PDD Holdings' adjusted profit exceeded expectations; is the market finally rewarding its ecosystem i

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PDD Holdings Q2 2026 Earnings Live Stream

[AI Key Takeaways]

Financial Performance

- Group revenue reached RMB 112.4 billion, an 8% year-over-year increase

- Net profit was RMB 27.2 billion, down 12% year-over-year, primarily due to investments in the platform and industrial ecosystem

- Transaction services revenue amounted to RMB 54.7 billion, up 13% year-over-year

- Non-GAAP operating profit was RMB 29.1 billion, with an operating margin of 26%

Business Progress

- The RMB 100 billion support strategy has transitioned from the investment phase to the payoff phase, accelerating the release of value from the platform and industrial ecosystem

- Launched over 150 comprehensive governance measures, with more than 50 specialized plans implemented in June

- Established a dedicated subsidiary and purchased office buildings in the Xiongan New Area, setting up a data processing service center for traditional industries

- The free village delivery service has established county-level transit hubs and village-level consignment points in over ten provinces and municipalities nationwide

opportunity

- Improved the transit network through infrastructure projects such as free village delivery, connecting last-mile logistics stations in remote areas

- Assisted traditional contract manufacturers in enhancing product and brand capabilities, driving a value upgrade on the supply side

- Achieved customized production through digitalization and intelligent technologies, improving supply chain quality and efficiency

- Established deep co-creation partnerships with manufacturing enterprises, leveraging the platform's market insights and global channel capabilities

Risks

- Significant changes in the global regulatory and compliance environment have presented both challenges and opportunities for the business

- Cross-border orders in affected markets are facing issues of reduced fulfillment efficiency and rising costs

- The e-commerce industry faces intense competition and a complex, volatile market environment

[AI Conference Transcript]

Operator

Ladies and gentlemen, thank you for standing by and welcome to PDD Holdings, Inc.'s Second Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, please press *1 on your telephone keypad. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host for today. Sir, please go ahead.

IR Representative

Thank you, operator. Hello, everyone, and thank you for joining us today for the PDD Holdings earnings conference. The earnings release was distributed earlier and is available on our website at investor.pddholdings.com, as well as through Globe Newswire services. Before we begin, I would like to refer you to the Safe Harbor statement in the 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 non-GAAP measures to GAAP measures.

Joining us on the call today are Mr. Chen Lei, our Co-Chairman and Co-Chief Executive Officer; Mr. Zhao Jiazhen, our Co-Chairman and Co-Chief Executive Officer; and Mr. Li Jian, our Chief Financial Officer. Mr. Chen and Mr. Zhao will make some general remarks on our performance for the past quarter and our strategic focus. Mr. Li will then walk us through our financial results for the second quarter ended June 30, 2026. On today's call, certain management remarks will be delivered in Chinese, with simultaneous interpretation provided. Please note that the English translation is for reference only, and in case of any discrepancy, the statements in their original language shall prevail. It is now my pleasure to introduce our Co-Chairman and Co-Chief Executive Officer, Mr. Zhao Jiazhen.

Zhao Zheng

Hello, everyone. This is Zhao Jiazhen, and thank you for joining our earnings call for the second quarter of 2026. Before we formally begin, we would like to take this opportunity to express our deepest condolences on the passing of our Independent Director, Professor Ivana Richard, and to pay our highest tribute to her significant contributions and dedicated service during her tenure with us.

Professor Richard served for a long tenure as Chair of the Department of Toxicology at Wageningen University & Research in the Netherlands and earned an international reputation in the fields of food research and drug effects. Since joining the company as an Independent Director in August 2023, Professor Richard provided invaluable professional advice on the company's governance and development. At the same time, as a long-standing partner of our Smart Agriculture Competition, Wageningen University & Research has consistently brought international perspectives and expert guidance to the event, helping it become an important global platform for innovation in agricultural technology and talent development. We will carry forward the passion for agricultural research that she championed, continue to increase our investment in agriculture and agricultural research, and through these long-term commitments honor her professional legacy, making greater contributions to agricultural development and food safety research worldwide. And now, let us return to the results for the quarter.

