Prepared remarks
Thank you for standing by, and welcome to the PDD Holdings, Inc. 1Q 2026 Earnings Conference Call. I would now like to hand the conference over to our host today. Please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining us today. PDD Holdings' earnings release was distributed earlier and is available on our website at investor.pddholdings.com as well as to the Globe Newswire services. Before we start, I'd like to refer you to our safe harbor statement in the press earnings 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 today on the call are Mr. Chen Lei, our Co-Chairman and Co-Chief Executive Officer; Mr. Jiazhen Zhao, our Co-Chairman and Co-Chief Executive Officer; as well as Mr. Li Zhang, our Financial Director. Jiazhen will make some general remarks on our performance for the past quarter and our strategic focus, and then Jon will walk us through our financial results for the first quarter ended March 31, 2026. During the Q&A session, Jiazhen and Chen will answer questions in Chinese and will help translate. Please note that English translation is for reference only. And in case of any discrepancy, statements in the original language should prevail. Now it's my pleasure to introduce our Co-Chairman and Co-Chief Executive Officer, Jiazhen. Please go ahead.
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Hello, everyone. This is Jiazhen. Thank you all for joining the first quarter 2026 earnings call.
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And this year marks the beginning of PDD's second decade. Following my appointment as Chairman, this is also a critical year for the complete reinvention of our corporate organization and culture, which is centered on the high-quality development in the new decade. We are calling on everyone across all levels of the company to pull together in a sustained effort to drive a deep transformation in our business line teams, internal processes and organizational management. The whole team is required to treat safety, compliance and social responsibility as the absolute requirement for everything we do and maintain a clear focus on high-quality development. We are committed to stepping up to our responsibilities as a platform enterprise to create positive value for our users, the industry and society as a whole.
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The company has entered a new phase of its three-year strategy to build another Pinduoduo, launched last year. Our new first-party brand business is making steady progress, and we are doubling down on our supply chain through innovative models and fresh investments. At the same time, our long-term $100 billion support initiatives continue to generate value for merchants and the broader industry. The team is accelerating the rollout of free shipping to rural villages, enhancing platform governance and compliance, and proactively taking on broader social responsibilities.
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We delivered solid results in the past quarter. Group revenue in the quarter was RMB 106.2 billion, a year-over-year increase of 11%. As communicated in the past, our priority is long-term value creation through sustained investments in the ecosystem and the supply chain rather than short-term results.
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In March, we incorporated a dedicated company in Chang'an, marking the official launch of our first-party brand business with an initial cash injection of RMB 15 billion and a plan to invest RMB 100 billion over the next few years. Currently, our team is steadily advancing this business by going deep into industry hubs to accelerate the consolidation of supply chain resources. We are also collaborating closely with global IPs for deep co-creation to incubate new brands tailored to various markets and product categories. This holistic approach will empower our supply chain transition towards brand development, driving breakthroughs across the entire supply chain.
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Throughout the first quarter, our $100 billion support program continued to see high levels of investments, rolling out upgraded integrations of initiatives such as premium agricultural produce programs, new quality supply and logistics support to remote regions. In agriculture, we launched the 2026 Dudu premium products program. Building on last year's support for products and merchants, we are now deepening our support across the entire value chain, including planting and cultivation coaching, logistics and deep processing of agricultural products. This helps improve the quality and efficiency of the agriculture supply chain and enables production regions to move up the value chain. The first phase of these projects has been launched in specialty regions such as mining Oranges, Hanania, Porath, Inca, Codere and Linae.
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Within industrial growth, the latest brand and new quality supply initiatives continue to deliver tangible results. The initiative has been introduced to manufacturing hubs such as John Jonas, Genoni, Cintas, Zhongshan Lighting and Tianjin Chocolate, and merchants and factories are starting to move away from homogeneous competition of selling whatever others are selling and shifting toward a consumer-centric, R&D-driven model. They are uncovering highly specific and differentiated consumer demand on the platform and successfully building their own breadth. These factories are rapidly growing into automated smart factories. The efficiency and quality achieved through this transformation offer a new roadmap to industry upgrades.
