Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)

Operating and Financial Review and Prospects

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this annual report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Item 3. Key Information-D. Risk Factors" or in other parts of this annual report on Form 20-F.

A.	Operating Results

Key Factors Affecting Our Results of Operations

Our results of operations and financial condition are affected by the general factors affecting the retail industry in the markets in which we operate, including the level of overall economic growth, increase in per capita disposable income and growth in consumer spending in those markets. In addition, they are also affected by factors driving online retail in the markets in which we operate, such as the growing popularity of online shopping, improvements in logistics infrastructure and the increasing adoption of online payment methods. Unfavorable changes in any of these general factors could materially and adversely affect our results of operations.

While our business is influenced by general factors affecting our industry, our results of operations are more directly affected by certain company specific factors, including:

Our ability to further enhance buyer and merchant engagement on our platforms

Our key ecosystem partners are the buyers and merchants who transact on our platforms. Our ability to further improve the activities of buyers and merchants on our platforms is a key driver of our growth.

We benefit from a virtuous cycle as we seek to enhance our buyer and merchant engagement. Increasing the engagement of buyers makes our platforms more attractive to merchants, who are drawn to our platforms' large buyer base and diverse sales opportunities. At the same time, expanding our merchant base enables our platforms to offer more competitive prices and a wider range of product categories, which in turn helps us attract and retain buyers, generating a virtuous cycle.

Our ability to increase buyer activities depends on our ability to continue to provide a wide selection of merchandise at attractive prices, as well as fun and interactive shopping experiences on our platforms. We also plan to further leverage social networks and word-of-mouth viral marketing, and conduct online and offline marketing and brand promotion activities to attract new buyers and increase buyer activities. In addition, we plan to continue to encourage buyers to place more orders with us through a variety of means, including granting coupons and holding special promotional events.

Merchants are attracted to our platforms by our buyer base, plentiful sales opportunities, and the value-added services that we provide, such as online marketing and transaction services. Our ability to provide popular products on our platforms at attractive prices also depends on our ability to maintain mutually beneficial relationships with our merchants. For example, we rely on our merchants to make available sufficient inventory for the timely fulfillment of large volumes of orders on our platforms to ensure a good user experience.

Our ability to provide valuable online platform services and broaden service offerings

We currently generate revenues primarily from online platform services that we provide to merchants through our platforms. We believe that increasing the value and variety of our online platform services and the consequent return on investment to merchants from utilizing these services will increase demand for our services. We aim to enhance the value of our online platform services through such means as broadening our service offerings, increasing the size and engagement of our buyer base, improving recommendation features, developing innovative marketing services, and improving the measurement tools available to merchants. For example, in August 2020, as a natural extension of the Pinduoduo platform, we started Duo Duo Grocery, a next-day grocery pick-up service that allows users to order groceries and related products online and collect goods the next day at nearby designated pickup points. In September 2022, we launched Temu, a global online platform that connects consumers with merchants, manufacturers and brands around the world.

Our ability to manage our costs and expenses by leveraging our scale of business

Our results of operations depend on our ability to manage our costs and expenses. We expect our costs and expenses to continue to increase as we grow our businesses and attract and retain buyers and merchants for our platforms. Our costs of revenues consist primarily of payment processing fees paid to third-party payment service providers, costs associated with the operation of our platforms and others, such as costs and expenses attributable to fulfillment fees, merchant support services, bandwidth and server costs, amortizations, depreciation and maintenance costs, payroll, employee benefits and share-based compensation expenses, call center, surcharges and other expenses directly attributable to the online platform services. In addition, we have invested significantly in marketing activities to promote our brand and our products and services. Our sales and marketing expenses increased from RMB54,343.7 million in 2022 to RMB82,188.9 million in 2023 and further to RMB111,300.5 million (US$15,248.1 million) in 2024, while sales and marketing expenses as a percentage of our revenues decreased from 41.6% in 2022 to 33.2% in 2023 and further decreased to 28.3% in 2024.

We believe our business model has significant operating leverage and enables us to realize structural cost savings. We achieve economies of scale in our operation as a wider selection of merchandise attracts and retains a larger number of buyers, which in turn drives an increase in our scale and attracts more merchants to our platforms. In addition, our scale creates value for our merchants by providing an effective channel for selling large volumes of products. We believe this value proposition will make our platforms more attractive to merchants and further increase their sales and spending on our platforms.

