RMB 57.6 billion compared with RMB 55.7 billion in Q2 2025. Transaction services revenue was RMB 54.7 billion, up 13% year-on-year.

Now, on costs and expenses. Total operating costs rose 5% from RMB 45.9 billion in Q2 2025 to RMB 48 billion this quarter. GAAP operating expenses grew 13% to RMB 36.6 billion from RMB 32.3 billion in Q2 2025. Non-GAAP operating expenses rose from RMB 30.4 billion to RMB 35.3 billion in Q2 2026.

Non-GAAP total operating expenses as a percentage of revenue was 31% this quarter, compared with 29% a year ago. By expense line, non-GAAP sales and marketing expenses reached RMB 29.3 billion, up 10% year-on-year.

Non-GAAP sales and marketing expenses as a percentage of revenue were 26%, the same as last year. Non-GAAP general and administrative expenses were RMB 1.7 billion, versus RMB 0.7 billion last year. Non-GAAP R&D expenses came in at RMB 4.3 billion, up 40% year-on-year.

On a GAAP basis, operating profit was RMB 27.8 billion, compared with RMB 25.8 billion a year ago, up 8% year-on-year. Non-GAAP operating profit was RMB 29.1 billion, versus RMB 27.7 billion last year. Non-GAAP operating margin was 26%, compared with 27% last year. Net income attributable to ordinary shareholders was RMB 27.2 billion, compared with RMB 30.8 billion a year ago.

Basic earnings per ADS were RMB 19.32, diluted earnings per ADS were RMB 18.45, versus RMB 22.01 and RMB 20.75 a year ago, respectively. Non-GAAP net income attributable to ordinary shareholders was RMB 28.5 billion, versus RMB 32.7 billion a year ago. Non-GAAP diluted earnings per ADS were RMB 19.33, versus RMB 22.07 last year. That covers the P&L. Now, on to cash flow. Net cash from operating activities was RMB 25.7 billion, versus RMB 21.6 billion a year ago. As of June 30, 2026, we had RMB 456.4 billion in cash, cash equivalents, and short-term investments. Thank you all; that concludes my remarks.

Thank you, Liu Jun. We'll now move to the Q&A session. During the Q&A, Chen, Zhao, and Liu will answer analysts’ questions on the line. Each analyst may ask up to two questions. Chen and Zhao will respond in Chinese and assist with translation for convenience.

Operator, let’s open up for questions now.

Q&A Session

Operator:

Thank you. Ladies and gentlemen, we are now open for questions. (Operator explanation) Your first question comes from Thomas Chong at Jefferies. Please go ahead.

Thomas Chong, Analyst:

My first question is about your global business. We’ve noticed that the EU started imposing temporary tariffs on low-value cross-border parcels in July. Can management help us understand the expected impact of this change on your overall order volume? Given these policy headwinds, what is your growth strategy for your global business going forward? My second question is about the company’s private label business, announced last quarter. Can you provide an update on its launch and progress? More broadly, how should investors evaluate the potential impact of these initiatives? How do you think about the mix and positioning of private label versus third-party products, and what will guide your pricing strategy for private labels? Thank you.

Chen Lei, Co-Chairman & Co-CEO:

Hello, Thomas, this is Chen Lei. I’ll answer your first question regarding our global business. The regulatory and compliance landscape for our global business has undergone significant changes. These bring both challenges and opportunities, with considerable responsibilities as well.

We believe we stand at a unique intersection of the global economy and global trade. We experience pressure from various regulatory policies, and we occupy a unique position. Currently, our business touches the daily lives of billions of people worldwide. Though the growth potential is immense, so are expectations and accountability.

On the EU tariff changes you highlighted, our team is actively evaluating and adapting. Drawing on years of experience, we have adjusted our supply chain and optimized our fulfillment processes. With compliance as our baseline, we are working to balance consumer experience, merchant operations, and long-term business development. In the short term, cross-border orders in affected markets will face lower fulfillment efficiency and higher costs, which will have a considerable impact on that part of our business.

In the mid- to long-term, though, these external changes further highlight the importance of our supply chain and prompt us to accelerate capability-building. First, the platform will continue to introduce and support more high-quality local merchants, broadening local product supply. Second, we are speeding up the construction of local warehousing and fulfillment infrastructure, and expanding local fulfillment coverage. Through these investments, we aim to more deeply integrate into every market we serve, strengthen supply chain foundations and resilience, and adapt better to environmental changes and volatility. In addition to supply chain, compliance, and platform governance, capabilities remain critical long-term foundational investments. We will continue to improve platform governance, raise product quality, and bolster consumer protection, aiming to offer global consumers a trusted platform.