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In addition, our logistics support to remote regions has also unlocked new growth opportunities to a wide range of merchants. Take the lighting industry in Zhongshan as an example: shifting a large ceiling light from costing RMB 4 to RMB 50. By covering the transition fee for the merchant, the platform is able to cut the shipping costs to around RMB 10. Many merchants are seeing order volumes to western provinces growing at an annual rate of over 30%.
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Since the beginning of this year, building on our logistics support to more regions, we are rolling out the direct-to-village initiative at full speed and have achieved some initial results. Taking some counties in Hunan as an example, by setting up last-mile delivery networks such as county-level transfer warehouses and village pickup points, we have expanded the direct-to-village coverage to over 70% of local villages by March. The daily order volume at these transfer warehouses has approached 10,000 orders. This not only brings more rural areas into the free shipping zones, but also creates more local job opportunities, injecting greater vitality into county and rural economies.
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We have begun implementing platform governance with multiple rounds of initiatives to strengthen oversight, improve compliance capabilities, and enhance the experience for users and merchants. In the first quarter, the platform launched more than 20 food safety measures, including reviews of business qualifications, monitoring and moderation of food advertising in live streams, and creation of a dedicated food database. We also stepped up compliance inspections of live streaming, upgraded food safety reporting channels, and bolstered automated monitoring. The turnaround time for addressing store violations has been reduced to hours, helping protect consumers' food safety.
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Initial challenges are inevitable; these difficulties will be the very few that power our self-transformation. This new phase of growth also provides a good opportunity to build new teams, new systems and culture. Our current leadership team will tackle these challenges head on, putting our heads down and working diligently. We will answer public concerns and expectations with concrete actions and measurable results and live up to the trust and support placed in us by all stakeholders.
Initial challenges are inevitable; these difficulties will be among the few that drive our self-transformation. This new phase of growth also provides a good opportunity to build new teams, new systems, and a new culture. Our current leadership team will tackle these challenges head on, keeping our heads down and working diligently. We will respond to public concerns and expectations with concrete actions and measurable results, and we will live up to the trust and support placed in us by all stakeholders.
Now I will hand it over to Chen Lei for further remarks.
Thank you, and hello, everyone. Thank you all for joining our earnings call today. At last year's Annual General Meeting, we officially put forward the 3-year strategy of building another Pinduoduo, focusing the company's strategic priority on investment in the supply chain. In the first quarter of this year, a dedicated company was established to launch the first-party brand business. In the first full quarter under the 3-year strategy, steady progress was made in our first-party brand business. The team went deep into industrial belts across different product categories to create the integration of high-quality supply chain resources and to lay the foundation of the first-party business model. Cooperation is taking place with merchants and manufacturers across different categories to design and develop first-party brand products tailored to different global markets. These initiatives aim at raising supply chain standards and driving the transformation and upgrade of the supply chain. This quarter, our global business continued to grow at a steady pace, opening great market opportunities. At the same time, the continuous investments under the $100 billion support program have yielded valuable insights and first-hand experiences which will guide future investment in the supply chain. Since the beginning of this year, we have stepped up our investment in our platform and value ecosystem through multiple initiatives under the $100 billion support program. We enhanced the overall experience for our merchants and customers and made the agricultural supply chain more efficient and resilient. We have upgraded business models, extending free shipping coverage to more remote areas and rural regions. The company is consistently delivering value to both the supply and demand sides of our platform. In the industrial segment, many merchants are leveraging our platform support to build their own brands. Any merchant has been optimizing their product portfolio to be more focused and curated and transitioning from standard bench manufacturing to demand-driven customization. This transition is enabling them to quickly grow into emerging brands in their respective categories. At the same time, transitional OEM factories are also moving beyond basic production, investing in product development, technology, branding and distribution channels—evolving from a volume-driven model