Key Line Items and Specific Factors Affecting Our Results of Operations

Revenues

Under our current business model, we primarily generate revenues from online marketing services and transaction services. The following table sets forth the components of our revenues by amounts and percentages of our total revenues for the periods presented:

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

For the Year Ended December 31,

​

​

2022

​

2023

​

2024

​

RMB

%

RMB

%

RMB

US$

%

​

​

(in thousands, except for percentages)

Revenues:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Online marketing services and others

​

102,931,095

​

78.8

153,540,553

​

62.0

​

197,934,192

27,116,873

50.3

Transaction services

​

27,626,494

​

21.2

94,098,652

​

38.0

​

195,901,905

26,838,451

49.7

Total revenues

130,557,589

​

100.0

247,639,205

​

100.0

​

393,836,097

53,955,324

100.0

​

Online marketing services and others. We provide merchants with marketing services that match product listings appearing in search or browser results on our platforms. Revenues from online marketing services and others depend on spontaneous decisions made by the millions of merchants on our platforms based on different marketing opportunities.

Transaction services. We charge merchants fees for transaction-related services that we provide to merchants on our platforms. To better serve our merchants, we are focused on introducing them to more of our value-added services based on their transaction needs. In addition, as part of our continued efforts to improve user experience, we also encourage and support merchants who sell high-quality products and provide superb services. The key drivers of our transaction services revenues are the average transaction services revenues per active merchant, which represent merchant demand for our transaction-related services, and the number of active merchants on our platforms, which represent the total number of paying or potential paying merchant-customers on our platforms. Fee rates for our transaction services are not necessarily fixed and may vary based on a number of factors, including the types of services provided, the category of the goods sold, the sellers' transaction performance, and the attribution of the consumption scenarios, among others.

Costs of revenues

The following table sets forth the components of our costs of revenues by amounts and percentages of costs of revenues for the periods presented:

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​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

For the Year Ended December 31,

​

​

2022

​

2023

​

2024

​

RMB

%

RMB

%

RMB

US$

%

​

​

(in thousands, except for percentages)

Costs of revenues:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Payment processing fees

(3,450,929)

​

11.0

(6,824,386)

​

7.4

​

(11,355,177)

(1,555,653)

7.4

Costs associated with the operation of our platforms and others

(28,011,369)

​

89.0

(84,899,191)

​

92.6

​

(142,545,197)

(19,528,612)

92.6

Total costs of revenues

(31,462,298)

​

100.0

(91,723,577)

​

100.0

​

(153,900,374)

(21,084,265)

100.0

​

Costs of revenues consist primarily of payment processing fees paid to third-party payment service providers, costs associated with the operation of our platforms and others, such as costs and expenses attributable to fulfillment fees, merchant support services, bandwidth and server costs, amortization, depreciation and maintenance costs, payroll, employee benefits, share-based compensation expenses, call center, surcharges and other expenses directly attributable to the online platform services.

Operating expenses

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

For the Year Ended December 31,

​

​

2022

​

2023

​

2024

​

RMB

%

RMB

%

RMB

US$

%

​

​

(in thousands, except for percentages)

Operating expenses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Sales and marketing expenses

(54,343,719)

​

79.1

(82,188,870)

​

84.5

​

(111,300,533)

(15,248,111)

84.7

General and administrative expenses

(3,964,935)

​

5.8

(4,075,622)

​

4.2

​

(7,552,967)

(1,034,752)

5.7

Research and development expenses

(10,384,716)

​

15.1

(10,952,374)

​

11.3

​

(12,659,361)

(1,734,325)

9.6

Total operating expenses

(68,693,370)

​

100.0

(97,216,866)

​

100.0

​

(131,512,861)

(18,017,188)

100.0

​

Sales and marketing expenses. Sales and marketing expenses consist primarily of online and offline advertising and promotions, as well as payroll, employee benefits, share-based compensation expenses and other related expenses associated with sales and marketing. We expect to continue our sales and marketing spending in the foreseeable future as we seek to increase our brand awareness, enhance user engagement and build scale.

General and administrative expenses. General and administrative expenses consist primarily of payroll, employee benefits, share-based compensation expenses and other related expenses. We expect to continue our general and administrative spending in the foreseeable future due to the anticipated growth of our business as well as accounting, insurance, investor relations and other public company costs.

