Consumer Staples Author:Yue Liu Editor:Luke Sheehan Nov 16, 2020 05:52 PM (GMT+8)

After the release of its financial report, Pinduoduo's shares surged 20.41% to USD 134.21, and its latest total market value hit a record high.

Consumer

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On November 12, Pinduoduo released its 2020 third-quarter financial report. The third-quarter revenue exceeded CNY 14.2 billion, a year-on-year increase of 89%. Under Non-GAAP, Pinduoduo's net profit reached CNY 466.4 million, achieving quarterly profit for the first time. In the 12-month period to the end of September, the GMV of Pinduoduo's platform reached CNY 1,457.6 billion, an increase of 73% YoY.

Pinduoduo generated revenue mainly from commission and advertising for merchants. The financial report showed that the platform’s advertising revenue reached CNY 12.88 billion, a year-on-year increase of 92%. Commission revenue was CNY 1,332 million, which was an increase of 66% from CNY 802.5 million in the same period last year.

Driven by the tens of billions of subsidies, as of the end of September, Pinduoduo's annual active buyers reached 731.3 million, an increase of 36% year-on-year. The gap between Pinduoduo and Alibaba has been further narrowed to 20 million in terms of the number of users.

In the third quarter, Pinduoduo's sales and marketing expenses were approximately CNY 10.07 billion, an increase of 46% year-on-year. However, the marketing expense ratio (marketing expense/total revenue) was still as high as 70%, while the number of Alibaba was only 8%.

Compared to Alibaba's ARPU value of CNY 9075/year, Pinduoduo's ARPU is still below CNY 2,000. After the subsidy and money burning ends, retaining users and increasing ARPU is a long-term issue for Pinduoduo.

User growth has bottlenecked, so Chen Lei, the CEO of Pinduoduo, further increased investment in the new e-commerce ecosystem, especially the agricultural product value chain. Between 2017 and 2019, Pinduoduo's agricultural product turnover increased from CNY 19.6 billion to CNY 136.4 billion, with a CAGR of 163.8%. And its share of agricultural product network sales rose from 8.0% to 34.3%, becoming China's largest agricultural product platform.

Pinduoduo has launched a new community group buying business, 'Duoduomaicai,' which may further strengthen its supply chain and fulfillment capabilities. In 2020, giants gathered in the sector, including Didi, Meituan and Fresh Hema. Compared with Didi and Meituan, Pinduoduo's advantage lies in the agricultural product supply chain, but Pinduoduo still has many shortcomings, in terms of in-time delivery and fulfillment capabilities.