PDD Share Price Plunged after the Announcement of FPO Plan, Prospect Looks Positive Still

Feb 8th, 2019 /EqualOcean/ - The price for the shares offered in Pinduoduo Inc. (NASDAQ: PDD)'s FPO will be settled today. The company's share price plunged after the announcement of FPO three days ago, had not yet managed to climb back. At the time this article is being written, the company's share price was at USD 25.85, comparing to its 52 week high - USD 31.18 reached 6 days ago, decreased about 20.62%. EqualOcean believes the fear for the dilution effect due to FPO is the major factor to be blamed for the descent in share price, and it's only temporary. Analysts in EqualOcean feel optimistic about the prospects of the company's future and believes the share price will surge again very soon after the FPO.

Pinduoduo is a young Chinese E-commerce company established in 2014, went to IPO in 2018, and planned to launch follow-on offerings in February 2019. The company started as an online shopping site with exciting features of "shopping online while socializing with your friends", which locks an army of interests among people in Tier 2 and Tier 3 cities in China. After its incubation, the company started to wildly expand and became a huge success in its initially targeted market space. When the market was confused by its achievements and was trying to decipher the code behind its success, the company has begun to step on a new adventure: The company drew attention from customers living in Tier 1 cities about 2 years ago; According to QuestMobile and Cheetah Mobile, until August 2018, customers of the company from Tier 1 and Tier 2 cities in China accounted for about 50%. It has arguably copied its own success from a low-income benefiter to an E-commerce brand facing the high-income level groups in China.

During the 12-month period ended December 31, 2018, Pinduoduo platform's GMV(Gross Merchandise Value) reached USD 69.9 billion, an increase of 233.99% compared with the figure in the same period last year. The total order volume for the whole year exceeded 11.1 billion, compared with 4.3 billion in the same period last year. The average daily order volume increased from 11.8 million per day in 2017 to 30.4 million per day in 2018; the number of active platform buyer reached 418.5 million, a year-on-year increase of 173.7 million compared with the number in the same period last year.

According to EEO.com.cn, in December 2018, Pinduoduo achieved 109 million monthly activate users, ranked the first in mobile APP end, close to the total amount of the second, JD.com; third, Vipshop (唯品会) and the fourth, Zhuanzhuan (转转).

The company released its performance data last year the day the FPO plan was announced, the figures arguably showed the confidence in the company's further development. The company is raising money for two major new projects, namely the "New Brand Development Plan", and "Farmer Aiding Scheme", not because of urgent cash shortage. It's worthwhile to be mentioned that these two projects showcase the company's initiatives in promoting and helping quality and innovative national brands, as well as aiding the farmers in China to get rid of poverty through selling more farm produces through Pinduoduo's platform. Also, these two projects will be warmly welcomed and supported by the Chinese government; In a country where trading activities are strictly observed and regulated by its government, showing recognition and acceptance of the government's plans, as well as contribute wholeheartedly to it, will only do the company good.

Some may pose the question, is Pinduoduo doing charity work for the poor and undeveloped in China through the new public offering? While, to some extent, it probably is. Nevertheless, the company cannot simply survive on the logic of winning government's support but does not make efforts on finding its new competitive edge ahead of the increasingly fierce competition between Chinese E-commerce giants like JD.com, Alibaba (阿里巴巴) and Tmall (天猫). After close observation, these two projects have one similarity: Both of the two business models operate on extremely low costs. The company acquires low-cost farm produces and cheap but good products from factories which eager to promote their own brands but find no channels, then empower them with the platform's large customer volume. The company can get the largest amount of profit per item sold thanks to the low costs of these products, while helps the new brands and the farmers sell more products, hence aid them in earning more; Further, the company offers products on its platform, where customers could access to lower price comparing to other E-commerce sites, via group deals. The company's two new projects will benefit three parties at the same time: The producers or the manufacturers, the company itself, and the customers. How could these projects go wrong?  

However, possibly due to the fear for the dilution effect because of the further offering; The company's share price dipped and still had not managed to come back. But according to FINVIZ.com, the company is estimated to reach USD 32.44 over the next 12 months.

The Motley Fool suggested secondary offerings don't always result in dilution, especially if a company is particularly popular. EqualOcean believes though fear for dilution dominates the market temporarily, and later the dilution may reveal its true form, but all these will be gone very soon, Pinduoduo's share will rise rapidly again in the near future.