Research and development expenses. Research and development expenses consist primarily of payroll, employee benefits, share-based compensation expenses, R&D-related cloud services and other related expenses associated with research and platform development. We expect our research and development expenses to increase as we expand our research and development team to enhance our artificial intelligence technology and big data analytics capabilities and develop new features and functionalities on our platforms.

Taxation

Cayman Islands

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty.

There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Hong Kong

Our subsidiaries incorporated in Hong Kong are subject to Hong Kong profits tax of 16.5% on their activities conducted in Hong Kong and may be exempted from income tax on their foreign-derived income. There are no withholding taxes in Hong Kong for distribution of dividends by a company incorporated in Hong Kong.

Mainland China

Generally, our mainland China subsidiaries, the VIE and subsidiaries of the VIE are subject to enterprise income tax on their taxable income in mainland China at a statutory rate of 25%. The enterprise income tax is calculated based on the entity's global income as determined under PRC tax laws and accounting standards. Each of Shanghai Xunmeng and Walnut Shanghai has been recognized as a "high and new technology enterprise" and is eligible for a preferential corporate income tax rate of 15% until 2026. Xinzhijiang is also eligible for a preferential corporate income tax rate of 15% until 2025.

We are subject to value-added tax at a rate of (i) 13% on the sale of goods and (ii) 6% on the sale of services (including value-added telecommunication services), in each case less any deductible value-added tax we have already paid or borne in connection with such sale of goods or services. We are also subject to surcharges on value-added tax payments in accordance with PRC law.

Under PRC laws, a withholding tax rate of up to 10% will be applicable to dividends payable by mainland China companies to non-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-resident enterprises are incorporated. As such, dividends paid by our subsidiaries in mainland China to their non-resident enterprise shareholders in Hong Kong will be subject to a withholding tax rate of 10%, unless all the requirements under the Arrangement between Mainland China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital are satisfied, in which case the tax rate would become 5%. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-We may rely on distributions and advances paid by our mainland China subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our mainland China subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business."

If our holding company in the Cayman Islands or any of our subsidiaries outside of mainland China were deemed to be a "resident enterprise" under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-If we are classified as a mainland China resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-mainland China shareholders or ADS holders."

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our revenues for the periods presented. This information should be read together with our audited consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of our future trends.

We adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06") on January 1, 2022, which simplified the accounting for convertible instruments by removing the separation models for convertible debt with cash conversion features and convertible instruments with a beneficial conversion feature. We adopted ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07") on January 1, 2024, which, among other things, improved reportable segment disclosure requirements through enhanced disclosures about significant segment expenses, and provided new segment disclosure requirements for entities with a single reportable segment.

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​	​	For the Year Ended December 31,
​	​	2022			​	2023			​	2024
​		RMB		%		RMB		%		RMB		US$		%
​	​	(in thousands, except for percentages)
Revenues	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Online marketing services and others		102,931,095	​	78.8		153,540,553	​	62.0	​	197,934,192		27,116,873		50.3
Transaction services	​	27,626,494	​	21.2	​	94,098,652	​	38.0	​	195,901,905	​	26,838,451	​	49.7
Total revenues		130,557,589	​	100.0		247,639,205	​	100.0	​	393,836,097		53,955,324		100.0
Costs of revenues(1)		(31,462,298)	​	(24.1)		(91,723,577)	​	(37.0)	​	(153,900,374)		(21,084,265)		(39.1)
Operating expenses		​	​	​		​	​	​	​	​		​		​
Sales and marketing expenses(1)		(54,343,719)	​	(41.6)		(82,188,870)	​	(33.2)	​	(111,300,533)		(15,248,111)		(28.3)
General and administrative expenses(1)		(3,964,935)	​	(3.0)		(4,075,622)	​	(1.7)	​	(7,552,967)		(1,034,752)		(1.9)
Research and development expenses(1)		(10,384,716)	​	(8.0)		(10,952,374)	​	(4.4)	​	(12,659,361)		(1,734,325)		(3.2)
Total operating expenses		(68,693,370)	​	(52.6)		(97,216,866)	​	(39.3)	​	(131,512,861)		(18,017,188)		(33.4)
Operating profit		30,401,921	​	23.3		58,698,762	​	23.7	​	108,422,862		14,853,871		27.5
Other income/(expenses)		​	​	​		​	​	​	​	​		​		​
Interest and investment income, net		3,997,100	​	3.1		10,238,080	​	4.1	​	20,553,493	​	2,815,817	​	5.2
Interest expenses		(51,655)	​	(0.0)		(43,987)	​	(0.0)	​	-		-		-
Foreign exchange (loss)/gain		(149,710)	​	(0.1)		35,721	​	0.0	​	587,866		80,537		0.1
Other income, net		2,221,358	​	1.7		2,952,579	​	1.2	​	3,119,847		427,417		0.8
Profit before income tax and share of results of equity investees		36,419,014	​	27.9		71,881,155	​	29.0	​	132,684,068		18,177,642		33.6
Income tax expenses		(4,725,667)	​	(3.6)		(11,849,904)	​	(4.8)	​	(20,266,781)		(2,776,538)		(5.1)
Share of results of equity investees		(155,285)	​	(0.1)		(4,707)	​	(0.0)	​	17,225		2,360		0.0
Net income		31,538,062	​	24.2		60,026,544	​	24.2	​	112,434,512		15,403,464		28.5

