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Pinduoduo inc (NASDAQ:PDD)
Q3 2021 Earnings Call
Nov 26, 2021, 7:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Pinduoduo Third Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I will now turn the call over to your host for today's call, Mr. Chong Fung [Phonetic]. Please go ahead, sir.

Chong Fung -- Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today. My name is Chen, and I will help host the earnings call today. Pinduoduo earnings release was distributed earlier and is available on our 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 includes 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, Tony Ma, our VP of Finance. Lei will make some general remarks on our performance for the past quarter and our strategic focus going forward. Tony will then elaborate further on specific strategic initiatives and take us through our financial results for the third quarter ended September 30, 2021. After that, we will open the floor to questions from analysts. During the Q&A session, Liu will answer your questions in Chinese and Preston will help translate. Please kindly note that all translation provided are for ease of reference only. In case of any discrepancy between original remarks and translated version, statements in their 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, Chen. Hello, everyone, and thank you for joining our result announcement for the third quarter of 2021. Our total revenue for this quarter excluding revenue from our merchandise sales was RMB21.4 billion, this represents a year-on-year increase of 55%. Our annual active buyers reached 867.3 million for the 12 months ending on September 30th.

Over the quarter, average MAU increased to 741.5 million. Pinduoduo turned six last month. While grateful for opportunities to serve our users, farmers, merchants and everyone who has internet for the past six years and we hope to continue serving them. It has been over a year since I took over as the CEO and Chairman of the Board. Over this period, we have been busy working on a transition, which I'm happy to report has been gradual and on track. There are two major things to this transition has been happening behind the scene. The first is grooming younger talent and leaders and the second is shifting to more focus in investments in R&D from a previous focus on sales and marketing in the first five year. And now let me elaborate.

First, on grooming younger talent and leaders. Since the beginning of last year, we have witnessed many of our younger team members doesn't have to take more responsibility. This young men and women demonstrated their core value of commitment to our users. When COVID-19 struck and disrupting our daily lives, many among our young team immediately took actions to source essential supplies and deliver to users in need. When heavy rain struck Henan in July, they spread into action to source out our stocks and coordinate the logistics, so that our users will not run out of daily necessities. This unforeseen event has generated their maturity and sent out [Indecipherable] to our users and society, who have been encouraged to see more with potential to become future leaders of our business.

They made practical business decisions, actually soundly exceeding our expectations. I'm proud to be able to work alongside with this young team. Despite their age, many of them have been with the company for a number of years and have matured on the job, and shaping the future of this company. Young talent including creativity and vigor and constantly innovate [Indecipherable] taking on critical roles in the next six to 12 months as we continue to create opportunities for then to step up.

And the second, shifting to more focus and investment in research and development. We are already serving 867 million users. To leverage from our strength of having a management with years of engineering training where we're increasing our research and development investment, this is a significant shift in strategy from our first five years when we were focusing much more on sales and marketing. Agriculture has been the main stream and the backbone of our business since the very beginning, where we saw opportunity to create value and bring agriculture into a digital economy. Trained up engineers, my team and I have devoted ourselves by technology solutions to implement across agriculture supply chain. We have only scratched the surface after six years. There is still much more for us to do in agriculture, is backed with technology. Therefore, we plan to deepen our investment in tech-abled agriculture solutions to address critical needs in this sector. This include, first, bringing more agricultural products and agriculture committees into the digital economy. And the second, first improving efficiency in agriculture supply chain to meet user demand and reduce spoilage.

Over the past six years, Pinduoduo has provided the consumers across China with a wide variety of agricultural produce at better prices, while helping farmers to increase their income. When we started six years ago, we were among the first to sell agriculture produce online and now we are conducting 16 million farmers to 867.3 million consumers nationwide. During China's Golden week in October, agriculture led quarter in our platform surged 279% over the same period last year. We hope Pinduoduo will be legal to platforms for quality agricultural products for farmers and consumers. We look forward to leveraging our platform to have more farmers in order to improve their livelihood and to benefit their community.

To this end, we will continue to focus our effort in digital inclusion with agriculture industry. We will expand our core offering to the economy at skilled farmers and e-commerce and stock provision. We have then to control price, quantity and innovate the [Indecipherable] in their own hands as they sell directly to consumers. In [Indecipherable] side agriculture digitization, we press to maintain our zero commission policy on agricultural products and at the same time we will continue to improve consumer awareness and appreciation of agricultural produce, geographical indications and agricultural brands through technology innovations such as live-streaming, video marketing, etc.

