Shares of Chinese social e-commerce platform Pinduoudo sank more than 20% in pre-market trading after the company posted weaker-than-expected third quarter earnings on Wednesday.
Why it matters: After a strong Q2, the social e-commerce upstart’s rapid growth is slowing in the face of intensifying competition from rivals which are pushing aggressively into China’s lower-tier markets, Pinduoduo’s core customer base.
- While both Alibaba and JD consider lower-tier regions the driver for revenue growth, Pinduoduo is also trying to expand its presence in higher-tier cities.
“Contrary to what most people’s misconception is of our platform, our users from first-tier cities are spending well over RMB 5,000 ($710), based on annualized 2019 Q3 spending.”
–Pinduoduo founder and CEO Colin Huang during the third-quarter earnings call
Details: The company’s total revenues increased 123% year on year to RMB 7.51 billion ($1.05 billion) in Q3 this year from RMB 3.37 billion in the same quarter of 2018, missing the analyst consensus estimate of $1.06 billion compiled by Yahoo Finance.
- Buyer growth is still robust. Pinduoduo’s monthly active users (MAU) jumped 85% year on year to 429.6 million in Q3 and rose 17.3% on a sequential basis from 366.0 million in Q2. It outpaced Alibaba’s 17.9% year-on-year jump in MAU but still falls well short of Alibaba’s 785 million total MAU as of the end of the quarter.
- Total cost of revenues were RMB 1.83 billion ($256.5 million), an increase of 137% from RMB 774.7 million in the same quarter of 2018. The increase was mainly due to higher costs for cloud services, and call center and merchant support services.
- Net losses more than doubled in Q3 to RMB 2.34 billion from RMB 1.10 billion in the same year-ago period.
- “Intensified” forced exclusivity efforts from rivals has had a “material impact” on the company, it said in a statement sent to TechNode, referring to pressure from shopping marketplaces on sellers to have stores on only one platform. More than 1,000 brand flagship stores were “affected,” and more than 10,000 small and micro merchants were forced to choose sides, it said.
- Monopolistic behavior makes sellers dependent on one platform’s traffic, and expose them to any unfair practices like commission rate hikes, resulting in higher prices for consumers, the company said.
- There were 220 million daily active users (DAU) on Pinduoduo’s platform during this year’s Singles Day shopping festival, second only to Taobao’s 460 million DAU, according to data intelligence firm QuestMobile.
Context: China’s market regulator addressed more than 20 e-commerce players earlier this month at a forum in Hangzhou, saying that forcing businesses into exclusive agreements with one marketplace is illegal.
Forcing sellers into exclusivity deals on marketplaces is illegal: regulator
Update: This story has been updated with net losses as stated in the company’s filing.