to value-driven, bringing more resilience and value through the supply chain, acting as a new catalyst for industry transformation. The results from our $100 billion support program demonstrate that brand development is the next major opportunity for supply chain upgrades, which gives us conviction in the first-party brand model. Branded products are only getting started on our global platform with consumer demand still underserved in different markets. This creates significant potential in launching branded products in various product categories. Through the first-party brand model, our goal is to systematically incubate a portfolio of globally recognized brands, which in turn will drive transformation of the supply chain. This year we have continued investment in agricultural research. Just recently, we launched the final of the Smart Agriculture competition. The four final teams have designed and built their on-plant factories. Relying on these facilities, the participants will explore store activation solutions and maximize yield and quality while minimizing cost and waste. This competition has evolved over the years from an industry context testing ground for agri-technology innovation into real-world applications. It has also become an integrator for the next generation of agricultural research talents, contributing to the modernization of agriculture. 2026 marks the new starting point for PDD's next decade. As Jiazhen mentioned, we have closely examined our shortcomings and have taken decisive steps to rectify our operations, restructuring our internal management and strengthening our team's compliance awareness. We are building a foundation that manages the long-term healthy growth of the company and the industry. From the impact and a deep sense of duty, we move forward with the firm belief that staying true to our roots is the fundamental prerequisite and a guiding principle for all our future undertakings, and it will serve as a compass for the next phase of our journey. We will increase investment in new business, resolutely advance the first-party brand business and step up investments in the supply chain. Through these efforts, our objective is to build another Pinduoduo in the next three years and to drive the transformation of the supply chain as a whole. And now let me hand it over to David Liu who will walk you through our financial performance for the first quarter of 2026.
Well, thank you, Lei. Hi, everyone. This is David. Let me walk you through our financial performance for the first quarter ended March 31, 2026. In terms of the income statement, in the first quarter our total revenues increased 11% year-over-year to RMB 106.2 billion. This was mainly driven by the increase in revenues from transaction services. Revenues from online marketing services and others were RMB 49.9 billion this quarter compared with RMB 48.7 billion in the same quarter of 2025. Revenues from transaction services were RMB 56.3 billion, up 20% from the same quarter last year. Moving on to costs and expenses, our total cost of revenues increased 15% from RMB 40.9 billion in Q1 2025 to RMB 46.9 billion this quarter, mainly due to increases in fulfillment fees, bandwidth and server costs and payment processing fees. On a GAAP basis, total operating expenses this quarter were RMB 39.8 billion compared with RMB 38.6 billion in the same quarter of 2025. On a non-GAAP basis, total operating expenses increased to RMB 38.3 billion this quarter from RMB 36.5 billion in 2025. Our total non-GAAP operating expenses as a percentage of total revenues this quarter was 36% compared to 38% in the same quarter last year. Looking into specific expense items, our non-GAAP sales and marketing expenses this quarter were RMB 33.4 billion compared to RMB 32.8 billion in the same quarter last year. On a non-GAAP basis, our sales and marketing expenses as a percentage of our revenue this quarter was 31% versus 34% for the same quarter last year. Our non-GAAP general and administrative expenses were RMB 872 million versus RMB 735 million in the same quarter of 2025. Our research and development expenses were RMB 4 billion this quarter on a non-GAAP basis, up 32% year-over-year. On a GAAP basis, operating profit for the quarter was RMB 19.6 billion versus RMB 16.1 billion in the same quarter last year, up 22% year-over-year. Non-GAAP operating profit was RMB 21.1 billion versus RMB 18.3 billion in the same quarter last year. Non-GAAP operating profit margin was 20% this quarter compared to 19% for the same quarter last year. Net income attributable to ordinary shareholders was RMB 12.5 billion for the quarter compared to RMB 14.7 billion in the same quarter last year. Basic earnings per ADS was RMB 8.94 and diluted earnings per ADS was RMB 8.48 versus basic earnings per ADS of RMB 10.50 and diluted earnings per ADS of RMB 9.94 in the same quarter of 2025. Non-GAAP net income attributable to ordinary shareholders was RMB 14.1 billion versus RMB 16.9 billion in the same quarter last year. Non-GAAP diluted earnings per ADS was RMB 9.51 versus RMB 11.40 in the same quarter of 2025. That completes the income statement. Now let me move on to cash flow. Our net cash generated from operating activities was RMB 16.4 billion compared with RMB 15.5 billion in the same quarter last year. As of March 31, 2026, we had RMB 436.1 billion in cash, cash equivalents and short-term investments. And thank you. This concludes my prepared remarks.