Note:

(1)	Share-based compensation expenses were allocated as follows:

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​	​	​	​	​	​	​	​	​
​	​	For the Year Ended December 31,
​	​	2022	​	2023	​	2024
​		RMB		RMB		RMB		US$
​	​	(in thousands)
Costs of revenues		33,788	​	132,470	​	412,721		56,543
Sales and marketing expenses		2,158,676	​	2,354,097	​	2,216,792		303,699
General and administrative expenses		3,004,327	​	2,289,272	​	4,742,816		649,763
Research and development expenses		2,521,574	​	2,302,955	​	2,511,235		344,038
Total		7,718,365	​	7,078,794	​	9,883,564		1,354,043

​

Year ended December 31, 2024 compared to year ended December 31, 2023

Revenues

Our revenues, which consist of revenues from online marketing services and others, and transaction services, increased by 59.0% from RMB247,639.2 million in 2023 to RMB393,836.1 million (US$53,955.3 million) in 2024.

Revenues from online marketing services and others increased from RMB153,540.6 million in 2023 to RMB197,934.2 million (US$27,116.9 million) in 2024, primarily attributable to interrelated factors, including our stronger brand and market position as a result of our branding campaigns, more active merchants offering a greater breadth of products and our continued focus on offering a wide selection of merchandise at attractive prices, as well as fun and interactive shopping experiences for consumers, which contributed to an increase in user engagement and activities.

Revenues from transaction services increased from RMB94,098.7 million in 2023 to RMB195,901.9 million (US$26,838.5 million) in 2024, primarily due to the increase in average transaction services revenues per active merchant and the increase in the number of active merchants on our platforms. Average transaction services revenues per active merchant increased from RMB6,627 in 2023 to RMB12,399 (US$1,699) in 2024. The increase reflects the growth of our merchants' businesses and the increase in merchant demand for more value-added services driven by the growing diversity of transactions placed under different consumption scenarios and product categories on our platforms. The number of our active merchants increased from 14.2 million in 2023 to 15.8 million in 2024. Our merchant-customers are attracted to our platforms by the plentiful sales opportunities on our platforms and the value of the transaction services we provide.

Our costs of revenues increased from RMB91,723.6 million in 2023 to RMB153,900.4 million (US$21,084.3 million) in 2024, primarily attributable to the increase in fulfillment fees and payment processing fees.

Our total operating expenses increased by 35.3% from RMB97,216.9 million in 2023 to RMB131,512.9 million (US$18,017.2 million) in 2024, primarily due to the increases in sales and marketing expenses.

Sales and marketing expenses. Our sales and marketing expenses increased from RMB82,188.9 million in 2023 to RMB111,300.5 million (US$15,248.1 million) in 2024, primarily attributable to an increase of RMB27,888.8 million in advertising expenses and promotion and coupon expenses, which were focused on promoting our brands and driving user growth and engagement on our platforms.

General and administrative expenses. Our general and administrative expenses amounted to RMB7,553.0 million (US$1,034.8 million) in 2024, compared to RMB4,075.6 million in 2023, primarily due to an increase in staff-related costs.

Research and development expenses. Our research and development expenses amounted to RMB12,659.4 million (US$1,734.3 million) in 2024, compared to RMB10,952.4 million in 2023.

As a result of the foregoing, we recorded operating profit of RMB108,422.9 million (US$14,853.9 million) in 2024, compared to RMB58,698.8 million in 2023.