The second quarter of this year marked a new phase in our new decade of high-quality development, as we moved from initial rollout to deeper execution. Our RMB 100 billion support program has entered a phase in which our sustained investment is beginning to yield tangible results. The positive effects across our platform and industry ecosystem are being unlocked at a faster pace, with improvements in both quality and efficiency on both the supply and demand sides. At the same time, we continue to make steady progress on our three-year strategic goal of building another PDD. Although the initial rollout of our first-party brand business over the past six months was slower than expected due to certain external factors, the overall momentum remains positive. Operations are now fully underway and progressing smoothly. We will commit fully to the high-quality transformation of the supply chain, drive the upgrading of traditional industries, and continue to unlock the supply chain's endogenous growth potential.

Furthermore, to accelerate supply chain transformation and upgrades, we have established a dedicated subsidiary in the Xiong'an New Area and purchased an office building there. This move anchors our focus on new opportunities created by intelligent technologies and supports the upgrading and high-quality development of traditional manufacturing. We have also established a Data Processing Service Center for traditional industries and an Integrated Service Center for High-Quality Development in Traditional Manufacturing to help traditional manufacturers move up the value chain. During the past quarter, our performance remained robust. Group revenue was RMB 112.4 billion, representing a year-over-year increase of 8%, while net income was RMB 27.2 billion, a year-over-year decline of 12%. This mainly reflected our continued investments in our platform and the broader industry ecosystem, which partly weighed on our performance this quarter.

Competition in the e-commerce industry remained intense in the first half of this year. A complex and rapidly evolving market environment placed greater demands on both platform governance and industry development, presenting us with new challenges. We continue to step up investment in our platform and industry ecosystems through a coordinated set of measures focused on governance, fee reductions, and merchant support, with the goal of building a platform ecosystem that creates value for all participants.

Regarding platform governance, we have significantly increased our R&D spending. In addition to upgrading our technology-enabled risk prevention and control systems, we have significantly expanded our specialized trust and safety teams, extending our oversight across all product categories. By taking into account the specific characteristics of vertical categories and launching targeted governance initiatives, we are driving ecosystem governance toward greater normalization, granularity, and institutionalization.

To date, the platform has introduced more than 150 comprehensive trust and safety measures. In June alone, we launched over 50 targeted initiatives addressing key areas such as product listing controls, food and drug safety, qualification reviews, advertising compliance, intellectual property protection, misleading marketing, live-streaming e-commerce standards, and prevention of technology misuse. We are dedicated to upholding strict compliance through rigorous rules, taking a systematic approach to reshaping our governance framework, and fostering a safer, better-regulated, and more trustworthy shopping environment.

In the area of food safety, we have launched special governance initiatives that comprehensively prohibit the sale of self-prepared food and beverage items by restaurants. We have further raised entry standards for merchant qualification reviews and information disclosure to prevent and mitigate food safety risks at the source. Meanwhile, the platform has introduced detailed requirements regarding the scope of food products sold via live streaming, streamer conduct, and product presentation methods. From product listing to live broadcast, we guide merchants to operate with integrity and present products truthfully, ensuring consumers can purchase and consume food with confidence.

To address key challenges and bottlenecks in governance, we specifically produced and released several video courses. These courses remind merchants to proactively learn industry-specific regulations to avoid violations while safeguarding their legitimate rights and interests in accordance with rules. Notably, the course "Frequently Asked Questions about Store Business Licenses" garnered 340,000 views within 24 hours of its launch.

