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author: pastoral

editor丨nuts

cover source: unsplash

huang zheng, who had just been crowned china's richest man, encountered his biggest waterloo in the past two years.

on august 26, eastern time, pinduoduo experienced a significant decline in the u.s. stock market.the single-day drop reached a staggering 28.51%, and even exceeded 30% at one point during the trading session, setting the largest single-day drop since its listing.

as of the close of the u.s. stock market that day, pinduoduo's daily trading volume was us$10.508 billion, and its overall market value evaporated by more than us$55 billion. at the close of the market, it had dropped to us$138.877 billion, and its market value lagged behind alibaba by nearly us$53 billion.

as one of the few chinese stocks and internet companies that have performed well in the u.s. stock market in the past two years, pinduoduo's sudden stock price plunge has had a huge impact, with a daily trading volume of more than us$10 billion, second only to nvidia and tesla on the nasdaq.

as it coincides with the earnings season, pinduoduo's stock price collapse is also seen as related to the second-quarter financial data just released. according to the financial report, in the second quarter of this year, pinduoduo's total revenue was 97.06 billion yuan. although it still grew by 86% year-on-year, it was lower than the market expectation of 99.99 billion yuan.

however, considering that pinduoduo's growth rate in the first two financial reporting quarters was too "explosive", it is understandable that the market has too high expectations for its growth rate, but this reason is obviously not enough to cause pinduoduo to lose us$55 billion in market value overnight.

the deeper reason comes from the investor meeting after the financial report was released, where pinduoduo chose to "short" itself.

1

the financial report is not explosive but still excellent

looking at pinduoduo's second-quarter financial report data, although the overall quality is far not as "explosive" as in the previous two quarters, it can still be regarded as an excellent quarterly report compared with the global internet industry.

in terms of overall revenue,pinduoduo achieved revenue of 97.06 billion yuan in the second quarter, compared with 52.281 billion yuan in the same period last year, an increase of 86%.although it is lower than the market expectation of 99.985 billion yuan, the growth rate is still far ahead among competitors of the same level.

especially compared with the two giants jd.com and alibaba, the latter two's revenue growth in the most recent quarter was only 1.2% and 4%, which is almost stagnant.

in the previous three quarters, pinduoduo's revenue growth rate was 94%, 123% and 131% year-on-year respectively. it almost completed the ten-year journey of alibaba and jd.com in just one year. although the growth rate has slowed down now, it has only declined compared with its own performance.

in terms of net profit, pinduoduo once again ushered in a bumper quarter, with net profit attributable to pinduoduo's ordinary shareholders of 32.0094 billion yuan, a year-on-year increase of 144%; not calculated in accordance with us gaap, net profit attributable to pinduoduo's ordinary shareholders was 34.4321 billion yuan, a year-on-year increase of 125%.

looking at specific businesses in detail, pinduoduo's main underperforming business segment in the second quarter came from advertising. according to the financial report, pinduoduo's revenue from online marketing services and other services (advertising) in the second quarter was 49.1 billion yuan, a year-on-year increase of 29%, lower than analysts' expected growth rate of 40%, and a significant slowdown from the year-on-year growth rates of 56% and 57% in the previous two quarters.

considering that the second quarter included the important e-commerce node of the "618 promotion", the slowdown in the revenue growth of the advertising business may reflect that merchants are becoming more cautious in their advertising investment on pinduoduo.

in addition, temu (a cross-border e-commerce platform under pinduoduo), which has been in the limelight in the past year, has gradually flattened its growth curve after experiencing rapid expansion in the early stage.

during the earnings call, chen lei, chairman and co-ceo of pinduoduo group, said that the globalized business is facing a more severe and rapidly changing international environment, business operations are more interfered with by abnormal business factors, the uncertainty of future business development has increased significantly, and a gradual slowdown in revenue will be an inevitable result.

although chen lei's remarks expressed his concerns about the uncertainty of future performance, from a basic business logic perspective, they did not constitute a major negative factor that caused pinduoduo's stock price to plummet. what really made investors uneasy was chen lei's statement on future dividends and investment returns.