We’ve also done extensive work on IP compliance, providing a healthy business environment and fair competition for global merchants. With technology-driven monitoring and manual review, our platform has developed systematic IP protection. Recent favorable IP litigation rulings against industry peers further validate our mechanism’s effectiveness. We’ll remain committed to protecting our ecosystem partners’ legal rights and nurturing a fair, reliable commercial environment.

Regulatory and policy changes are issues facing the entire industry. We are confident in our execution capabilities and organizational resilience. Short-term volatility will not alter the long-term trajectory of our global business. Looking ahead, we will continue steadily progressing in supply chain, fulfillment, compliance, and customer service. We aim to offer global consumers a long-term stable platform with competitive pricing, reliable quality, and a shopping experience they can trust and enjoy. Thank you.

Zhao Jiazheng, Co-Chairman & Co-CEO:

Hello, this is Zhao Jiazheng. As for your second question, our private label business is a key extension of long-term investment in supply chain capabilities. Our goal is to work closely with manufacturers who have strong capabilities and willingness for long-term product development. By leveraging the platform’s market insights and global scale, we seek to deliver greater certainty for brand building and value creation along the industry chain, thereby unlocking real incremental value for all participants.

In implementation, we will selectively focus on core product categories where our platform and supply chain have unique advantages, working with manufacturers on a long-term basis from product planning and R&D, to quality standards, to market testing.

This business needs a long process of development and collaboration, and the initial rollout is taking longer than we initially expected. Nevertheless, it remains a strategic long-term focus for the platform, and we will proceed patiently and methodically—we are very confident about the private label model’s long-term prospects.

Strategically, our commitment to an open and fair marketplace remains unchanged. We truly believe that delivering quality products and services for consumers requires a healthy, fair, and diverse supply chain ecosystem. Going forward, our private label products and third-party merchant products will complement each other, serving diverse consumer needs across scenarios and market segments, and ultimately creating an ecosystem that benefits all participants. Thank you.

Thank you, Thomas. Operator, we can take the next analyst call.

Operator:

Your next question is from Alicia Yap at Citi. Please go ahead.

Alicia Yap, Analyst:

Thank you for the opportunity. Two questions—first, we noticed many global e-commerce firms invest in their own warehousing and fulfillment as they scale, for example building out their own warehouse and delivery networks. How should we think about your long-term prioritization for investment in this space?

The second question is about instant retail. Many global peers are investing heavily in the area. How does management evaluate changes in consumer behavior on industry competition and your core business? With the industry ramping up investment in same-day delivery, what strategies are you using to enhance user mindshare and defend market share? Thank you.

Zhao Jiazheng, Co-Chairman & Co-CEO:

Hello, this is Zhao Jiazheng. Like all our investments, those in logistics and fulfillment are guided by the aim of improving consumer experience and solving merchants’ real operating challenges. We invest prudently and in a targeted way where we believe we can create real value. So, priorities differ by market and business model. In China’s domestic market, the e-commerce logistics network is highly developed in most regions. However, “last-mile” delivery remains a major bottleneck in remote western and rural areas. To solve this, we’ve invested heavily to strengthen the logistics network, firmly advancing the “Free Village Delivery” and rural logistics upgrades under the “100 Billion Ecosystem.”

Since late last year, under the “Free Village Delivery” initiative, we have established local service stations in all 177 villages of Hunan, for example. In Shandong, we now deliver over 100,000 parcels daily to villages. These facilities not only allow agro-inputs such as fertilizer to directly benefit farmers, but also enable a much wider range of high-quality products to reach rural consumers more efficiently. In doing so, we are unlocking significant consumption demand in underserved areas and improving order conversion rates for merchants serving these communities.

In some overseas markets, fragmented point-to-point shipping often makes achieving scale advantages with centralized freight very difficult, resulting in high costs and unmet consumer demand. In these challenging markets, we make targeted investments in transfer warehouses. These investments help local merchants simplify fulfillment and lower logistics barriers, while also improving the reliability of deliveries for local consumers.

To your question—yes, we will continue to take a practical, problem-solving approach to fulfillment-related investments. By building stronger supply chain capability and boosting service efficiency and reliability, our aim is to enhance the customer experience, create a virtuous supply-demand cycle, and strengthen platform sustainability.