Building on the systematic upgrade of our governance framework, we continue to increase investment in our RMB 100 billion support strategy. This support now extends from our broad merchant base to upstream and downstream participants across agricultural production regions and industrial clusters, driving comprehensive upgrades throughout the supply chain. In agricultural regions, the "2026 Premium Local Specialties" campaign has reached dozens of specialty agricultural areas, including aquatic products in Jiangsu, plums in Chongqing, rural specialties in Shanxi, pineapples and lychees in Hainan, preserved duck in Hunan, and crayfish in Hubei. The initiative helps these regions develop new products, improve cultivation standards, and enhance cold-chain logistics, thereby facilitating value conversion in agricultural production areas.

Taking the pineapple-growing region in Hainan as an example, local merchants have recently introduced a new variety known as the "Golden Diamond Pineapple." Unlike traditional varieties, this pineapple is sweet without being sour and requires neither coring nor soaking in salt water. Supported by high-traffic features on our platform, such as Flash Sales and Group Buying, it quickly gained market traction and became a top-selling fruit of the season. Furthermore, the certainty of e-commerce orders has given growers the confidence to expand planting. To date, the cultivation area for Golden Diamond Pineapples in the region has grown from scattered trial plots to over 100,000 mu (approximately 16,500 acres).

Our dedicated New Quality Supply team has visited industrial clusters in various regions, including home textiles in Suzhou, tents in Shaoxing, outdoor gear in Jinhua, cosmetics in Guangzhou, men's wear in Jieyang, and textiles in Xinyang. We provide systematic support to merchants in these clusters through traffic exposure, data empowerment, market expansion, cost reduction, smart manufacturing, and warehousing upgrades. As a result, many factories have halved their production cycles and significantly improved fulfillment capabilities. They can now rapidly respond to the platform's massive order volumes while precisely matching users' personalized customization needs. This has enabled a leap from traditional manufacturing to independent brand building, driving the transition from old to new growth drivers across these industrial clusters.

Taking the textile industry in Xinyang as an example, Gushi County was previously a major source of labor export, with over 200,000 locals working in the textile sector in Jiangsu and Zhejiang provinces alone. In recent years, younger generations from the county have begun establishing factories locally and selling textile products nationwide via PDD Holdings. Annual sales have grown by an average of four to five times, and they have established leading brands in niche categories such as mosquito nets, which are exported to Southeast Asia and Europe during the summer. Currently, the local economy has shifted from relying primarily on labor exports to an integrated industrial development path combining capital, technology, talent, and sales channels.

Furthermore, our "Free Shipping to Villages" service has continued to yield positive results since its launch six months ago. We have established a last-mile network across more than ten provinces and municipalities, including county-level transit hubs and village-level pickup points. This network has created numerous jobs in counties and rural areas while accelerating the entry of consumer goods, home appliances, agricultural supplies, and farming tools into rural markets. This continuously opens up new growth opportunities for merchants and enables users in remote villages to enjoy a better quality of life.

Taking Shandong Province as an example, as a major agricultural province, it is a key focus area for PDD Holdings' "Free Shipping to Villages" program. Previous pilots in places like Juancheng in Heze and Yishui in Linyi have achieved significant results, with rural order volumes multiplying. Meanwhile, Qingzhou, a major domestic production base for water-soluble and novel fertilizers, has seen many agricultural supply companies leverage this momentum to sell their products to more villages across the country.

As a public-facing platform, we have always actively assumed our social responsibilities and continued to give back to society. Recently, typhoons and heavy rainfall caused severe flooding in several parts of Guangxi. To fully support frontline disaster relief efforts, PDD Holdings urgently donated RMB 10 million in cash to the affected areas. The funds were used to procure relief supplies and equipment, assist and安置 (resettle) affected residents, and support post-disaster reconstruction efforts.

Looking ahead to the next decade, we are more convinced than ever that high-quality development is both an all-out sprint and, more importantly, a marathon requiring perseverance. Facing the future, we will continue to uphold long-termism, applying the patience and determination of "sharpening a sword for ten years" to ensure every step of our high-quality development in the new decade is steady, solid, and profound. We will continue to heavily invest in the supply chain, empower merchants and industries, and create better products and services for consumers. Through concrete actions, we aim to create greater positive value for our users, merchants, and society as a whole. I will now hand over to Chen Le, who will provide further details.