So thank you, David. Next, we'll move on to the Q&A session. Today's Q&A session, Lei, Jiazhen and Zhong will take questions from analysts on the line. We could take a maximum of two questions from each analyst. Lei and Jiazhen will answer questions in Chinese and help translate for convenience. Operator, we'll open for questions.
Questions and answers
Your first question today comes from Alicia Yap with Citigroup.
First, the company has been positioned as an e-commerce platform, and then we saw the company launched the new first-party brand initiative last quarter. Could management elaborate on the key considerations behind this at the current moment? Should we interpret this as a major theme in the company's overall strategy? Second, from third-party data we see PDD's global business has achieved good user growth. What will be the primary focus for the business moving forward? What are user growth expectations, and how does the platform plan to retain and service consumers?
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This is Jiazhen. Regarding your first question, since the beginning of this year, we have been driving deep restructuring of organization and internal management. These efforts are centered on safety, compliance and social responsibility, and we are striving to create greater value for our users, the industry and society. The formation of the dedicated company in the first quarter and the launch of the first-party brand model represent a continuation in this direction.
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It has become clearer to us that the supply chain is currently facing challenges. Many capable manufacturers are constrained by factors such as talent, information, and scale and have not yet completed their brand transformation, leaving them trapped in homogeneous competition.
The establishment of the dedicated company in the first quarter and the launch of the first-party brand model represent a continuation in this direction. Jiazhen Zhao, Co-Chairman & Co-CEO, said it has become clearer to us that the supply chain is facing certain challenges at the moment. Many good manufacturers are constrained by factors such as talent, information and scale and have not yet completed their brand transformation, trapped in homogeneous competition.
As a platform, we have both the responsibility and capability to deepen our investment in the supply chain and bring our own solutions to the challenges faced by the industry. The formation of the dedicated company aims to consolidate platform resources to advance the first-party brand business model by taking a deeper and more active role in product development and standard setting.
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Through the first-party brand model, the platform assumes greater responsibility and takes on more risk, enabling our industrial partners to concentrate on high-quality production. We believe this is necessary to propel the platform and the entire e-commerce ecosystem into the next stage of high-quality growth. By leveraging our scale, we will assume more risk while sharing rewards with the supply chain and manufacturers, providing greater certainty for participants across the ecosystem.
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We believe this certainty will significantly enhance the overall efficiency of the supply chain and empower factories to reinvest into product development and R&D, driving a positive cycle. In a complex and fast-changing market environment, the platform must take on greater responsibility and deepen operations; we will remain highly focused and continue to invest heavily in the supply chain to drive the next phase of high-quality development.
This is Lei Chen. Let me take your second question. After nearly three years of growth, our global business has received support from many consumers worldwide. As the business grows, the management team has been reflecting on how to create more sustainable and differentiated value for consumers in a highly competitive global market. We believe the key is to return to the roots of e-commerce, which is supply chain capabilities.
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On this core priority, we will direct our efforts on two fronts. First, we will advance the integration and optimization of our supply chain, eliminating bottlenecks from end to end. This will not only expand the platform's product offerings, but also meaningfully enhance the consumer shopping experience. Throughout this process, we will actively onboard high-quality merchants and ecosystem partners, integrating the platform into the business ecosystems of various markets.
