Pinduoduo: Cash reserves of 41.1 billion Huang Zheng is the major shareholder Tencent holds nearly 17% of the shares

On April 25, 2020, Pinduoduo released its 2019 annual report. The annual report shows that in 2019, Pinduoduo achieved a transaction volume of 1,006.6 billion yuan, the number of annual active buyers on the platform reached 585.2 million, and achieved annual revenue of 30.14 billion yuan.

Pinduoduo holds a total of 41.06 billion yuan in cash, cash equivalents and short-term investments, excluding US$1.1 billion in private placement financing in the first quarter of 2020.

As of the end of 2019, Pinduoduo had 585.2 million active buyers. Pinduoduo said that it has become China's second largest e-commerce platform in terms of user volume.

Pinduoduo also recently announced that it will subscribe to the $200 million convertible bonds issued by Gome Retail, with a term of three years and a coupon rate of 5%. If all conversion rights are finally exercised, Pinduoduo will be allocated up to 1.28 billion new Gome shares, accounting for about 5.62% of the latter's enlarged share capital after the issuance of conversion shares.

At the same time, the two parties announced that they have reached a comprehensive strategic cooperation. All Gome Retail products will be listed on Pinduoduo, and branded home appliances will be included in Pinduoduo's "10 billion subsidy" plan.

Gome's Anxin Logistics will be connected to the Pinduoduo platform to provide targeted services to platform merchants in large-scale logistics, warehouse and distribution integration, installation and delivery, etc. Pinduoduo will inject advantageous digital retail resources such as consumer trend big data and platform traffic into Gome, and the two sides will also actively cooperate in market promotion and other aspects.

In the past, Suning and Gome were the two largest offline appliance sales giants, and JD.com was just a smaller player. However, under the wave of e-commerce, the situation was stronger than people. Alibaba invested in Suning a few years ago and became Suning's second largest shareholder. Now, Suning and Gome have both joined the e-commerce giants.

As of April 25, 2020, Pinduoduo's market value was US$57.6 billion, a significant increase from its listing.

Tencent is the second largest shareholder

As of April 13, 2020, Pinduoduo held 2,716,057,288 Class A shares and 2,074,447,700 Class B shares.

As of April 13, 2020, Pinduoduo’s equity structure

Among them, Huang Zheng holds 43.3% of the shares and has 88.4% of the voting rights; Tencent holds 16.5% of the shares and has 3.4% of the voting rights;

Gaorong Capital holds a 7.7% stake and has 1.6% of the voting rights; Sequoia Capital holds a 7% stake and has 1.4% of the voting rights.

Currently, Huang Zheng is the chairman and CEO of Pinduoduo, Tencent executive Lin Haifeng is a director, Sequoia Capital partner Neil Shen, former Baidu Group President and COO Lu Qi, George Yong-Boon Yeo, and Anthony Kam Ping Leung are independent directors.

As of March 31, 2019, Huang Zheng held 44.6% of the shares and had 89% of the voting rights; Tencent held 16.9% of the shares and had 3.4% of the voting rights; Gaorong Capital held 8.4% of the shares and had 1.7% of the voting rights; Sequoia Capital held 7.2% of the shares and had 1.4% of the voting rights.

As of March 31, 2019, Pinduoduo’s equity structure

The biggest difference from 2019 is that GaoRong Capital partner Zhang Zhen resigned from his position as director. In addition, GaoRong Capital reduced its holdings, while the number of shares held by Huang Zheng, Tencent and Sequoia remained unchanged.

Active merchants increased to 5.1 million

In the annual report, Pinduoduo disclosed the latest information such as the number of merchants, team size, and cash reserves.

The annual report shows that as of the end of 2019, the number of annual active merchants on the Pinduoduo platform exceeded 5.1 million, an increase of 41.7% from 3.6 million in the same period last year.

Pinduoduo said that in order to reduce the operating costs of platform merchants, in addition to the practice in the automotive industry, Pinduoduo has always implemented the policy of "0 commission" and "0 platform service annual fee". Compared with other online channels that charge a transaction commission of about 5% for each order, in 2019, Pinduoduo's "0 commission" policy alone helped merchants save about 50 billion yuan in capital costs. In addition, merchants do not need to pay any platform annual fees.

Pinduoduo stated that it will continue to adhere to the "0 commission" and "0 platform service annual fee" policies for merchants in 2020 to help merchants save operating capital costs.

Since the beginning of this year, in response to changes in the market situation caused by the epidemic, Pinduoduo has launched a series of actions, including "Special Action to Fight the Epidemic and Help Farmers", "Live Broadcasts by Mayors of Cities and County Governments", "Live Broadcasts on the Reopening of Industrial Belts", and "Pinduoduo Trade Fair", to continuously improve the digitalization and intelligence of agricultural production areas and industrial belts, and help foreign trade companies achieve transformation and upgrading under "normal epidemic prevention and control".