Chen Lei

Hello everyone, I am Lei Su. Thank you for joining our conference call for the second quarter of 2026. In the first half of the year, we made tangible progress under the new decade-long strategy of high-quality development and laid a solid foundation for long-term growth. As Johnson just mentioned, we focused on two key areas. First, through the RMB 100 billion support program, we continued to provide benefits to both consumers and merchants. At the same time, we comprehensively upgraded our platform governance framework. This initiative has helped foster a healthier environment both on our platform and within the broader industrial ecosystem. Second, we continued to advance our three-year initiative to build "another PDD." We stepped up supply chain investments and helped supply chain partners build and develop their own brands.

During the quarter, our long-term investment in the RMB 100 billion support program began to yield results in the form of gains within a healthier platform ecosystem. On the supply side, our merchants benefited from a combination of fee reductions, merchant support initiatives, and stronger platform governance. These initiatives unlocked greater innovation among merchants, leading to the launch of new products and brands, which drove incremental demand and created new sources of growth. Many manufacturers adopted digital and intelligent technologies to enable customized production, driving improvements in quality and efficiency across the supply chain and enabling manufacturers to transition toward a new development model.

On the demand side, we continued to serve consumers' evolving needs across different product categories and diverse consumption occasions. This was particularly evident in rural areas, where our free shipping to villages program made a much wider selection of products accessible to consumers, helping to improve their quality of life. Leveraging the supply chain capabilities and brand development experience gained through the RMB 100 billion support program, we took steps this quarter to further integrate the supply chain. Our teams delved into the industrial clusters of different product categories and initiated early-stage collaborations with high-quality suppliers. By setting clear standards for products, production processes, and quality control, we helped merchants and manufacturers adapt their operations and develop a range of higher-quality products with higher margins. Through these efforts, we continue to unlock the strength and potential within the supply chain, driving the manufacturing sector up the value chain.

Since the beginning of the year, the global regulatory and compliance landscape has undergone significant shifts. These changes have created challenges as well as opportunities, accompanied by greater responsibilities. We find ourselves at a unique intersection of global trade, constantly navigating diverse international regulatory frameworks. At the same time, our position is unique; our business touches the daily lives of billions of people around the world. While there is substantial potential for growth, it is accompanied by increased expectations and higher standards of accountability. We will stay true to our mission and continue to execute every aspect of our work with dedication and discipline.

First, we will continue to strengthen our compliance capabilities and fine-tune platform governance. To protect intellectual property, we combine screening technologies with expert reviews to monitor and assess product listings across all categories in real time. This enables us to address IP risks earlier in the process and has led to systematic improvements in IP protection across the platform. Second, we continue to invest resolutely in the supply chain by fully executing these structural upgrades. Our ultimate goal is to build a highly resilient e-commerce platform that consumers around the world can rely on for competitive prices and great quality.

As we step into our next decade, we remain laser-focused on our core e-commerce business. By deepening our supply chain investments, we will continue to empower our merchants and the broader industry, delivering a wider range of high-quality products and services. We are confident in our ability to translate our three-year initiative of building "another PDD" into tangible, verifiable results. In doing so, we strive to help traditional suppliers capture opportunities in this new intelligent era, empowering them to transform, move up the value chain, and build brands with global reach. Now, let me turn it over to Li Zhou, who will walk you through our results for the second quarter of 2026.

Li Zhou

Thank you, Lei, and hello everyone, this is Joan. Now let me walk you through our financial performance for the second quarter ended June 30, 2026. First, looking at the income statement: In the second quarter, our total revenues increased 8% year-over-year to RMB 105.4 billion. This was mainly driven by an increase in revenues from transaction services. Revenues from online marketing services and others were RMB 57.6 billion this quarter, compared with RMB 55.7 billion in the same quarter of 2025. Revenues from transaction services were RMB 54.7 billion, up 13% from the same quarter last year.