Interest and investment income, net. Net interest and investment income mainly represents interest earned on short-term investments and debt investments included in other non-current assets. Our net interest and investment income increased from RMB10,238.1 million in 2023 to RMB20,553.5 million (US$2,815.8 million) in 2024. The increase was primarily attributable to the increase of our short-term investments.

Interest expenses. We had interest expenses of nil in 2024, compared to interest expenses of RMB44.0 million in 2023.

Other income, net. We had other net income of RMB3,119.8 million (US$427.4 million) in 2024, compared to RMB2,952.6 million in 2023.

We had income tax expenses of RMB20,266.8 million (US$2,776.5 million) in 2024, compared to RMB11,849.9 million in 2023, primarily due to the increased profit before income tax expenses.

We had share of profits of equity investees of RMB17.2 million (US$2.4 million) in 2024, compared to share of losses of RMB4.7 million in 2023.

As a result of the foregoing, we had net income of RMB112,434.5 million (US$15,403.5 million) in 2024, compared to RMB60,026.5 million in 2023.

Our revenues, which consist of revenues from online marketing services and others, and transaction services, increased by 89.7% from RMB130,557.6 million in 2022 to RMB247,639.2 million in 2023.

Revenues from online marketing services and others increased from RMB102,931.1 million in 2022 to RMB153,540.6 million in 2023, primarily attributable to interrelated factors, including our stronger brand and market position as a result of our branding campaigns, more active merchants offering a greater breadth of products and our continued focus on offering a wide selection of merchandise at attractive prices, as well as fun and interactive shopping experiences for consumers, which contributed to an increase in user engagement and activities.

Revenues from transaction services increased from RMB27,626.5 million in 2022 to RMB94,098.7 million in 2023, primarily due to the increase in average transaction services revenues per active merchant and the increase in the number of active merchants on our platforms. Average transaction services revenues per active merchant increased from RMB2,125 in 2022 to RMB6,627 in 2023. The increase reflects the growth of our merchants' businesses and the increase in merchant demand for more value-added services driven by the growing diversity of transactions placed under different consumption scenarios and product categories on our platforms. The number of our active merchants increased from 13.0 million in 2022 to 14.2 million in 2023. Our merchant-customers are attracted to our platforms by the plentiful sales opportunities on our platforms and the value of the transaction services we provide.

Costs of revenues

Our costs of revenues increased from RMB31,462.3 million in 2022 to RMB91,723.6 million in 2023, primarily attributable to the increase in fulfillment fees, payment processing fees, maintenance costs, and call center expenses.

Operating expenses

Our total operating expenses increased by 41.5% from RMB68,693.4 million in 2022 to RMB97,216.9 million in 2023, primarily due to the increases in sales and marketing expenses.

Sales and marketing expenses.

Our sales and marketing expenses increased from RMB54,343.7 million in 2022 to RMB82,188.9 million in 2023, primarily attributable to the increase of RMB26,457.4 million in advertising expenses and promotion and coupon expenses, which was focused on promoting our brands and driving user growth and engagement on our platforms.

General and administrative expenses.

Our general and administrative expenses amounted to RMB4,075.6 million in 2023, compared to RMB3,964.9 million in 2022.

Research and development expenses.

Our research and development expenses amounted to RMB10,952.4 million in 2023, compared to RMB10,384.7 million in 2022.

Operating profit

As a result of the foregoing, we recorded operating profit of RMB58,698.8 million in 2023, compared to operating profit of RMB30,401.9 million in 2022.

Other income/(expenses)

Interest and investment income, net. Net interest and investment income mainly represents interest earned on demand deposits, time deposits and debt securities. We had net interest and investment income of RMB3,997.1 million in 2022 and RMB10,238.1 million in 2023. The increase was primarily attributable to the increase of our time deposits and debt securities.

Interest expenses. We had interest expenses of RMB44.0 million in 2023, compared to interest expenses of RMB51.7 million in 2022.

Other income, net. We had other net income of RMB2,952.6 million in 2023, compared to other net income of RMB2,221.4 million in 2022, primarily due to the increase in the amount of subsidies received, such as tax refunds and other non-operating income items.

Income tax expenses

We had income tax expenses of RMB11,849.9 million in 2023, compared to RMB4,725.7 million in 2022, primarily due to the increased profit before income tax expenses.