The most awareness consumers have, the more agitated farmers are, the more value can be created to agriculture communities in China. We're also designing tech-enabled services to increase proprietary efficiency to agriculture sector. One of them is to meet local supply with local demand. And at the same time, it helps reduce unnecessary transit to provide fresh options for consumers. To further cut on transportation time and reduce food loss and waste, we are deriving proprietary technology solutions like route planning, agrarian design, analytics and the closer optimization. This solutions help to lay upon decision for infrastructure that's more suitable for agriculture produce and more environmentally sustainable [Indecipherable] in applying agriculture technology go beyond matching supply and demand and extend into identifying upstream technology solutions to improve productivity, nutritional profiles and environmental sustainability.

By subscribing agri-tech applications, we also hope to make agriculture attractive to a tech savvy younger generation. A good example of our efforts in these areas is our smart agriculture competition. It has demonstrated that precision farming techniques can make real improvement to farm output. Something through our competition last year has started to commercialize that technology of strawberry cultivation [Indecipherable] and to bring tangible productivity gains to farmers.

This year, we have joined forces with China Agricultural University and Zhejiang University with technical guidance from [Indecipherable] Food and Agriculture Organization [Indecipherable] University and Research. In line with our priorities, we're expanding the challenge to accept not just yield but the nutritional value, environmental sustainability and commercial viability. Contestants have adopted a market disciplinary approach, applying nutrition science, precision farming and other relevant technology to cultivate. The final thing [Indecipherable] agricultural through computer sciences. Currently, that we're mostly planning tomatoes through our smart greenhouse base unit. We are encouraged to see that 80% of our team members are in their 20s, with maturity and new ideas to a traditional agriculture sector. And has been time, we are partnering with world-class agriculture institutes to offer this young agri-tech talent, tailored courses and training, on topics such as greenhouse, horticulture, crop management and monitoring.

Agriculture is an industry with great potential for young people considering a future in technology and who aspire to make impact for society. As an agri-focused platform, we want to leverage our platform and technology to provide more opportunities for young talent to join agriculture sector, working with them to apply technology to improve agriculture supply chain. Investing in technology to improve agriculture sector is important, is a challenging task. In fact, our long-term commitment and we will be patient and systematic. We hope that in our efforts we can help build a smarter and more sustainable future for agriculture.

Last quarter, we've announced the launch of a 10 billion [Phonetic] agriculture initiative, which seeks to address critical needs in the agricultural sector and rural areas. This initiative was not driven by profit or commercial goals, but strive to facilitate the advancement of agri-tech, promote digital inclusion and provide agri-tech talent with greater motivation and sales of achievement. Profit from the second quarter and any potential profit in the future quarters will go into this initiative and fuel the final goal of 10 billion. The profit for the third will also go into this initiative.

After receiving Board involvement, we held an EGM at the end of September and the initiative was approved by our shareholders. Pinduoduo is closely connected to the communities that we operate in. This, of course, is crucial to our development and the intent was positive for the best of our ability. Therefore, we are committed to take on more responsibility for society. In July, we thrived into action of the [Indecipherable] we donated RMB100 million to flood relief and launched a portal to support emergency relief distribution. The total grocery network in Zhejiang took stock of food and emergency supplies and worked with suppliers inside [Indecipherable] to secure and distribute necessities to our nearly 20,000 families there. In October, we also contributed to the relief effort in Shaanxi, in response to the heavy rain there, donating RMB50 million to Shaanxi charity foundation to carry out emergency disaster relief and post disaster risk construction work. Looking forward, we plan to do more to contribute to the society. We will continue to proactively leverage our platform as a result to serve our users, farmers, merchants and their communities better. Thank you.

And now, let me pass the time to Tony.

Jing Ma -- Vice President of Finance

Thank you, Lei. Hello, everyone. Let me begin by sharing highlights of some of our agriculture initiatives in the past quarter, then I will discuss our financials for the quarter. First, as part of our efforts for the digital inclusion of farmers, we initiated and supported a series of agricultural promotion activities to strengthen the direct connection between farmers and the consumers. Autumn is the harvest the season and this September we were a main platform of the farmers harvest festival and it's golden autumn consumption season.