Moving on to costs and expenses: Our total cost of revenues increased 5% from RMB 45.9 billion in Q2 2025 to RMB 48 billion this quarter. On a GAAP basis, total operating expenses this quarter increased 13% to RMB 36.6 billion from RMB 32.3 billion in the same quarter of 2025. On a non-GAAP basis, total operating expenses increased to RMB 35.3 billion this quarter from RMB 30.4 billion in Q2 2025. Our total non-GAAP operating expenses as a percentage of total revenue this quarter was 31%, versus 29% in the same quarter last year.

Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter were RMB 29.3 billion, up 10% year-over-year. On a non-GAAP basis, our sales and marketing expenses as a percentage of revenues this quarter was 26%, in line with the same quarter last year. Our non-GAAP general and administrative expenses were RMB 1.7 billion, versus RMB 0.7 billion in the same quarter of 2025. Our research and development expenses were RMB 4.3 billion this quarter on a non-GAAP basis, up 40% year-over-year.

On a GAAP basis, operating profit for the quarter was RMB 27.8 billion, compared with RMB 25.8 billion in the same quarter last year, representing an 8% year-over-year increase. Non-GAAP operating profit was RMB 29.1 billion, versus RMB 27.7 billion in the same quarter last year. The non-GAAP operating profit margin was 26% this quarter, compared with 27% in the same quarter last year. Net income attributable to ordinary shareholders was RMB 27.2 billion for the first quarter, compared with RMB 30.8 billion in the same quarter last year. Basic earnings per ADS were RMB 19.32, and diluted earnings per ADS were RMB 18.45, compared with basic earnings per ADS of RMB 22.01 and diluted earnings per ADS of RMB 20.75 in the same quarter of 2025.

Non-GAAP net income attributable to ordinary shareholders was RMB 28.5 billion, versus RMB 32.7 billion in the same quarter last year. Non-GAAP diluted earnings per ADS were RMB 19.33, compared with RMB 22.07 in the same quarter of 2025. That concludes the income statement review. Now, let me move on to cash flow. Net cash generated from operating activities was RMB 25.7 billion, compared with RMB 21.6 billion in the same quarter last year. As of June 30, 2026, we held RMB 456.4 billion in cash, cash equivalents, and short-term investments. Thank you. This concludes my prepared remarks.

IR Representative

Thank you, Joan. We will now move on to the Q&A session. In today's Q&A, Lei, Jajin, and Joan will take questions from analysts on the line. We can accept a maximum of two questions from each analyst. Lei and Jajin will answer questions in Chinese and will provide translations for convenience. Operator, we are now open for questions.

Operator

Thank you, ladies and gentlemen. We will now begin the question and answer session. If you wish to ask a question, please press *1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press *2. Participants are requested to limit themselves to two questions each. Your first question comes from Thomas Chong with Jefferies.

Thomas Chong

Good evening. Thank you to management for allowing me to ask my questions. My first question concerns the company's global business. We noted that starting in July of this year, the EU introduced transitional tariffs on low-value cross-border parcels. Could management help us understand the expected impact of these tariff changes, as well as the broader overseas regulatory environment from last year, on the platform's overall volume? In the face of these policy headwinds, what will be the company's development strategy for its global business going forward? That is my first question. My second question relates to the new first-party brand operation strategy announced by the company last quarter. Could management share recent developments? How should the market assess the impact of this brand initiative on the company's business, such as the focus on first-party versus third-party merchandise, and what considerations are guiding the pricing strategy for first-party products? I will translate myself. My first question is about the company's global business. We noticed that the EU introduced a temporary customs duty on low-value cross-border consignments starting from July this year. Can management help us understand the expected impact of this change on the company's overall volume? In light of these policy headwinds, what will be the company's growth strategy for the global business going forward? And my second question is on the company's first-party brand business announced last quarter. Could management provide an update on the rollout and the progress made so far? More importantly, how should investors frame the potential impact of this initiative on the company? How are you thinking about the mix and positioning of first-party versus third-party products, and what will guide your pricing strategy for first-party products? Thank you.

