Pinduoduo: 3Q20 performance establishes the second largest e-commerce company in China, and will focus on grocery business next year and the year after

Pinduoduo’s financial report released a few days ago, revenue, non-GAAP profit, and users all exceeded market expectations, and its stock price has risen by more than 30% in two days. It can be said that Pinduoduo’s third quarter financial report has swept away investors’ concerns last quarter that Pinduoduo’s user growth has peaked and ARPU cannot be achieved.

If investors were hesitant about how far Pinduoduo could go, Pinduoduo's third-quarter financial report has basically established its position as the second largest e-commerce company in China. The market expects JD.com's financial report to be released next week to be good as well. In comparison, Alibaba, the largest e-commerce company, has undoubtedly had more troubles recently.

Currently, Pinduoduo has successfully established a cheap mentality in the minds of users, but its shortcomings are also obvious, that is, the variety and quality reputation of goods, as well as logistics and delivery capabilities. The variety and quality reputation of goods require Pinduoduo to make further breakthroughs on the merchant side, and logistics and delivery capabilities are expected to be supplemented by the Duoduo Maicai war.

From the data, Pinduoduo's product categories are rapidly expanding. Data provided by a third party shows that the number of users of Pinduoduo's merchant version has increased significantly compared to the past, which shows that e-commerce sellers are increasingly recognizing the traffic value of Pinduoduo. Alibaba's "choose one of two" policy may not be able to stop brand merchants from embracing Pinduoduo. The increase in the number of merchants will further enrich Pinduoduo's product categories, increase user participation, and increase the average order value. At the same time, this will inevitably improve Pinduoduo's subsequent monetization capabilities.

In terms of quality reputation, Pinduoduo's 10 billion yuan subsidy is undoubtedly a key strategy to reverse brand perception. This quarter, Pinduoduo's marketing expenses exceeded 10 billion yuan, and the proportion of revenue decreased from 92% last year and 75% last quarter to 72%. With the expansion of revenue, Pinduoduo undoubtedly has more ammunition to create 618 every day, Double 11 every day, and a high-quality brand image.

Logistics shortcomings are one of the concerns of investors about Pinduoduo. JD.com has fast delivery, and Alibaba also has Tmall Supermarket, Hema and other businesses that can achieve extremely fast delivery of goods. In China, delivery speed is undoubtedly one of the important competitive advantages of e-commerce, fresh food, and takeout. Duoduo Maicai, as a strategic project of Pinduoduo, is regarded internally as the last battle of e-commerce. Although the outcome of the war is still unclear, by building a supply chain from farmland to table, it is believed that Pinduoduo's logistics shortcomings will be significantly supplemented.

Of course, Duoduo Maicai means investment in logistics infrastructure, cultivation of user mindsets and subsidies, which will affect the company's profits in the short term, and this is also a very critical issue for investors. Pinduoduo's response to this will not focus on short-term profits, but on long-term investor value.

It is still unknown who will win the community group buying business. At present, this war has basically become a three-way battle between Meituan, Pinduoduo and Didi. Meituan has strong offline genes and delivery speed, and a variety of solutions, covering the user's grocery shopping needs in all scenarios (such as the forward warehouse service that meets the demand for cooking in 30 minutes); Pinduoduo has a relatively rich farmland supply chain, but delivery is a shortcoming, and its advantage lies in the strong team combat effectiveness; Didi's grocery shopping style is not prominent enough, and it is not clear whether it is a dark horse or a runner-up. Most of the merchants in this field earlier will be swallowed up by these three companies. In contrast, Alibaba is relatively lonely and has not yet followed up this battle with great fanfare.