We launched the total harvest hawk and designed a series of initiatives to help farmers to sell better, including live streaming, merchant training, traffic support, etc. Over 280, 000 agri merchants participated in our event this year, nearly double the number last year. In September, we joined the Ministry of Agriculture and the Rural Affairs, farmers daily, and the China Green food development center to kick off the 2021 campaign of China's GI agricultural products tool. The campaign helps to promote the agriculture products and their original heritage, helping to recognize quality agricultural products across China. To support the campaign, we provided the technical and platform support. We offered online and offline training, including marketing and the branding techniques tailored to GI products.

During China's Golden Week in October, a time when families typically reunite and enjoy news together, we rolled out various initiatives to make more agricultural produce across the nation easily accessible through our platform. These initiatives helped to increase agriculture related orders which surged the 279% over the same period last year. Second, we are stepping up efforts to raise consumer awareness, appreciation and the demand for quality agricultural produce and the producing regions. In October, we launched our Apple Golden Week. We worked with farmers in six major apple producing regions, Shanxi, Shaanxi, Shandong, Gansu, Sichuan, and Xinjiang, to develop a grading and direct distribution from framework. This framework helps to provide consumers with delicious and high quality apples and build awareness of the places where these apples are cultivated.

As part of this initiative, our fruit selection teams stationed in these regions for months to study local markets and help train high quality apple merchants with strong supply chain capability. Alongside these drives, we are also working with research institutes to implement industry standards for agricultural products. We partnered with the Jingzhou freshwater fishery Research Institute, our industry standards for Chinese [Indecipherable] These standards cover quality size, packaging and transport, which will provide consumers with a clear basis to make an inform the decision on their purchases. We hope to help farmers to promote their product, better meet the demand and the expectations of the consumers for quality goods and the services and build a sustainable business on our platform. Therefore, we will continue to maintain our zero commission policy for agricultural products.

Now let me walk through our third quarter results. Our annual active buyers for the last 12 months ending September 30, 2021 increased to 867.3 million, up 17.4 million from the prior quarter. Our MAU in Q3 reached 741.5 million. This is up 15% compared to the same quarter in 2020. Given our current scale, our user growth will inevitably be more moderate going forward. At the same time, as we serve a larger user base, we also face more diversified and even evolving user needs. Our task has become increasingly difficult. We hope that our younger team leaders could embrace the challenges and continue to serve users' needs innovatively.

In terms of P&L, our total revenues in the quarter end September 30, 2021 were RMB21.5 billion, up 51% from RMB14.2 billion in the same quarter last year. Excluding revenue from our 1P trials, our total revenue grew by 55% to RMB21.4 billion in Q3 2021, and the key driver was online marketing services. Online marketing services revenue was RMB17.9 billion this quarter, up 44% compared to the same period last year, primarily due to the increase in merchant activities.

Our transaction service revenues this quarter amounted to RMB3.5 billion, which is up 161% compared with the same period last year. The increase in our transaction service revenues was due to two primary factors. Number one, the increase in transaction processing fees. Number two, the service revenues that we recognized in connection with total grocery for which we provided the fulfillment and other related services. Revenue from the merchandise sales from our 1P trials was RMB18.1 million in Q3 2021, as compared to RMB2 billion in the preceding quarter. Our 1P business was a temporary solution to meet the demand of our users on products which our merchant could not fulfill. As we see more products offering from our merchants, we expect contribution from one 1P trials to be insignificant.

Now moving on to costs and expenses. Our total cost of revenues increased from RMB3.3 billion in Q3 2020 to RMB6.6 billion this quarter. The increase was primarily due to higher cost of payment processing fees, cloud service fees and the delivery and the storage fees. Total operating expenses this quarter was RMB12.8 billion, as compared to RMB12.2 billion in the same quarter of 2020. Our total non-GAAP basis operating expenses were RMB 1.7 billion as compared to RMB11.3 billion in the same quarter a year ago.

Our non-GAAP sales and marketing expenses this quarter is RMB9.7 billion, decreasing 1% compared to the same quarter of 2020. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenues this quarter was about 45% as compared to 89% and the 69% for the same quarter in 2019 and in 2020. The continued reduction in sales and marketing expenses as a percentage of revenue reflects our efforts to proactively reduce sales and marketing expenses as we gravitate toward more investment on R&D. On a non-GAAP basis, our general and administrative expenses was RMB178.1 million compared to RMB132.6 million in the same quarter of 2020.

Our non-GAAP research and development expenses were RMB1.9 billion, an increase of 30% from RMB1.4 billion in the same quarter of 2020. This increase in R&D was primarily due to an increase in headcount and the recruitment of more experienced R&D personnel. As we continue to strengthen our technical bench to lay the foundation for future sustainable growth and continue improving our services to meet the evolving user demand, we are committed to expand our investments in R&D and expect continued increase in R&D expenses.

