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The capital market didn't buy into Pinduoduo's account. On August 27, according to Wind data, Pinduoduo's market value evaporated by nearly 1/3, to $138.8 billion, and its U.S. stock closed down 28.51% at $100 per share. Compared with Alibaba and JD.com, Pinduoduo's quarterly performance growth was impressive, but the release of this beautiful second quarter 2024 financial report triggered a "earthquake" in the stock price drop in a single day.

This abnormal performance has caused a lot of discussion among investors. "Profit decline is inevitable", "no repurchase or dividends in the next few years", "uncertainty in the external environment"... Why did Pinduoduo's management choose to "brutally attack" investors in this way?

“Profits will gradually decline”

Recently, Pinduoduo dropped a series of heavy "bombs" at the second quarter 2024 financial report meeting. According to the statement made by Zhao Jiazhen, executive director and co-CEO of Pinduoduo Group, to investors, Pinduoduo's revenue growth will slow down and profits will gradually decline. At the same time, Pinduoduo will not consider repurchases or dividends in the foreseeable future.

According to Zhao Jiazhen's explanation, the slowdown in revenue is because Pinduoduo's current business is facing fierce competition and some external environmental factors, which will inevitably bring fluctuations to the company's business development. Secondly, in order to support the sustainable development of the platform ecology, Pinduoduo will increase its investment and support high-quality merchants in the next 12 months. Although short-term profits cannot be ruled out to fluctuate, the general trend of gradually declining profits is inevitable.

As for Pinduoduo's decision not to consider repurchase or dividends, Zhao Jiazhen believes that the company is still in the investment stage and its business is facing fierce competition in multiple dimensions and uncertainties brought about by the external environment.

As soon as the above judgment came out, Pinduoduo's stock price immediately plunged. Wind stock data showed that before the opening of the U.S. stock market on August 26, Pinduoduo's stock price fell by more than 10%. After the opening of the U.S. stock market, Pinduoduo's stock price once fell below $100 to $96.24, a drop of more than 30%. By the close of trading, Pinduoduo's stock price fell by 28.51%.

"The main reason for the sharp drop in Pinduoduo's stock price is that investors have drawn very clear conclusions from the management, confirming their previous concerns about Pinduoduo's future performance." He Nanye, a special researcher at Xingtu Financial Research Institute, told the Beijing Business Daily that these concerns include the weakening of residents' consumption desire, and it is becoming increasingly difficult for Pinduoduo to maintain rapid growth. In addition, the e-commerce market is a competition for existing traffic and customers, and Pinduoduo is also difficult to avoid the impact of short video platforms. These factors have led to a decline in Pinduoduo's competitiveness, which in turn affects profits.

He Nanye believes that the management has expressed its judgment on the company's future strategy and performance growth in a pragmatic manner, and has explained the company's future growth model and profit model from a business perspective, which is reasonable. As for changes in investor valuations and stock price trends, that is a matter for the capital market.

Entering a period of transformation

In fact, in previous quarterly financial reports, Pinduoduo has repeatedly mentioned that "profit growth is the result of the asynchrony between the short-term investment cycle and the financial reporting cycle, and cannot be used as a long-term guide." At that time, a person familiar with Pinduoduo told the Beijing Business Daily reporter that the company did not want to emphasize the growth rate of revenue and profits and wanted to keep a low profile.

Compared with the financial reports of Alibaba and JD.com, Pinduoduo is indeed more impressive. In the second quarter of 2024 alone, Pinduoduo's revenue was 97.06 billion yuan, a year-on-year increase of 86%; net profit attributable to ordinary shareholders was 32.01 billion yuan, a year-on-year increase of 144%. During the same period of the financial report, the revenue growth rates of Alibaba and JD.com slowed down, increasing by 4% and 1.2% year-on-year respectively. JD.com's net profit attributable to its parent company increased by 69% year-on-year, while Alibaba's net profit decreased by 27% year-on-year.