Share of results of equity investees

We had share of losses of equity investees of RMB4.7 million in 2023, compared to RMB155.3 million in 2022.

Net income

As a result of the foregoing, we had net income of RMB60,026.5 million in 2023, compared to RMB31,538.1 million in 2022.

Critical Accounting Policies and Estimates

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and accompanying notes and other disclosures included in this annual report. When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies, and (iii) the sensitivity of reported results to changes in conditions and assumptions.

Revenue recognition

Revenues are principally comprised of those generated from online platform services. Revenues from online platform services primarily consist of online marketing services revenues and transaction services fees. Revenues represent the amount of consideration that we are entitled to in exchange for the transfer of promised goods or services in the ordinary course of our activities and are recorded net of indirect taxes. Consistent with the criteria of ASC Topic 606 ("ASC 606"), Revenue from Contracts with Customers, we recognize revenue when the performance obligation in a contract is satisfied by transferring the control of a promised good or service to a customer. We also evaluate whether it is appropriate to report revenue as the gross amounts of goods and services sold and the related costs, or the net amounts. Payments for services or goods are generally received before deliveries.

Online marketing services

We entered into contractual agreements with certain merchants to provide various types of online marketing services on our online platform for which we receive service fees from the merchants. We match product listings appearing in search or browser results on our online platform and charge merchants based on impressions or clicks. We also provide display marketing services that allow the merchants to place advertisements on the platform primarily at fixed prices.

In general, the merchants need to prepay for the service and the prepayments are accounted for as customer advances and deferred revenues. Under ASC 606, revenues are primarily recognized at a point in time when consumers view or click on the merchants' product listings or over the period during which the advertising services are provided, depending on the type of online marketing services selected by the merchants.

Transaction services

We provide transaction services, including fulfillment services to merchants, and earn related fees for sales of the products completed on our platforms. We do not take control of the products provided by merchants at any point in time during the transactions. Revenues related to transaction services are recognized in consolidated statements of comprehensive income at a point in time when our service obligation to the merchants is determined to have been completed under each sales transaction. Variable consideration is estimated and included in the transaction price to the extent that it is probable that a significant revenue reversal will not occur. Adjustments to the estimated variable consideration related to prior reporting periods were not material.

Incentives provided to the consumers

In order to promote our online platforms and attract more registered consumers who are not our customers, we at our own discretion provide various forms of incentives. These incentives, including coupons, credits and other subsidies that are not specific to any merchant, can be used by the consumers to purchase merchandise provided on our online platforms at reduced prices or to redeem for cash from us.

Despite the absence of any explicit contractual obligations to incentivize the consumers on behalf of the merchants, we further evaluated the varying features of different incentive programs to determine whether the incentives represent implicit obligations to the consumers on behalf of merchants and if so, should be recorded as reduction of revenues. If we have determined that incentives provided to the consumers are not considered as payments to the merchant-customers, we record these incentives as marketing expenses.

Income taxes

We follow the liability method of accounting for income taxes in accordance with ASC 740 ("ASC 740"), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

We accounted for uncertainties in income taxes in accordance with ASC 740. Interest and penalties related to unrecognized tax benefit recognized in accordance with ASC 740 are classified in the consolidated statements of comprehensive income as income tax expenses.

Recent Accounting Pronouncements

See Item 17 of Part III, "Financial Statements-Note 2-Summary of significant accounting policies-Recent accounting pronouncements."

B.Liquidity and Capital Resources

The following table sets forth a summary of our cash flows for the periods presented:

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​	​	​	​	​	​	​	​	​
​	​	For the Year Ended December 31,
​	​	2022	​	2023	​	2024
​		RMB		RMB		RMB		US$
​	​	(in thousands)
Summary Consolidated Cash Flow Data:	​	​	​	​	​	​	​	​
Net cash generated from operating activities		48,507,860	​	94,162,531	​	121,929,292		16,704,245
Net cash used in investing activities		(22,361,670)	​	(55,431,278)	​	(118,356,036)		(16,214,711)
Net cash generated from/ (used in) financing activities		10,079	​	(8,960,626)	​	1,164		159
Exchange rate effect on cash, cash equivalents and restricted cash		100,177	​	(291,139)	​	840,096		115,093
Increase in cash, cash equivalents and restricted cash		26,256,446	​	29,479,488	​	4,414,516		604,786
Cash, cash equivalents and restricted cash at beginning of the year		66,043,971	​	92,300,417	​	121,779,905		16,683,779
Cash, cash equivalents and restricted cash at end of the year		92,300,417	​	121,779,905	​	126,194,421		17,288,565

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We had net cash generated from operating activities of RMB48,507.9 million, RMB94,162.5 million and RMB121,929.3 million (US$16,704.2 million) in 2022, 2023 and 2024, respectively.

