Market Overview

Chinese E-Commerce Newbie Pinduoduo: What Makes It Tick?

Chinese E-Commerce Newbie Pinduoduo: What Makes It Tick?

Pinduoduo Inc (NASDAQ: PDD) is the latest Chinese e-commerce sensation in the spotlight due to superlative growth in its three years of existence.

Despite the highly consolidated nature of the Chinese e-commerce market, the startup has exhibited enough spine to not only thrive, but grow at a scorching pace.

The Business

Pinduoduo is a company that has pioneered an e-commerce concept that allows buyers to make purchases directly on its platform or through popular social networks such as Weixin and QQ, according to TechNode. 

Users are encouraged to share product information on social networks and invite friends, family and social contacts to shop as a team — and receive more attractive pricing.

What makes the platform a hit with buyers are the heavy discounts the platform offers — as high as 90 percent, according to TechNode. 

Pinduoduo differentiates itself from Alibaba Group Holding Ltd (NYSE: BABA)-owned Taobao in that the former's focus is on a relative few bestsellers that are chased by buyers, while the latter has more products listed.

Pinduoduo ships products directly from manufacturers, effectively eliminating the middleman and associated costs.  

Eye-Popping Growth

The gross merchandise value for the 12-month period ended June 30, 2018 increased 583 percent year-over-year to 262.1 billion yuan, Pinduoduo said in its second-quarter earnings report in August.

The 100-billion-yuan GMV milestone was achieved in about 2 1/2 years, while bigger rivals Taobao and JD.Com Inc (NASDAQ: JD) hit the mark in about five years, according to Statist, which cited data from Coresight Research.

Revenue grew a whopping 2,489 percent year-over-year to 2,709 million yuan in Q2. The non-GAAP net loss per share widened from 0.24 yuan to 1.40 yuan.

Monthly active users climbed 495 percent to 195 million in Q2. Active buyers rose 245 percent to 343.6 million, and annual spending per user climbed 98 percent to 762.9 yuan in the 12-month period ended June 30, 2018.

Infographic: Pinduoduo: China's fastest growing social e-commerce app | Statista

Source: Statista

It's no wonder that Pinduoduo has attracted investments from companies such as TENCENT HOLDING/ADR (OTC: TCEHY), which holds a 33.4-percent stake.

US Market Entrance 

Pinduoduo sought a U.S. listing by offering 85.6 million ADRs representing 342.4 million Class A ordinary shares at a price of $19 per ADR.

The ADRs were listed July 26 on the Nasdaq and closed their debut session with a 40-percent gain over the IPO price. 

From a closing high of $28.18 Oct. 1, the ADRs have pulled back with the rest of the tech sector amid a broader market downturn. 

In mid-September, Goldman Sachs initiated coverage of Pinduoduo ADRs with a Buy rating and $31.9 price target.

The next catalyst is likely to be the company's earnings release, set for Nov. 20 before the market open. 

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