As for your second question, retail and e-commerce models keep evolving and we’re seeing more innovative models in the market. Instant retail serves different consumer needs and use cases compared to our core e-commerce and grocery business. Given our current business phase, instant retail has distinctive supply chain demands and operating model, with limited synergy. We therefore allocate resources to areas where we already have strengths and capacity to deliver differentiated value.

As the industry matures, each platform will choose different ways to serve consumers based on their strengths and experience. For us, our path is clear: we will continue to strengthen our supply chain. Current supply chain investment has two complementary focuses: first, ensuring sufficient supply of quality products, and second, building efficient delivery infrastructure.

In terms of product supply, through “New Quality Supply” and “Gold-Label Agri-Products,” we help capable manufacturers upgrade their product development and branding to move up the value chain, so consumers get more high-quality products at attractive prices. Infrastructure-wise, “Free Village Delivery” and similar projects improve our distribution network, close the “last mile” gap in remote areas, and allow more consumers to benefit from the convenience and affordability of e-commerce.

These supply chain investments may not pay off immediately, but we believe that, in the long run, they create real value for the industry, consumers, and our merchant ecosystem. We will continue to be laser-focused on this foundational yet critical work, and keep creating differentiated value for consumers and merchants. Thank you.

Operator, I believe we have time for one more analyst question.

Thank you. Your last question is from Joyce Ju at Bank of America. Please go ahead.

Joyce Ju, Analyst:

My first question is about long-term monetization potential. It’s been nearly a year since the launch of “100 Billion Ecosystem.” Could management provide updates on the health and vibrancy of the merchant ecosystem post-investment? As the ecosystem improves, are you seeing or expecting a corresponding increase in merchant willingness to advertise? My second question is about revenue growth outlook. Based on trends observed in H1, how do you see the full-year consumer spending outlook? Going forward, is there potential for platform revenue to outpace the broader retail market? Thank you very much.

Zhao Jiazheng, Co-Chairman & Co-CEO:

Hello, this is Zhao Jiazheng. As mentioned, the “100 Billion Ecosystem” is starting to bear fruit. From the “100 Billion Fee Reduction” policy in 2024 to last year’s launch of the “100 Billion Ecosystem,” our resource allocation and supply chain support now covers key agricultural producing areas and manufacturing clusters.

We’re pleased to see these efforts help many merchants in these clusters make meaningful progress in quality and efficiency. For example, with platform support, a local cosmetics company in Guangdong significantly reduced customer acquisition and operating costs, reinvesting profits into two-year R&D and successfully transforming into a patented local brand. Merchants in the lighting cluster used our platform to quickly test products, increasing investment in advanced components and smart features, leading to a best-selling product that generated millions in sales in only a few months.

These tangible outcomes show our reinvestment in the supply chain ecosystem is working. Building a healthier merchant ecosystem takes time, of course, and we’ll keep investing to help more merchants achieve healthier, more sustainable growth.

An e-commerce platform is a bilateral network. Merchant prospects are closely connected to quality consumer experience and a healthy platform. Therefore, our “100 Billion Ecosystem” first targets improving product quality, strengthening the supply chain, and supporting merchants, so that small and mid-sized merchants can reinvest efficiency gains into upgrading their products. In the long run, lower operating costs, stronger profitability, and greater confidence will drive sustainable value creation for the platform. Thank you.

Liu Jun, CFO:

Hello, this is Liu Jun. I'll take your second question. In the first half of the year, as consumption support policies remain effective, the Chinese consumer market has steadily expanded and online penetration continues to rise. Our confidence in China’s consumer and e-commerce market remains strong for the long term. As e-commerce enters a new phase, platforms must play an active role in unblocking core supply chain bottlenecks to unlock new growth. For example, through the “Free Village Delivery” plan, we’re investing in a more comprehensive “last mile” network—including transfer warehouses and managed pickup points.

These initiatives are strengthening rural commerce and distribution, stimulating consumption demand in such regions. In the first half of the year, rural retail grew faster than the market overall, a sign of great potential. Regarding monetization, as Jiazheng mentioned, we are focused on strengthening the platform ecosystem and helping merchants grow. Over time, by getting these fundamentals right, we believe sustainable growth of the platform’s intrinsic value will naturally follow. Thank you.

Unnamed Speaker:

Alright. Thank you, Liu Jun, and thank you all for joining today’s conference. That’s all for now, and we look forward to seeing you next quarter.

Operator:

Ladies and gentlemen, that concludes today’s meeting. Thank you for participating. You may now all disconnect.