As of December 31, 2024, our cash and cash equivalents were RMB57,768.1 million (US$7,914.2 million). Our cash and cash equivalents primarily consist of cash at banks and other highly liquid investments. As of the same date, we had restricted cash of RMB68,426.4 million (US$9,374.4 million), mainly representing cash received from buyers and reserved in a bank supervised account for payments to merchants.

In September 2022, we offered to repurchase the 2024 Notes, as required under the terms of the notes. US$1,000 aggregate principal amount was validly surrendered and repurchased. The outstanding 2024 Notes matured on October 1, 2024. In October 2023, we offered to repurchase the 2025 Notes, as required under the terms of the notes. A total of US$1,261,366,000 in principal amount of the 2025 Notes was validly surrendered and repurchased. The outstanding 2025 Notes will mature on December 1, 2025.

We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for at least the next 12 months. We may decide to enhance our liquidity position or increase our cash reserve for future investments through additional equity and debt financing. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in an increase in fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

As of December 31, 2024, we had a total of RMB172,162.8 million (US$23,586.2 million) in cash and cash equivalents, restricted cash and short-term investments held in China. The VIE and its subsidiaries held a total of RMB120,127.4 million (US$16,457.4 million) in cash and cash equivalents, restricted cash and short-term investments, which were denominated in Renminbi. Although we consolidate the results of the VIE and its subsidiaries, we only have access to the assets or earnings of the VIE and its subsidiaries through our contractual arrangements with the VIE and its shareholders. See "Item 4. Information on the Company-C. Organizational Structure." For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see "Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Holding Company Structure."

In utilizing the proceeds we received from our initial public offerings, follow-on offerings, convertible senior notes offerings and private placements, we may make additional capital contributions to or make loans to our existing or new mainland China subsidiaries, or acquire entities with operations in mainland China in transactions consummated outside of mainland China. However, most of these uses are subject to PRC regulations. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-PRC regulations on loans to and direct investment in mainland China entities may delay or prevent us from using the proceeds of any financing conducted outside of mainland China to make loans or additional capital contributions to our mainland China subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

A majority of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade- and service-related foreign exchange transactions, without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC wholly foreign owned enterprises are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.

Operating activities

Net cash generated from operating activities in 2024 was RMB121,929.3 million (US$16,704.2 million), as compared to net income of RMB112,434.5 million (US$15,403.5 million) in the same period. The difference was primarily due to an increase of RMB13,781.2 million (US$1,888.0 million) in accrued expenses and other liabilities and an increase of RMB16,885.2 million (US$2,313.3 million) in payable to merchants, partially offset by an increase of RMB21,356.7 million (US$2,925.9 million) in short-term investments. The increases in accrued expenses and other liabilities and payable to merchants were primarily attributable to our business expansion and the increase of number of merchants on our platforms.

Net cash generated from operating activities in 2023 was RMB94,162.5 million, as compared to net income of RMB60,026.5 million in the same period. The difference was primarily due to an increase of RMB34,258.2 million in accrued expenses and other liabilities and an increase of RMB11,623.1 million in payable to merchants, partially offset by an increase of RMB13,857.0 million in short-term investments and an increase of RMB3,326.4 million in receivables from online payment platforms. The increases in accrued expenses and other liabilities and payable to merchants were primarily attributable to our business expansion and the increase of number of merchants on our platforms. The principal non-cash items affecting the difference between our net income and our net cash generated from operating activities in 2023 were RMB7,078.8 million in share-based compensation expenses.

Net cash generated from operating activities in 2022 was RMB48,507.9 million, as compared to net income of RMB31,538.1 million in the same period. The difference was primarily due to the increase of RMB1,480.7 million in merchant deposits, and an increase of RMB7,004.0 million in accrued expenses and other liabilities, partially offset by an increase of RMB2,068.7 million in amounts due from related parties. The increase in merchant deposits and accrued expenses and other liabilities was primarily attributable to our business expansion and the increase of number of merchants on our platforms. The principal non-cash items affecting the difference between our net income and our net cash generated from operating activities in 2022 were RMB7,718.4 million in share-based compensation expenses and RMB2,224.2 million in depreciation and amortization.

