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Pinduoduo Shares Jump as Post-Covid Spending Lift Sales by 89%

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Coco Liu
·3 min read
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(Bloomberg) -- Pinduoduo Inc.’s revenue rose a better-than-expected 89% as the shift toward online shopping continued in post-Covid China, benefiting the e-commerce upstart. The shares surged roughly 16% in pre-market trading in New York.

The Shanghai-based company logged sales of 14.2 billion yuan ($2.14 billion) in the September quarter, surpassing the 12.2 billion yuan average of estimates. Its net loss attributable to ordinary shareholders narrowed to 784.7 million yuan from 2.3 billion yuan a year earlier, though it remained in the red largely due to the hefty subsidies Pinduoduo spent to acquire new shoppers as well as keep existing ones. Gross merchandise value rose 73%, the slowest pace since the company went public in 2018.

The strong results helped to reassure investors after Beijing this week unveiled new antitrust guidelines governing the internet sector, sparking a $290 billion selloff. Shares of Pinduduo -- China’s third-largest ecommerce platform after Alibaba Group Holding Ltd. and JD.com Inc. -- dropped in tandem with its Chinese peers, though they have since recouped all the losses. China’s antitrust watchdog on Tuesday released a set of detailed guidelines to curb unfair competition such as sharing of sensitive consumer data, alliances that squeeze out smaller rivals and subsidizing services at below cost to edge out competitors.

What Bloomberg Intelligence Says

Pinduoduo’s operating losses may widen sequentially as it steps up marketing and promotion activities to acquire more customers, and to drive more purchases from their existing base. Sales growth may stay very strong as the company continues to increase the monetization of its new users.

-- Vey-Sern Ling and Tiffany Tam, analysts

Click here for the research

Co-founded by former Google employee Colin Huang in 2015, the Groupon-like shopping app has quickly built a large user base, especially in smaller towns and rural China, thanks in part to generous discounts. In an attempt to shake off its reputation as a purveyor of low-end products, the company in April sold new iPhone SE handsets for less than the official price. It also clashed with Tesla Inc. in August, when it offered Model 3 Sedans at a discount.

Under the new antitrust rules, platform operators will no longer be allowed to lure in users with price wars, a move that may force Pinduoduo to stop offering huge subsidies to gain market share.

”We are aware of the regulation and we are looking into it,” said David Liu, vice president of Pinduoduo, in an interview on Thursday. “We have always operated in compliance with regulations,” he added.

Still, some analysts expect Pinduoduo to benefit from the policy change in the long run. “After the antitrust rules, Alibaba’s capability to offer exclusive merchants on its platforms would be diminished,” Morningstar Inc. said in a research note before the results. “Smaller platforms could take advantage,” the note said, without naming specific companies.

Gross merchandise value rose to 1.46 trillion yuan in the three months ended September from a year earlier. Average monthly active users rose to 643.4 million, up from 568.8 million in the previous quarter.

PDD has stepped up its attempt to gain a larger slice of multi-billion-dollar online grocery market, the next frontier of China’s e-commerce war. While efforts to sell more fruits, vegetables and other fresh produces will likely boost sales in the long run, the company may struggle to turn a profit in the near term, due to increased expenditure on logistics and supply chain.

“The company might stay loss-making this year as user growth, boosting purchase frequency, and expanding agricultural products remain top priorities,” CLSA said in a Nov. 1 research report.

(Updates with share price in first paragraph, executive’s comments in sixth paragraph)

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