Chen Lei

Hi Thomas, this is Chen Lei. Let me address your first question regarding our global business. Recently, the regulatory and compliance landscape for our global operations has undergone significant changes. These shifts have presented both substantial challenges and opportunities for our business. We also recognize the considerable responsibilities that come with this position.

We believe we stand at a unique intersection in the global economy and trade. While we face pressure from diverse regulatory policies, we also occupy a distinctive position. Currently, our business impacts the daily lives of billions of people worldwide. While there is substantial potential for growth, it is accompanied by increased expectations and higher standards of accountability.

Regarding the changes to EU customs duties you mentioned, our team is actively assessing and adapting to them, drawing on the experience we have accumulated over the years. We have adjusted our supply chain and are optimizing our fulfillment processes, with strict adherence to compliance as our baseline. We strive to balance consumer experience, merchant operations, and the long-term development of our business. In the short term, cross-border orders in affected markets will face reduced fulfillment efficiency and higher costs, which will indeed have a considerable impact on related business growth.

Looking at the medium to long term, changes in the external environment have further underscored the importance of supply chain investment, prompting us to accelerate the development of relevant capabilities. On one hand, we will continue to onboard and support more high-quality local merchants to enrich the supply of local products. On the other hand, we are accelerating the build-out of local warehousing and fulfillment infrastructure to expand the coverage of local shipping. Through these investments, we aim to integrate more deeply into every market we serve, strengthen the foundation and resilience of our supply chain, and better adapt to environmental changes and volatility.

In addition to supply chain capabilities, building compliance capabilities and platform governance are also critical foundational areas for our long-term investment. We will continue to optimize platform governance, further improve product quality, and ensure robust consumer protection, with the goal of providing consumers around the world with a platform they can trust.

At the same time, to provide a healthy and fair business environment for merchants globally, we have undertaken extensive work in intellectual property compliance. Currently, building on technology-enabled monitoring and manual review, the platform has established systematic IP protection capabilities. Our recent comprehensive victory in an IP litigation case against an industry peer further demonstrates the effectiveness of our IP protection mechanisms. We remain committed to safeguarding the legitimate rights and interests of our ecosystem partners and creating a fair and reliable business environment.

Regulatory and policy changes are challenges that the entire industry must collectively address. We have full confidence in our team's execution capabilities and organizational resilience. Short-term volatility will not alter the long-term direction of our global business. Moving forward, we will continue to diligently advance supply chain management, fulfillment compliance, and consumer services. We strive to provide consumers worldwide with a shopping platform that offers long-term stability, competitive pricing, high-quality products, and reliability, thereby earning their affection and trust. Thank you.

Zhao Zheng

Hi, I am Dai Aizhen. Regarding your second question, our first-party brand business is a significant extension of our long-term investment in supply chain capabilities. We aim to establish deep co-creation partnerships with manufacturing enterprises that possess both the capability and willingness to collaborate. By leveraging the platform's strengths in market insights and global distribution channels, we seek to enhance the certainty of brand development and value creation across the industrial chain, thereby delivering tangible incremental value to all participants in the ecosystem.

Initially, we will selectively deepen our engagement in core categories where the platform and supply chain possess unique advantages. We will engage in long-term cooperation with manufacturing enterprises, jointly participating in product definition, R&D, quality standards, and market testing.

Although this business segment requires a longer period for cultivation and integration, and its launch has taken longer than initially expected, it remains a clear long-term strategic direction for the platform. We will maintain patience and ensure every step is executed properly. We are confident in the long-term prospects of our first-party brand business.

Regarding operational strategy, the underlying mechanisms of an open and fair platform will remain unchanged. We firmly believe that consistently providing high-quality products and services to consumers relies on a healthy, fair, and diverse supply-side ecosystem. In the future, our first-party brand products and those offered by third-party merchants will complement each other in meeting consumers' diverse needs across different scenarios and positioning, ultimately creating a win-win platform ecosystem. Thank you.