Investing activities

Net cash used in investing activities in 2024 was RMB118,356.0 million (US$16,214.7 million), primarily due to purchase of short-term time deposits, held to maturities and other investments of RMB210,272.8 million (US$28,807.3 million), purchase of long-term time deposits, held to maturities and other investments of RMB43,847.0 million (US$6,007.0 million) and purchase of available-for-sale debt securities of RMB13,733.0 million (US$1,881.4 million), partially offset by proceeds from sales of short-term time deposits, held to maturities and other investments of RMB147,287.7 million (US$20,178.3 million).

Net cash used in investing activities in 2023 was RMB55,431.3 million, primarily due to purchase of short-term time deposits, held to maturities and other investments of RMB147,131.7 million, purchase of long-term time deposits, held to maturities and other investments of RMB25,051.2 million and purchase of available-for-sale debt securities of RMB17,318.3 million, partially offset by proceeds from sales of short-term time deposits, held to maturities and other investments of RMB130,317.2 million.

Net cash used in investing activities in 2022 was RMB22,361.7 million, primarily due to purchase of short-term time deposits, held to maturities and other investments of RMB160,414.5 million, purchase of long-term time deposits, held to maturities and other investments of RMB6,795.8 million and purchases of available-for-sale investments of RMB3,581.9 million, partially offset by proceeds from sales of short-term time deposits, held to maturities and other investments of RMB141,928.4 million and proceeds from sales of long-term time deposits, held to maturities and other investments of RMB7,137.8 million.

Financing activities

Net cash generated from financing activities in 2024 was RMB1.2 million (US$0.2 million).

Net cash used in financing activities in 2023 was RMB8,960.6 million, primarily attributable to repurchase of convertible bonds of RMB8,968.8 million.

Net cash generated from financing activities in 2022 was RMB10.1 million.

Material cash requirements

Our material cash requirements as of December 31, 2024 and any subsequent interim period primarily include our capital expenditures, convertible bonds obligations, operating lease commitments and investment commitments.

Our capital expenditures are primarily incurred for purchases of computer equipment relating to the operation of our platforms, furniture, office equipment, leasehold improvements and software. Our capital expenditures were RMB635.7 million in 2022, RMB583.9 million in 2023, and RMB967.1 million (US$132.5 million) in 2024.

Our convertible bonds obligations represent our principal payments. Please see "convertible bonds" under Note 10 to our audited consolidated financial statements. As of December 31, 2024, the aggregate amount of payments due under our convertible bonds obligations amounted to RMB5,309.6 million (US$727.4 million).

Our operating lease commitments mainly represent our obligations for leasing offices and warehouses, which include all future cash outflows under ASC Topic 842, Leases. Please see "Leases" under Note 7 to our audited consolidated financial statements. As of December 31, 2024, the aggregate amount of payments due under our operating lease commitments amounted to RMB5,599.4 million (US$767.1 million).

Our investment commitments primarily relate to capital contributions obligation under certain arrangement which does not have contractual maturity date. As of December 31, 2024, the aggregate amount of our investment commitments amounted to RMB115.2 million (US$15.8 million).

We intend to fund our future capital expenditures with anticipated cash flows from operations, our existing cash balance and short-term investments. We will continue to make cash commitments, including capital expenditures, to meet the expected growth of our business.

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position.

Holding Company Structure

PDD Holdings Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries, the VIE and its subsidiaries. As a result, PDD Holdings Inc.'s ability to pay dividends may depend partially upon dividends paid by our subsidiaries. If our existing subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our mainland China subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our mainland China subsidiaries, the VIE and its subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, our mainland China subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to a staff welfare and bonus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by our PRC wholly foreign owned enterprises is subject to examination by the banks designated by SAFE. Our mainland China subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

C.	Research and Development, Patents and Licenses, etc.

See "Item 4. Information on the Company-B. Business Overview-Technology" and "-Intellectual Property."

D.	Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period since January 1, 2025 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.

E.	Critical Accounting Estimates

For our critical accounting estimates, see "Item 5. Operating and Financial Review and Prospects-A. Operating Results-Critical Accounting Policies and Estimates."

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