To sum up, operating profits for the quarter was RMB2.1 billion on a GAAP basis, compared with operating loss of RMB1.3 billion in the same quarter of 2020. Non-GAAP operating profit was RMB3.3 billion, compared with operating loss of RMB339.8 million in the same quarter of 2020. Our non-GAAP operating profits as a percentage of our revenue improved from minus 2.4% in Q3 2020 to 15.2% in Q3 2021. Net income attributable to ordinary shareholders was RMB1.6 billion, as compared to net loss OF RMB784.7 million in the same quarter last year. Basic earnings per ADS was RMB1.31 and the diluted earning per ADS was RMB1.15, compared with basic and diluted net loss per ADS Of RMB0.66 in the same quarter of 2020.

Non-GAAP net income attributable to ordinary shareholders was RMB3.2 billion, compared with net income of RMB466.4 million in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB2.18, compared with non-GAAP diluted net earnings per ADS Of RMB0.33 in the same quarter of 2020. In August, we announced the launch of 10 billion agricultural Initiative, which aims to address the needs in the equity cultural sector in the rural areas. The initiative would not be driven by profits or commercial goals, but strive to facilitate the advancement of agri-tech, promote digital inclusion and provide agri-tech talent with greater motivation and the sense of achievement. The initiative received shareholders approval at the EGM held at the end of September. Profits from the third quarter will also go into this initiative. We expect that the initiative to have a near-term impact on earnings per share for shareholders. That completes the profit and loss statement for the third quarter.

Net cash flow provided by operating activities was RMB8.7 billion, compared to ways RMB8.3 billion in the same quarter of 2020. As of September 30, 2021, the company had RMB97.9 billion in cash, cash equivalents and short-term investments. With that, I conclude my prepared remarks.

Chong Fung -- Investor Relations

Thank you, Tony. For today's Q&A session, we have Lei, our Chairman and Chief Executive Officer; and Tony, our VP of finance on the line. Preston will help translates Lei's remarks in Chinese to English for ease of reference.

Operator, we may now take questions from the first analyst on the line.

Questions and Answers:

Operator

Certainly. [Operator Instructions] Your first question comes from the line of Natalie Wu of Haitong International. Please ask your question.

Natalie Wu -- Natalie Wu -- Analyst

Hi, good evening. Thanks for taking my question. I have two questions here. First, lets go -- since that your sales and marketing expenses is tapering off, just wondering are you changing your ROI for sales and marketing standing? How should investors understand your future sales and marketing strategies? This is also the second consecutive quarter that your company is showing both non-GAAP and GAAP profit. I was just wondering are you prioritizing probability of the goals going forward and should investors expect full year profitability for 2021 and going onward as well?

And my second question is regarding the agriculture initiatives. I was just wondering and Lei Chen, can you provide an update on the 10 billion initiative you started last quarter? Has any investment being reflected in the latest financial results, which are natural line items has been affected? Thank you.

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

[Foreign Speech]

Thank you, Natalie, for the question. And to answer your question, our high standards for sales and marketing investments ROI has not changed. But as our user base expands and our user needs diversify, we are also constantly applying macro adjustment to our ROI model and the goal is actually to better serve our users' diversified demand.

[Foreign Speech]

So when we were just starting, we were hoping that with the application of technology we can serve the wider consumer pool for our principal of benefit all. So when our user base was relatively small, the investment goal was actually to attract more users to get to know about us, try different features and also try out our platform. Now as our user base is much larger with more and more users starting to use Pinduoduo, our new challenge now is how can we constantly encourage them to try out new categories to explore new experiences and how can we actually meet their changing and much higher expectations of us, so that we can improve our trust and build longer-term user mind share.

[Foreign Speech]

It is a challenging task to constantly satisfy users, especially given that we have such a large and diversified base of users. And it is also the challenge for our new generation of leaders. We are also learning and adjusting through integration. But one thing that is not changing is that we will continue to hold ourselves to high ROI standards in terms of sales and marketing and spend our sales and marketing dollars in a highly disciplined manner.

[Foreign Speech]

At the same time we are also stepping up our investments and investing patiently for long-term development of our company. You may have noticed that we are increasing our R&D investments, which is a key area for our future investments. And in your question you also touched upon profitability, so let me ask Tony to help address that.