However, from the perspective of specific business, Pinduoduo's growth rate has slowed down. In the fourth quarter of 2023, Pinduoduo's online marketing service and transaction service revenues increased by 57% and 357% year-on-year, respectively. In the first quarter of 2024, these two indicators increased by 56% and 327% year-on-year. Then, in the second quarter of 2024, the growth rate of the two indicators continued to slow down, increasing by 29% and 234% year-on-year. In addition, Pinduoduo's revenue in the second quarter of this year did not meet the market expectation of 99.99 billion yuan.

"The correction of the stock price is still related to the performance that is lower than expected and the slowdown in growth." Shen Meng, director of Xiangsong Capital, told the Beijing Business Daily reporter that the slowdown in Pinduoduo's growth is actually an inevitable trend. "The capacity of the e-commerce market is actually visible. To maintain the original growth rate, the cost will become higher and higher, and the growth rate will be correspondingly depreciated. Under such a premise, for Pinduoduo, the slowdown in growth momentum is a change that will occur sooner or later."

Therefore, in order to boost shareholders' confidence in e-commerce business, Alibaba and JD.com have repurchased a large number of shares this year. According to the announcement released by Alibaba in August, the company repurchased 613 million common shares for US$5.8 billion in the first half of the year. On August 27, JD.com announced that the board of directors had approved a new share repurchase plan, which allows the company to repurchase shares (including American depositary shares) worth no more than US$5 billion in the next 36 months ending at the end of August 2027.

"Pinduoduo has actually entered a period of transformation, but its growth momentum is still obvious compared to other domestic e-commerce platforms. If it repurchases shares now, it will not bring better returns to investors." Shen Meng explained that from the perspective of other e-commerce companies, stock repurchases may be because they have encountered certain pressures and resistance on the business growth side, and the stock has experienced a large and long-term correction. Repurchases are also a means for companies to demonstrate their confidence in future growth.

Facing competition

Compared with its peers who are actively proving their improving performance to investors, Pinduoduo's management's approach of "pouring cold water" on the capital market also reflects, to a certain extent, the anxiety and pressure that companies are difficult to get rid of in the current market competition.

In addition to the competition from domestic e-commerce price competition, Pinduoduo's cross-border business TEMU is also under pressure to expand overseas. It is understood that the current TEMU business has entered more than 70 markets. Chen Lei, chairman and co-CEO of Pinduoduo Group, said that with the development of the business, the company feels that the changes in the external environment are accelerating, and the business operations are increasingly disturbed by abnormal commercial factors, and uncertainty has increased significantly.

Although Pinduoduo did not disclose the specific data of TEMU in its financial report, it is undeniable that TEMU is still maintaining a rapid expansion overseas. Guosen Securities estimates that TEMU's GMV in the first quarter of this year exceeded US$13 billion. In terms of GMV for the whole year, SPDB International expects TEMU's annual GMV to exceed US$40 billion, while Bocom International predicts that TEMU's annual growth will exceed 200%.

However, the future development of TEMU is still full of uncertainty. In addition to dealing with the impact of policy changes in different countries and markets and adjusting business strategies in a timely manner, in July this year, it was revealed that TEMU’s Guangzhou headquarters was repeatedly besieged by merchants. The dispute between merchants and the platform also seems to imply that Pinduoduo still has many contradictions to resolve under its rapid growth.

"For Pinduoduo, during the transformation process, investors may gradually pay more attention to the company's revenue and costs." Shen Meng said that one of Pinduoduo's most important issues at present is to develop a healthy and sustainable profit model as soon as possible.

On August 26, in order to further deepen the platform's ecological construction, Pinduoduo announced that it would invest 10 billion yuan in resources to support new merchants and launch a transaction fee reduction plan. In the next year, it is expected to reduce 10 billion yuan in transaction fees for high-quality merchants. Currently, Pinduoduo has launched a refundable rights for resource position technology service fees and promotion software service fees to merchants.

Beijing Business Daily reporter He Qian and Qiao Xinyi