With the overall e-commerce market still in the doldrums, Pinduoduo handed over a “bright” performance growth report.

On March 20, Pinduoduo released its financial report for the fourth quarter and full year of 2022 as of December 31. The financial report shows that Pinduoduo Group’s revenue in the fourth quarter of last year was 39.8 billion yuan, a year-on-year increase of 46%. The annual revenue was 130.6 billion yuan, a year-on-year increase of 39%.

You must know that during the same period, the revenue growth rates of Ali and JD.com were only single digits. Not long ago, Ali and JD.com released Q4 financial reports one after another. Among them, Ali’s revenue in the fourth quarter increased by 2% year-on-year, and JD.com increased by 7.1% year-on-year.

Compared with the other two giants in China’s e-commerce industry, Pinduoduo’s revenue growth of nearly 40%, coupled with good profits, should be sought after by the market. However, after the financial report was released, Pinduoduo’s US stock fell more than 16% before the market. As of the close of US stocks on the 20th, Pinduoduo fell 14.17% to close at US$78.91.

Why did Pinduoduo perform so well, but the capital market didn’t pay for it? The reason is simple. This time Pinduoduo’s performance failed to meet investor expectations.

01

For a year, Pinduoduo

Earnings miss market expectations for the first time

Compared with Ali and JD.com, the capital market has been very optimistic about Pinduoduo in the past year.

In the past 12 months, Pinduoduo’s stock price has been fluctuating and rising. At present, Pinduoduo’s stock price is one of the few high points among Chinese concept stocks. On the other hand, Ali and JD.com, the stock price changes in a year can be described as “big opening and closing”. For the whole year, Pinduoduo still rose by 66% in the past 12 months after the sharp drop on the 20th, while Ali and JD.com fell by 27% and 40% respectively.

Pinduoduo, Ali, JD.com’s stock price comparison chart data source in the past year｜Google Finance

It is not without reason that the capital market is optimistic about Pinduoduo—in the first three quarters, Pinduoduo’s revenues were better than market expectations (15%, 33%, and 15% higher, respectively). Every time a financial report is released, Pinduoduo’s stock price has risen by more than 10%.

However, Pinduoduo’s revenue in the fourth quarter (39.8 billion yuan) was lower than Refinitiv’s forecast of 41.01 billion yuan, which was 3% lower than expected. It’s also understandable why the market was disappointed.

Pinduoduo’s revenue mainly includes online marketing services and other revenues, transaction service revenue, and commodity sales revenue. Among them, online marketing service revenue accounted for nearly 80% of total revenue, which may be the reason why Pinduoduo’s revenue fell short of expectations.

Pinduoduo’s financial report shows that in the fourth quarter, its online marketing revenue was about 31 billion yuan, a year-on-year increase of 38%. However, compared with the previous quarter, its growth rate fell by 20%.In this Pinduoduo financial report conference call, there wasanalystChairman of Pinduoduo Group andCEOChen Lei raised this question. But the latter did not answer positively.

“We see fierce competition, and we have a lot to work on,” Chen Lei said.

02

Temu has little impact on earnings,

But Jingdong’s “10 billion subsidy”

may have an impact

In addition to revenue, Pinduoduo’s profitability this quarter was also lower than market expectations.

According to the financial report, Pinduoduo’s earnings per share (non-GAAP) in the fourth quarter was approximately US$1.21, which was US$0.03 lower than market expectations. The decline in earnings per share is closely related to net profit.

The financial report shows that in the fourth quarter, Pinduoduo’s operating profit was about 9.1 billion yuan, a drop of 12.5% ​​from the third quarter’s operating profit of 10.4 billion yuan.In this Pinduoduo financial report conference call, there are alsoanalystasked this question. “Profitability is not the entire priority right now.” Pinduoduo FinanceVice PresidentLiu Jun replied.She said that the company is still in the “investment period”, and the most important thing now is to establish its own unique long-term value based on ROI (return on investment ratio).

Behind the decline in profits is the increase in the company’s input costs and expenses.

In terms of expenses, it is mainly sales and marketing expenses (accounting for nearly 80%). In the fourth quarter of last year, as domestic consumer demand gradually picked up, Pinduoduo invested a large amount of subsidy resources at multiple key consumption nodes such as Double 11 and New Year’s Day. This is also reflected in the financial figures – in the fourth quarter, Pinduoduo’s marketing expenses reached 17.7 billion, a year-on-year increase of 56%.