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Second, we will deepen the development of the first-party brand model. In the global market, brands are particularly crucial in strengthening consumers' mind share of the value proposition of great quality and great value. At the same time, brand development is also an important pathway to raising product quality standards, enabling us to strengthen the platform's compliance capabilities in an increasingly complex regulatory environment.
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The e-commerce industry is highly competitive with low switching costs for consumers, and while platforms often appear to win customers through marketing, the true driver of long-term, sustainable competitive advantage is the often-unseen strength of supply chain capabilities.
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Supply chain investment is a long-term systematic undertaking. Regardless of the challenges we may face, we will stay true to our roots, continue to drive deep transformations across our teams, business processes and organizational management, and continue to grow our global business with tangible supply chain improvements.
Your next question comes from Ronald Keung with Goldman Sachs.
Two questions. One is we note the announcement of the 3-year RMB 100 billion investment plan for the first-party brand initiative. In which areas does the company plan to allocate these investments? When can we expect this to begin to reflect in the company's financials? And how should we evaluate the incremental growth potential driven by the strategy? My second question: we've seen from the National Bureau of Statistics that consumption growth in the first quarter was solid and online penetration for e-commerce goods is still rising. In that backdrop, we see the online marketing service growth rate slowed in the first quarter for PDD. Could you outline where the future growth for GMV and online marketing services will come from?
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This is Jiazhen. To your first question: brand building involves a range of capabilities from product design, standard setting, manufacturing to quality control, warehousing and fulfillment, legal compliance, customer service and so on. Each requires long-term and patient investment. Many SME manufacturers in the industrial belt are very good at mass production and cost control, but due to the lack of branding capabilities, they have not yet moved up the value chain.
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Through the creation of the dedicated company, we are leveraging the platform's strength in technology, scale and organization to build the foundational capabilities required to help our supply chain partners develop brands. Under our first-party brand model, we provide certainty of sales volume to the supply chain, empowering manufacturers to confidently invest in R&D and process innovation and significantly cutting down the costs and risks inherent in innovation and brand building.
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We believe it is the right strategic direction for the platform to step in and play this role. Our advantages in technology, scale and market insights allow us to digest uncertainty by internalizing some of the risks faced by manufacturers. We empower the supply chain with certainty, creating a win-win situation for the industry ecosystem. Manufacturers can move away from homogeneous competition and focus on quality upgrades. Consumers can enjoy quality products at reasonable prices, and the platform further deepens its supply chain capabilities, enabling the reinvention of the platform.
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Looking back at our history, from early initiatives to improve agricultural supply chains to later efforts such as dual grocery, the global business and the $100 billion support program, the platform has steadily deepened its supply chain operations by identifying and solving problems. To fundamentally address the challenge of homogeneous competition faced by platform merchants, we must take on greater responsibility and enable deeper supply chain integration, which we believe is an inevitable path in the evolution of the platform ecosystem.
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This year kicks off a new decade of high-quality development. We will take this opportunity to reshape our organization and internal management and focus on building supply chain capabilities. The first-party brand initiative is the first strategic move implemented after announcing the strategy to invest in the supply chain. As we roll out more supply chain initiatives, we believe we'll have the opportunity to build another Pinduoduo over the next three years.
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To your second question, the online retail market continues to hold great potential, and there is much more we can do. However, the industry has entered a critical phase of high-quality development, and the only way to achieve sustainable, healthy growth is to take initiatives that deeply empower the supply chain.
We will have the opportunity to build another Pinduoduo over the next three years. To your second question, the online retail market continues to hold great potential, and there is much more that we can do. However, the industry has entered a critical phase of high-quality development. The only way to realize sustainable and healthy industry growth is to take initiatives to deeply empower the supply chain.
Based on this understanding, following the launch of the $100 billion support program last year, we rolled out a series of supply chain support initiatives. Our teams have gone deep into agricultural regions and industrial belts, solving practical supply chain issues and unlocking further growth for both the industry and the platform.
