Pinduoduo suffers US$11 billion slump in value after big loss

November 21, 2019 15:29
Pinduoduo saw its operating costs more than double in the third quarter as it pursued a strategy of wooing wealthier consumers in big cities while maintaining its lead in less urban towns. Photo: Reuters

Chinese e-commerce firm Pinduoduo posted a quarterly loss that is much wider than expected as it fought bigger rivals with heavy subsidies, driving its shares down by nearly a quarter and wiping almost US$11 billion off its value, Reuters reports.

Operating costs more than doubled in the third quarter ended Sept. 30 as the company pursued a strategy of wooing wealthier consumers in big cities while maintaining its lead in less urban towns.

That has pitched the four-year-old startup against deep-pocketed incumbents such as Alibaba and, which are aggressively expanding in rural areas.

“We continued to invest in our users throughout the third quarter, and stepped our marketing up a notch from the second half of September,” chief executive Huang Zheng said in a statement on Wednesday.

Huang, who owns about 45 percent of Pinduoduo and suffered a paper loss of about US$5 billion in the stock’s post-results tumble, defended the subsidies as a worthwhile investment to help expand Pinduoduo’s user base and boost engagement in its app.

Before Wednesday, the shares had nearly doubled this year as investors liked the company’s deep-discounting model that offers group-buying deals on grocery and generic products like toilet paper.

It also offered aggressive discounts on brand-name products throughout the year via its so-called 10 billion yuan subsidy campaign.

“Exploding marketing expense is consuming the company,” said Brock Silvers, managing director at Hong Kong-based Adamas Asset Management.

“Investors are rejecting management’s explanation of rising costs as mere investment, and instead see a possible wobbly business model in competition with larger, better funded rivals.”

The company posted a loss of 1.44 yuan per American depositary share, excluding one-time items, compared with the analysts’ estimate of a 0.53 yuan per ADS loss.

Still, some analysts were impressed with the results. They noted Pinduoduo’s 123 percent revenue growth in the quarter and a 75 percent surge in annual spending per active buyer this year through September versus the year-ago period.

Annual active buyers by the end of September reached 536.3 million, up 39 percent from a year ago, putting Pinduoduo within reach of Alibaba, which reported active users at 693 million earlier this month.

Huang talked up Pinduoduo’s rapid increase of users in bigger cities, saying they were spending well over 5,000 yuan (US$710.71) a year as the company has started selling pricier products such as Dyson hair dryers and La Mer facial creams.

Subsidies on these higher-end brands attracted wealthier customers to Pinduoduo’s platform, helping it move away from the image of one “selling cheap stuff”, said Natalie Wu, who tracks China’s tech sector at investment bank China International Capital Corporation.

“We think Pinduoduo, in fact, did pretty well in the quarter and we see business has developed very solidly.”

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