Jing Ma -- Vice President of Finance

Okay. And Natalie, coming -- coming back to your question regarding the consecutives being profitable for the past two quarters, the main contribution of our profitability in the past two quarters is the leverage efforts from sales and marketing expenses and assuming a declining percentage of revenue, but for us, the profitability is not any team's KPI internally. We are more focused on long-term investment to address the users fundamental needs. As we have been communicating with the market, to us investment into sales and marketing is similar in nature to capital expenditure, which crystallize as user mind share, a long-term asset for us. So this is a strategy that we have been digitally executing for the first five years and an area where we will continue to practice financial prudent. It is worth highlighting that we are shifting our focus and the investments toward R&D and expect to step up our investment there to lay the foundation for a solid long-term growth. As a result, we will expect R&D expenses to increase going forward.

Coming to your second question, I think Lei will address that question, but let me just point out one comment on that. I think you mentioned about the financial impact in the third quarter for the 10 billion program. Since this program has only got the EGM approval at the end of September, so in the Q3 financial results there is nothing -- has been booked or reflected yet. Lei, I pass floor back to you.

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

[Foreign Speech]

I'd like to add one point here. So after we announced our 10 billion agri initiative last quarter, we have received many quality projects proposals and advices from various stakeholders in industry. So together with my team, I'm also diligently studying various proposals, and so that will conclude answer for this.

Natalie Wu -- Natalie Wu -- Analyst

Got it. Very clear. Thank you, Lei, John and Tony.

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

Thank you.

Operator

Your next question comes from the line of Thomas Chong of Jefferies. Please ask your question.

Thomas Chong -- Jefferies -- Analyst

Hi, good evening. Thanks management for taking my questions. I have two questions. The first question is about the competitive landscape in online shopping as well as the impact of our side due to the increase in corporate liability in live streaming, online shopping? And my second question is about our support measures. Can management highlights about the support measures trends and how should we expect the growth rate between GMV and advertising due to the support measures? Thank you.

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

[Foreign Speech]

Thank you, Thomas, for your question. Let me address this question. And so, in my view e-commerce in China is a huge industry, full of vibrancy and potential. As we see mobile technologies continue to develop and the relevant infrastructure continues to mature and also at the same time consumer demand is also constantly evolving, with all these moving pieces and these changes, commercially we do expect more and more platform entering this space and this would make commercial sense.

[Foreign Speech]

At the same time, we also noticed the recent issued rules and regulation measures are promoting healthy competition and alter the development of the entire e-commerce sector. And in our view we think that more competition is always good in terms of promoting positive benefits and providing benefits to users, the industries and all the companies involved.

[Foreign Speech]

For example, we have seen platform companies including the short video platforms entering the e-commerce sector. And to us, it is not surprising to see these companies with such a huge user base and high user frequency, such as the short video platforms to enter this space. At the same time, we are also seeing more and more platforms with sizable user base and engagement level entering this space.

[Foreign Speech]

And so just now I discussed the external factors, but I think it's always important to come back and zoom into our self and see what kind of value are we provided. So Pinduoduo actually started off from selling agricultural produce. We always aim to help address users daily necessity and basic needs. So in my view this sets us apart from the other e-commerce players and potential new entrants.

[Foreign Speech]

And so for us, also serve our nearly 870 million users better and remain user centric is our [Indecipherable] as a company. And so the question now we constantly ask ourselves are how do we continuously iterate to serve our users better, at the same time are we creating value for the society, are we promoting a greener environment and sustainability. So for us, our key strategy as a company has always been taking user trust and to create value for society, which we believe will also become our long-term assets.

Thomas Chong -- Jefferies -- Analyst

Thank you. My next question is about, how should we think about the support measures, the merchants and the growth rate between GMV and advertising as a result of the support measures? Thank you.

Jing Ma -- Vice President of Finance

Thank you, Thomas. Let me try to address your question. I think your question is pretty much linked to the outlook of monetization. Let me share some of our views. Our strategy has always been serving our users as well, as Lei just mentioned in his response. We believe the revenue growth and monetization are natural result of that, and our merchants ROI is already reflected in our revenues as you can see our revenue this quarter shows a healthy ROI merchants are seeing when they sell more on our platform. We do not focus on the monetization on a quarterly basis, it is a result of user satisfaction and merchants ROI. And our merchants -- the monetization rate has being fluctuated in the past and it will be the case going forward. We are also raising the bar on the quality of merchants and the products to meet our users' needs to help promote agricultural produce to users and to strength and PDD as go to platform for agricultural products. Therefore, we are committed to keeping a zero commission policy for agriculture and the fresh produce.