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For instance, our team is upgrading village pickup points into multifunctional digital micro-hubs. This new model operates as parcel pickup points and as local logistics nodes for the distribution of local specialty agricultural products. By giving farmers a one-stop solution for packaging and shipping, we're helping quality agricultural goods reach broader markets. Through the creation of direct employment and sales of agricultural products, these micro-hubs are increasing the incomes of local communities.
Our team is upgrading village pickup points into multifunctional digital micro-hubs that serve as parcel pickup points and local logistics nodes for distributing specialty agricultural products. By providing farmers a one-stop packaging and shipping solution, we help quality agricultural goods reach broader markets while creating direct employment and increasing local incomes.
Another example is the logistics support for remote regions. Our team is bringing more consumers in remote territories into the free shipping zones by creating transit warehouses and covering transition costs. Through these tangible supply chain improvements, logistics costs for shipping to some remote regions have been reduced by as much as 80% and have leveled operational costs across regions. Many merchants are saving millions in shipping costs. With these substantial investments, the platform is bridging the gap between supply and demand and creating more effective distribution.
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These are just a few examples. Looking ahead, we will continue to work on concrete supply chain projects and, through these initiatives, deliver more value to our users, the industry and society. Operator, let's move on to the next analyst on the line.
Your next question comes from Joyce Ju with Bank of America.
First, we have seen the continuous emergence of new e-commerce models in the industry, including live stream e-commerce and quick commerce. How does the company assess the impact of these new models on the broader industry landscape? Are there any plans for the company to expand into these areas? Second, in the first quarter we saw a slight increase in the sales and marketing expense ratio alongside a fluctuation in overall profit margin. How should we think about margin trends going forward? What would be a reasonable expectation for a steady-state profit margin level?
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This is Jiazhen. Compared to traditional retail, e-commerce has much lower transaction costs, which leads to faster industry evolution and more intense competition. The management team is closely monitoring the development of new technologies and new formats such as live streaming and quick commerce.
This is Jiazhen. Compared to traditional retail, e-commerce has much lower transaction costs, which leads to faster industry evolution and more intense competition. The management team is closely monitoring the development of new technologies and new formats such as live streaming and quick commerce.
Product selection, competitive prices and better services will remain important. As we mentioned earlier, competition among different platforms ultimately comes down to competition in underlying supply chain capabilities.
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That is why at the end of last year we established a clear group strategy to focus on and invest significantly in the supply chain. Under this strategy, we are steadily advancing a range of supply chain initiatives, particularly our first-party brand business. Dedicated teams are working in major industrial regions to accelerate the integration of high-quality supply chain resources and to build the framework for the first-party brand business. We are collaborating closely with manufacturers to design and develop first-party brand products for various global markets while driving transformation and upgrades across the supply chain.
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The coming period represents a critical window for our supply chain investments. We will advance the first-party brand initiative at full speed, increase investments in foundational supply chain capabilities, and navigate the evolving industry landscape by continuously creating unique value for the supply chain ecosystem.
This is David. Let me take your second question on margins. As we have regularly communicated in the past, our objective is the long-term sustainable growth of the platform's intrinsic value. In this process, due to seasonality and other factors, it is normal to see some fluctuation in our quarter-to-quarter financial results. The long-term value of the platform is fundamentally tied to the value we create for consumers and the broader ecosystem. That's why we remain steadfast in our commitment to launch supply chain investments. Whether it's our first-party brand strategy, direct-to-village delivery or new quality supply initiatives, these are all high-impact projects that unlock long-term value and new growth for the industry. We will continue to invest in them resolutely. So instead of optimizing short-term financial performance, we prioritize the healthy development of the platform ecosystem and the accumulation of supply chain capabilities. A sustained, store-specific competitive advantage will determine the trajectory of the platform's intrinsic value.
And thank you all once again for joining us today. I think it's about time. We look forward to speaking to you at the end of next quarter. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.