2

no dividends in the next few years

during pinduoduo's second quarter earnings call, analysts talked about shareholder returns and asked pinduoduo's management whether it had plans for stock repurchases or dividends?

in response to this, chen lei said: "in terms of shareholder returns, the company is still in the investment stage. we are facing fierce competition in all aspects and uncertainties from external factors.therefore, my management team and i agree that now is not the right time to repurchase shares or pay a dividend, and we do not foresee the need to do so for the foreseeable next several years.”

in addition, chen lei also said:“the company’s profit growth over the past few quarters is the result of a short-term desynchronization between its input cycle and its financial reporting cycle and should not be viewed as a long-term trend.”

on the one hand, pinduoduo clearly told shareholders that there would be no investment dividends in the next few years, and on the other hand, it implicitly admitted that future profit growth would slow down. these two pieces of heavy news coming from the mouth of pinduoduo's co-ceo would inevitably scare away a number of pinduoduo shareholders.

after all, in the us stock market, the last e-commerce giant to announce no dividends was amazon, and it did so for 20 years, but this was based on the fact that amazon had no book profit. pinduoduo's net profit for a single quarter was more than 5 billion us dollars. such an attractive pie is not allowed to shareholders, so it is inevitable that shareholders will vote with their feet.

if we compare them with us technology companies such as tesla, microsoft, and nvidia, although these companies have not paid dividends to shareholders for several consecutive years, the underlying logic is able to convince the capital market. since a large amount of r&d investment is required every year to maintain the competitiveness of their products, shareholders basically recognize the company's "investment in the future" approach.

back to pinduoduo, as a platform company connecting consumers and merchants, once the infrastructure is completed, the annual r&d costs will actually have a diminishing marginal effect.

holding huge profits in hand but only giving a light-hearted statement that "the company is still in the investment stage" is bound to cause a strong reaction from the market.

at present, the only major expenditure disclosed by pinduoduo is the reduction of transaction fees for high-quality merchants in the next few years, with an overall scale of about rmb 10 billion. however, considering that pinduoduo's current quarterly transaction service revenue (commission) is close to rmb 48 billion, these reduced fees will not have a significant impact on pinduoduo's overall profitability.

3

why did pinduoduo "slash itself"?

according to the usual practice of listed companies, if the performance and revenue levels during the earnings season are lower than outside expectations, company executives will inevitably give various reasons in the conference call to enhance investor confidence. even if it is just polite talk, they will not allow the sentiment of dumping the market to spread.

but pinduoduo seems to be doing the opposite. the statement made by the company's chairman chen lei in the conference call seemed to be that he wanted to squeeze out all the bubbles in pinduoduo's stock price, even if it meant directly cutting into the shareholders' direct profits.

it is difficult to say whether this approach is a problem with the executives’ way of expression or whether it is intentional.

considering that pinduoduo founder huang zheng’s personal net worth recently surpassed nongfu spring chairman zhong shanshan and became the new richest man in china, it is no wonder that some netizens joked,huang zheng didn't want to be the richest man, so he "actively" lowered pinduoduo's stock price.

however, from the perspective of pinduoduo's competitors, pinduoduo will not pay dividends or bonuses in the next few years, which means that this e-commerce upstart will have more cash flow. for pinduoduo, which has swept the market with low prices in the past few years, sufficient "ammunition" will also help it face market challenges with a more aggressive attitude.

in addition, in the past year, the relationship between pinduoduo and merchants has been at an extremely delicate stage. on the domestic main site, the "refund only" policy has made many merchants miserable, and on the overseas platform, there have been many negative incidents in which merchants collectively went to the temu office to defend their rights.

referring to the current situation that the growth rate of pinduoduo's advertising revenue slowed down significantly in the second quarter of this year, merchants' distrust of pinduoduo is gradually being reflected in the reality that they are unwilling to continue to pay money to pinduoduo.

since the second half of the year, platforms such as taobao and jd.com have also been revising their "refund only" policies. if pinduoduo chooses to follow suit, it will mean tearing down and rebuilding the platform rules that it has adhered to for many years, and the cost it will pay will inevitably be greater than that of jd.com and alibaba.

if pinduoduo continues to stick to the "refund only" policy, under current regulatory requirements, it will not only face the risk of merchants leaving, but may also suffer tremendous pressure from non-commercial levels.

it is foreseeable that in the next few years, if it continues to maintain a high growth rate, pinduoduo, which does not pay dividends, will very likely become the new "cash king" in the e-commerce industry. as for where the money will be invested and for whom it will be spent, these may be the issues that chen lei is really considering at the moment. as for the shareholders' selling and the plummeting stock price, these have probably been part of the plan for a long time.