With JD.com also launching a “10 billion subsidy”, Pinduoduo’s sales and marketing expenses may continue to rise in the future. “As competition intensifies, there will also be varying degrees of (competition) alienation. We will always maintain the spirit of duty, bravely face competition, and even sometimes (competition) alienation.” Chairman of Pinduoduo Group cumCEOChen Lei said in a conference call.

Pinduoduo’s 2020 Q4-2022 Q4 quarterly main expense ratio Picture source｜Company announcement, Zhongtai Securities Research Institute

Of course, as Pinduoduo launched the cross-border e-commerce platform Temu in September last year, analysts are also concerned about whether Temu’s large investment in subsidies has affected Pinduoduo’s financial situation this time.After all, according to the data of the Meta advertising library, in January 2023 alone, Temu placed at least 6,400 advertisements on Facebook.But Pinduoduo FinanceVice PresidentLiu Jun denied the claim. “The Temu business is still in the early stages and we haven’t seen a significant financial impact,” she said on a conference call.

In terms of cost, in the fourth quarter, Pinduoduo’s total cost was 8.927 billion yuan, an increase of 37% over the same period in 2021.Regarding the increase in total costs, Pinduoduo explained that “it is mainly due to the increase in server costs and performance fees caused by the one-time rebate in the fourth quarter of 2021.”

According to Geek Park, Pinduoduo uses the cloud server of Tencent Cloud. In the fourth quarter of 2021, Tencent Cloud launched a one-time rebate promotion to customers, which led to a reduction in Pinduoduo’s costs. But now, with the event over, Pinduoduo’s associated costs have returned to normal levels.

03

There is 150 billion cash lying in the account,

Of course you can invest heavily

When disclosing the financial report this time, Chen Lei, chairman and CEO of Pinduoduo Group, specifically emphasized that Pinduoduo has invested more than 10 billion yuan in research and development in 2022, which is the highest amount invested since its establishment. 2022 is the second year of Pinduoduo’s strategic transformation from “emphasis on marketing” to “emphasis on research and development”.

Chen Lei said that Pinduoduo’s long-term strategy is to improve the efficiency of Pinduoduo’s supply chain in agriculture and manufacturing by strengthening its technological capabilities.In the fourth quarter of last year, Pinduoduo held agricultural scientific research competitions such as the “Third Global Agricultural Maker Competition” and “The Third Duoduo Agricultural Research and Technology Competition” in an attempt to solve the current “stuck neck” problem in my country’s agriculture (see Geek Park Previous detailed reports:“Build a “Plant Factory” and practice the ultimate form of “Wandering Earth” in advance”）。

However, according to the 2022 financial report data, Pinduoduo’s research and development expenses accounted for only 15% of the total operating expenses (total operating expenses are about 68.7 billion yuan). This may be because, compared with the cutting-edge fields such as cloud computing invested by other e-commerce giants, what agriculture can actually do is limited.

According to Precedence Research, the global cloud computing market will reach US$446.5 billion in 2022 and is expected to reach US$1.6 trillion in 2030. According to data from Data Bridge Market Research, the market size of digital agriculture in 2021 is only US$13.17 billion, and is expected to reach US$28.45 billion in 2029.

In other words, agricultural research and development may not be able to keep up with Pinduoduo’s investment and expansion needs. Especially according to the financial report, as of December 31, 2022, Pinduoduo has a total of nearly 150 billion cash equivalents and short-term investments on its books.

This is why Pinduoduo needs to find new investment tracks. Perhaps the globalization represented by Temu is the best choice.

After landing on the US, Canada, Australia and New Zealand sites, Temu is likely to go live on the UK site later this month. As of February 23, Temu has “dominated” the AppStore and GooglePlay for 69 and 114 days respectively. Data firm YipitData said Temu’s GMV had grown from $3 million in September last year to $192 million in January this year.

In the past three months, the traffic comparison data source of Temu and SHEIN｜similarweb

According to media reports, in March, Temu adjusted its business goals, hoping that on the first anniversary of its establishment (September this year), the GMV in the North American market will surpass the cross-border e-commerce giant SHEIN. Temu said in an internal meeting that it will invest 20 billion yuan to achieve this goal.

Obviously, for Pinduoduo, this is something it must do and has the strength to do.