By CHENG Lu
Formerly a mainly agricultural marketplace, Pinduoduo’s shares surged 24 percent on the news that the company made 31.4 billion yuan in Q2 - 8.9 billion in profit. Shares closed up 14 percent at US$66.04 (455.3 yuan).
Commissions and other charges on sellers and buyers more than doubled, while online marketing grew 39 percent. The company is winding down direct sales to become a pure marketplace.
Keep the customer satisfied
Vice President LIU Jun conceded that the 107 percent increase in commissions shouldn’t be taken at face value as “the business cycle does not always match exactly to our quarterly financial reporting cycle.” Nevertheless, the overall 49 percent revenue increase in marketplace-related businesses is better than Alibaba and JD.com did in the same quarter.
The financial statement highlighted sales in consumer electronics and cosmetics during the 618 sales festival, traditionally the strengths of the Big Two. Both categories more than doubled their sales from last year.
Pinduoduo, like other big internet companies, has passed the stage in which it single-mindedly pursued growth, and will focus on how to better serve the existing 880 million users instead.
Pinduoduo was infamous for rounding up new users at any cost but there has been a conscious effort to control costs and improve profitability. Operational costs as a percentage of total revenue dropped from 57 percent. The 9 percent increase in marketing expenses was much lower than the 36 percent increase in total revenue. Operating profit (from core businesses) was 8.7 billion yuan, more than four times of that of Q2 last year, and at a gross margin of almost 75 percent. Marketing now takes up 36 percent of revenue, the lowest in the company’s short history. R&D spending in Q2 increased 12 percent to 2.6 billion yuan.
Follow the money
The market is closely watching Pinduoduo’s planned entry into the US. Pinduoduo is a young company looking for new opportunities. Other similar companies have done well overseas abroad.
Pinduoduo had 19.3 billion yuan of cash as of Q2 – it had 7.3 billion this time last year – a decent amount for expansions. HR has reportedly headhunted several senior SHEIN staff and a partnership with courier J&T Express’ new cross-border e-commerce service is in the offing. A brochure to sellers says there will be no initial charge and no commission to onboard. Like SHEIN, Pinduoduo will likely handle sourcing, pricing and logistics.
