Pinduoduo Prepares to Sacrifice Short-Term Profits for Long-Term Development
On August 26, Pinduoduo released its second-quarter financial results for 2024, covering the period ending June 30. The company reported total revenue of 97.06 billion yuan, an impressive year-on-year increase of 86%, but this fell short of market expectations of 99.985 billion yuan. Additionally, the net profit attributable to Pinduoduo‘s common shareholders reached 32.01 billion yuan, reflecting a remarkable growth rate of 144%.
However, the disappointing revenue figures, coupled with management’s proactive acknowledgment of “risk” factors, led to a dramatic decline in Pinduoduo‘s stock price, which plummeted over 26% at the U.S. market opening, with shares dipping as low as $102.80.
Throughout the financial report and the subsequent earnings call, Pinduoduo‘s management consistently highlighted that the significant slowdown in revenue growth was primarily due to intensified competition and external challenges. They warned that, looking ahead, the company’s revenue growth and profitability would likely face ongoing pressure.
“The platform has reached a substantial scale, and improving our ecosystem is not something that can be achieved overnight. The management team has come to a consensus and is prepared to sacrifice short-term profits for long-term investments,” stated Chen Lei, Chairman and Co-CEO of Pinduoduo.
The main reason for the revenue shortfall was the slowdown in income from Pinduoduo‘s domestic platform. Specifically, for the second quarter, revenue from online marketing services and other services (such as advertising) was 49.12 billion yuan, reflecting a year-on-year growth rate of just 29%. In contrast, transaction service revenue (commissions) soared to 47.94 billion yuan, marking a staggering year-on-year increase of 234%.
Investors have grown accustomed to high expectations for Pinduoduo‘s rapid growth. In the previous quarter, the growth rate for advertising revenue was 56%, and it was 57% the quarter before that. This quarter, however, the growth rate for this segment was halved to 29%, indicating a significant decline.
During the earnings call, Zhao Jiazhen, Executive Director and Co-CEO of Pinduoduo, emphasized that competition in the e-commerce sector has intensified over the past few quarters. In this fiercely competitive environment, the company’s revenue growth may slow, suggesting that such high growth rates are unsustainable. As consumer preferences diversify, various e-commerce platforms are adjusting their strategies, each leveraging their own resources and strengths.
Previously, many domestic e-commerce platforms had adopted Pinduoduo‘s low-price strategy, but following the 618 shopping festival, the effectiveness of this approach diminished. Platforms like Taotian and Douyin have since stepped back from the “low-price war,” shifting their focus back to increasing GMV (Gross Merchandise Volume) and optimizing investments in user rights, services, and merchant strategies. As competitors lower their prices, Pinduoduo inevitably faces increased pressure.
On a more positive note, Pinduoduo‘s commission revenue growth continues to outpace that of its advertising business, with the overall scale of commission revenue approaching that of advertising. The “transaction service” revenue primarily consists of income from Temu, commissions from Duoduo Grocery, and some domestic commissions, with most of the growth attributed to Temu’s performance. However, Temu currently shows no signs of profitability, serving mainly as a potential growth driver to enhance investor expectations.
During the earnings call, Chen Lei described the company’s globalization efforts as facing “greater uncertainty.” Although Duoduo Cross-Border has expanded into over 70 countries and is continuously evolving, external competition is also increasing. Additionally, abnormal business factors are becoming more prevalent, leading to heightened uncertainty in future business development and a likely gradual slowdown in revenue.
Chen Lei noted that Pinduoduo has entered a new investment phase, emphasizing that improving the ecosystem is a long-term endeavor. The management team is united in its commitment to sacrificing short-term profits for the sake of long-term growth. Moving forward, Pinduoduo plans to continue investing in building its platform ecosystem through a dual approach of “strong support” and “decisive governance.”