IR Representative

Thank you. Thank you very much. We can now move on to the next analyst on the line.

Operator

Your next question comes from Alicia Yap with Citigroup. Please go ahead.

Alicia Yap

Hi, thank you. Good evening, management team. Thank you for taking my questions. I have two questions. First, we have observed that other leading global e-commerce platforms, as they scale up, are increasing investments in logistics and fulfillment infrastructure, such as building their own warehouse networks and delivery teams. How does management view the investment strategy in logistics and fulfillment going forward? Second, we have noticed that many global peers have made significant investments in instant retail. How does management assess the potential impact of this new consumer habit on the industry's competitive landscape and the company's core business? As the industry accelerates its layout for 30-minute and one-hour delivery services, what strategies is the company pursuing to continuously consolidate user stickiness and market share?

Zhao Zheng

Hello, I am Zhao Jiazhen. Regarding investments in logistics and fulfillment, similar to our other investments, we always base our decisions on improving consumer experience and addressing pain points merchants encounter in their operations. We make targeted and prudent investments that create tangible value. Therefore, our investment priorities vary depending on different markets and business models.

While the e-commerce logistics network is already quite mature in most regions of China, last-mile delivery remains a significant bottleneck in remote western areas and rural communities. To address this, we have committed substantial resources to deepening our logistics capabilities. Under our RMB 100 billion support strategy, we are firmly advancing the 'Free Shipping to Villages' initiative to strengthen logistics support for these remote regions.

Since the end of last year, through our 'Free Shipping to Villages' initiative, we have established village-level service stations covering all 177 villages in You County, Hunan Province. In Yishui, Shandong Province, we have increased the daily volume of parcels delivered to villages to over 10,000. This infrastructure not only enables agricultural inputs, such as fertilizers, to reach farmers directly but also allows a wider range of high-quality products to flow smoothly into rural areas. This helps unlock significant consumer potential in remote regions and significantly improves order conversion rates for merchants selling to these areas.

In certain overseas markets, fragmented point-to-point shipping by individual merchants often makes it difficult to achieve the economies of scale possible through consolidated shipments. This results in higher overall fulfillment costs, which suppresses some consumer demand. In markets facing these challenges, we are investing in the construction and operation of transit warehouses tailored to local conditions. These efforts help local merchants optimize their fulfillment processes, lower logistics barriers, and provide local consumers with more reliable delivery experiences.

To answer your question, we will continue to adhere to a practical, problem-solving approach to fulfillment investments. By strengthening our supply chain capabilities and improving the efficiency and reliability of fulfillment, we aim to enhance the consumer experience and foster a virtuous cycle between supply and demand, thereby driving the platform's long-term organic growth.

Regarding your second question, retail and e-commerce models are evolving rapidly, with various innovative business models constantly emerging in the market. While quick commerce, our core e-commerce, and grocery businesses all serve diverse consumer needs across different scenarios, there are significant differences in their underlying supply chains and operating models at our current stage. We believe the potential for synergies is relatively limited. Therefore, at this stage, we choose to focus our energy and resources on areas where we have stronger accumulation and can create more unique value.

As the industry matures, platforms will choose different paths to serve consumers based on their respective capabilities and accumulations. For us, the path has always been clear: continue to strengthen our supply chain. Our current heavy investment in the supply chain follows a two-pronged approach: our goal is to both stock good products and build robust infrastructure.

In terms of stocking good products, we are continuously helping capable traditional OEMs enhance their product and brand capabilities through initiatives like 'New Quality Supply' and 'Duo Duo Premium Produce.' This drives value migration on the supply side, allowing consumers to enjoy high-quality domestic goods with better price-performance ratios. In terms of building robust infrastructure, through projects like 'Free Shipping to Villages,' we are improving our transit network and connecting last-mile delivery points in remote areas, enabling consumers in more regions to enjoy the convenience and affordability brought by e-commerce.