Thomas Chong -- Jefferies -- Analyst

Got it. Thank you.

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

Thank you, Thomas.

Operator

Your next question comes from the line of Eddy Wang of Morgan Stanley. Please ask your question.

Eddy Wang -- Eddy Wang -- Analyst

Thank you, Lei, Tony. Thanks for taking my question. I also have two questions. The first one is regarding the -- our efforts to attract more brands and the branded products merchants on our platform. We noticed that the merchant -- merchandise sales actually declined significantly on quarter-on-quarter basis. Should we suppose that this is a very ideal progress for us in the last quarter, actually attracting more the branded -- brands in our platform? That's the question number one.

And the second question is about the rather weak consumption environment in China since the third quarter. So as we -- we see that some of the competitor platform actually has been affected by this weak consumption significantly, but then seem to be very resilient. I just want to hear your view on how this -- the weak consumption has been a effect on PDD, especially given that we have high exposure to the agriculture products and the value for money? Does that means that our GMV growth or revenue growth actually is more resilient under this environment? Thank you.

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

[Foreign Speech]

So let me answer your question. I believe your first question is on brand. So as our user base increase, we are noticing that our users need and demand also becoming more and more diversified. At the same time, we are observing that our users needs -- they do require more and they also require more abundant supply of our offering and brand. So from our view we do think that in terms of getting more brands, this process will do take some time. At the same time, the reason [Indecipherable] measures had some initial impact, whereby we have noticed that a number of brands finally did come to the platform and start to operate. But however, store opening is a gradual process which requires both the platform and the brands to put in resources, energy and time to build trust and foster successful partnership. So we do expect this to take some time and the process to be more gradual.

[Foreign Speech]

Operator

Please hold and the conference will resume shortly. Thank you for your patience.

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

Hi, operator, let me resume.

Operator

Thank you for standing by, we're now back on. [Operator Instructions] Your next question comes from the line of Joyce Ju of Bank of America. Please ask your questions. Once again, for the line of Joyce Ju, your line is on. You may ask your question.

Joyce Ju -- BofA Securities -- Analyst

Thanks management for taking the -- giving me the chance to taking my questions. I have two questions. My first question is related to the regulatory environment. Could management give us an update on the recent regulatory environment, specifically does Tencent, Baba opening affect our operations? And you also share some colors on if there are any regulatory measures that affect your operations?

And second, my question is, we have seen our 1P business continue to decline in the third quarter. Does this mean that you have winded down this business? Any comment on the future 1P business' contribution? Thanks a lot.

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

[Foreign Speech]

So we think the recent series of revenues from our shares would help to promote the high quality growth of the platform economy and the entire industry. So we have always been fully embracing and supporting the regulatory measures and will continue to firmly and thoroughly implement all relevant guidance measures.

[Foreign Speech]

We saw that many companies are taking action and continuing to optimize under the backdrop of these changes brought forth by regulations in industry, we are one of these companies. Our company as a whole is proactively taking these as an opportunity to improve our self and also to further enhance compliance with the regulation.

[Foreign Speech]

So in the short term, you may notice the impact from these changes. But in the medium to longer-term though, we believe that these changes would be very beneficial to users, the industry and the companies involved in this industry.

[Foreign Speech]

We are also following up the development of opening up as you mentioned, as we believe that such measure would set a great example for platform companies an entire sector. And so we believe such measures would eventually be very beneficial for the users and the healthy development of the sector in the long run.

Jing Ma -- Vice President of Finance

Okay. Joyce, let me come to address your question regarding the 1P business. As we mentioned at the outset when we started this 1P business, we already stated a very clearly our 1P trial is a temporary measure to offer products that our consumers want, but our merchants cannot offer at that time. So 1P is not a strategic priority for us. As we see more product offering from merchants on our platform, we do not expect a significant revenue contribution from 1P going forward. Thank you.

Joyce Ju -- BofA Securities -- Analyst

Got it, many thanks.

Chong Fung -- Investor Relations

Thank you, everyone, for joining us on the conference call today. If you have any further question please refer to our teams email address. Thank you and have a great day.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Chong Fung -- Investor Relations

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

Jing Ma -- Vice President of Finance

Natalie Wu -- Natalie Wu -- Analyst

Thomas Chong -- Jefferies -- Analyst

Eddy Wang -- Eddy Wang -- Analyst

Joyce Ju -- BofA Securities -- Analyst

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