Chinese social e-commerce upstart Pinduoduo announced on Wednesday it is planning to offer convertible debt up to $1 billion as it seeks to fund a rapid expansion into higher-tier domestic markets.
Why it matters: The fast-growing e-commerce platform is looking to raise more cash to cover rising expenditures amid intensifying competition, China’s slowing economy, and trade tensions with the US.
- Pinduoduo had 366 million average monthly active users in the second quarter, an increase of 88% from 195 million in the same quarter of 2018 and faster than Alibaba’s 19% year-on-year growth seen in the same period.
- To maintain growth, Pinduoduo spends heavily on marketing and discounts. During this year’s 618 shopping festival in June, Pinduoduo launched a joint “RMB 10 billion” subsidy plan with partners including premium brands like Dyson, Boss, Apple, and Sony.
- The company quickly gained traction in lower-tier cities with its budget-conscious products, but is expanding to tier one and two cities, which rose to 48% of Pinduoduo’s total GMV in June from 37% in January. While the higher tier city markets present significant opportunities, the landscape is much more competitive.
“The Company plans to use the net proceeds from the Notes Offering to enhance and expand its business operations, for research and development, to continue to invest in and develop its technology infrastructure, and for working capital and other general corporate purposes.”
—Pinduoduo in a statement filed to the SEC
Details: The company is offering $875 million in convertible senior notes, with the option for initial buyers to purchase an additional $125 million bond within 13 days, bringing the total offering potentially as high as $1 billion.
- The company did not disclose a conversion price.
Context: The company made a secondary share offering in February with the goal of raising $1 billion, after a $1.6 billion initial public offering last summer.
- The company more than doubled it operating losses to RMB 1.49 billion compared with RMB 6.64 million in the same quarter in 2018.
- Pinduoduo shares dropped 8.4% to $30.99 apiece as of publication.