The direction of our supply chain investments may not yield the fastest results in the short term. However, in the long run, these measures will bring tangible value to the industry, consumers, and our merchant ecosystem. We will continue to perform this foundational yet critical work to create unique value for consumers and merchants. Thank you.

IR Representative

Operator, I think we have time for one more analyst.

Operator

Thank you. Your final question comes from Joyce Ju with Bank of America. Please go ahead.

Joyce Ju

Good evening, Ms. Dai Aizhen. Thank you for taking my questions. My first question concerns the platform's long-term commercialization potential. It has been nearly a year since the company launched its RMB 100 billion support program. Following this series of investments, how has the health and activity level of the merchant ecosystem changed? Furthermore, can improvements in the merchant ecosystem be further converted into increased willingness to advertise and higher platform monetization rates? My second question relates to the revenue growth outlook. Based on performance in the first half of the year, could management provide some insights on consumer trends for the full year? Looking ahead, given the overall growth in the consumer market, does our platform have the opportunity to achieve revenue growth that outpaces the broader market? Thank you.

Zhao Zheng

Hello, this is Dai Aizhen. As mentioned earlier, the RMB 100 billion support program has gradually entered a phase of releasing industrial efficiency gains. From the RMB 10 billion in fee reductions introduced in 2024 to the RMB 100 billion support platform launched early last year, the resource allocation and supply chain feedback during this period have covered major agricultural production areas and manufacturing industrial belts.

We are pleased to see that merchants in certain industrial belts have achieved significant leaps in quality and efficiency through these initiatives. For instance, a cosmetics brand in Guangdong significantly reduced customer acquisition and operating costs with the platform's support. The company reinvested the improved profits into two years of technological R&D, successfully transforming into a domestic brand with independent patents. Additionally, merchants in the Zhongshan lighting industrial belt leveraged the platform's efficient product testing mechanisms to decisively increase R&D investment in high-quality light sources and smart products, creating best-selling items that achieved millions in sales within just a few months of launch.

These concrete cases demonstrate that our supply chain reinforcement measures are effective. Of course, improving the merchant ecosystem requires long-term accumulation. In the future, we will remain steadfast in our investments to help more merchants achieve healthier and more sustainable growth.

E-commerce platforms are two-sided networks; merchant growth potential is inextricably linked to high-quality consumer experiences and a healthy platform ecosystem. Our RMB 100 billion support program focuses primarily on improving product quality, strengthening the supply chain, and enhancing the merchant ecosystem, allowing small and medium-sized merchants to reinvest cost savings into product upgrades. In the long run, lower operating costs, improved profit margins, and heightened business confidence among merchants will ultimately drive sustainable growth in the platform's intrinsic value. Thank you.

Li Zhou

Hi, this is John. Let me address your second question. In the first half of the year, as consumption support policies continued to take effect, China's consumer market expanded steadily, and online retail penetration continued to grow. We remain confident in the long-term potential of China's consumer market and e-commerce industry. As e-commerce enters a new stage of development, platforms need to play a more proactive role in unlocking new growth by addressing fundamental supply chain bottlenecks. For example, through our 'Free Shipping to Villages' initiative, we are investing in a more comprehensive last-mile delivery network, including transit hubs, warehouses, and pickup points. These efforts are helping strengthen rural commerce and distribution networks and stimulate consumer demand in these regions. In the first half of this year, retail sales in rural areas grew faster than the overall market, indicating significant monetization potential.

As Jia Jia mentioned, we remain focused on strengthening the platform ecosystem and helping our merchants grow over time. By getting these fundamentals right, we believe sustainable growth in the platform's intrinsic value will naturally follow. Thank you.

IR Representative

OK, thank you, John, and thank you all for joining us today. That concludes our session, and we look forward to seeing you next quarter.

Operator

Ladies and gentlemen, that concludes our conference call for today. Thank you for participating. You may now disconnect.

More details:PDD Holdings IR

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