According to information disclosed by Pinduoduo, in the first quarter of this year, the platform added more than 270,000 agricultural-related merchants, which is close to the number added in the whole of last year. It is expected that in the first quarter of this year, the number of new merchants on the platform, including domestic and foreign brands, foreign trade enterprises, and industrial cluster enterprises, will see a substantial increase.

As of the end of 2019, the number of annual active merchants on the Pinduoduo platform exceeded 5.1 million.

Pinduoduo's R&D expenses in 2019 were 3.87 billion

As of the end of 2019, Pinduoduo had a total of 5,828 employees, an increase of 58% over the same period last year.

Since its establishment, the proportion of technical engineers in Pinduoduo's team has always remained above 50%. In 2019, Pinduoduo's R&D expenses were 3.87 billion yuan, a year-on-year increase of 247%. The proportion of platform R&D expenses to revenue reached 12.8%, which is significantly higher than the average level of the Internet industry.

Pinduoduo said that supported by continuous innovative technological applications, in 2019, the average GMV created by Pinduoduo users reached 173 million yuan.

In the first quarter of this year, in response to the changes caused by the epidemic, Pinduoduo launched a number of products such as "Kuaituantuan" and "Global Live Broadcast". With the decentralized architecture design and component support of "Duoduo Live Broadcast", since February, Pinduoduo has added 35,000 active live broadcast rooms in Xingnong alone, including nearly 100 mayors, county heads and other government leaders across the country, which has driven a total of 600 million kilograms of agricultural products out of the village and into the city.

In 2019, Pinduoduo's GMV exceeded one trillion yuan, with an average GMV of 173 million yuan per person. The platform's R&D expenses were 3.87 billion yuan, accounting for 12.8% of revenue, far higher than the average level of the Internet industry.

Cash reserves of 41.06 billion yuan, 2.5 billion yuan invested to support the "May 5 Shopping Festival"

Pinduoduo stated in its annual report that it is currently impossible to reasonably estimate the impact of COVID-19 on the platform's development prospects. In order to cope with possible uncertainties, the company has made sufficient cash reserves.

The annual report shows that as of the end of 2019, Pinduoduo held a total of 41.06 billion yuan in cash, cash equivalents and short-term investments, including 5.77 billion yuan in cash and cash equivalents and 35.29 billion yuan in short-term investments.

At the end of March this year, some long-term investors purchased $1.1 billion of newly issued Class A common shares of Pinduoduo through a private placement, and the private placement funds were received within 9 days. According to the same exchange rate, Pinduoduo currently holds a total of 48.71 billion yuan in cash, cash equivalents and short-term investments.

Pinduoduo said that the platform will invest in the construction of China's agriculture and manufacturing industries in the long term, drive the development of "new infrastructure" including agricultural big data databases, C2M transformation and upgrading of industrial belts, and continue to lead the growth of the new online economy.

Pinduoduo also announced that it will invest 2.5 billion yuan in cash and consumer coupons, and join forces with 10,000 Shanghai brands and companies to create a consumer carnival season covering all Shanghai citizens through various forms such as "10 billion subsidies + 100 major shopping malls" joint subsidies, 55% off on large durable goods such as cars, etc.

Huang Zheng's letter to shareholders: A new world is coming, and new species will inevitably emerge

Huang Zheng released a letter to shareholders along with the annual report. This is the third consecutive annual letter to shareholders released by Huang Zheng since 2018.

In the letter, Huang Zheng talked about the thoughts that the recent epidemic brought to his mind, and rethought the reality he is facing now from the perspective of the relationship between the epidemic and the world, and between humans and time.

Huang Zheng believes that when this tiny virus enters the human world, it acts like a catalyst in a test tube, accelerating the formation of a new world. Certain dimensions of the past world are being reconstructed, and some rules are being rewritten. This global force will fundamentally and permanently change the world we live in.

"We assume that all the past history of each object is fully contained in its current state and that each object is independent, but the epidemic has begun to make people doubt whether this assumption is correct," Huang Zheng said.

"What if probability and randomness are the natural properties of every object? What if a large number of objects are inherently intertwined and related?" Huang Zheng believes that due to these intrinsic connections between objects, the method of trying to block the connections between objects will no longer be so effective.

In 2019, Pinduoduo encountered the largest-scale "choose one of two" in history launched by its competitors. In the last shareholder letter, Huang Zheng also said that long-term exclusiveness will inevitably be broken, which is not in line with business logic and natural laws.

In 2019, as Pinduoduo innovated in models such as social group buying and live broadcasts by mayors and county governors, and directly created value for consumers through its original 10 billion subsidy campaign, the annual report showed that the current number of Pinduoduo's merchants has grown from 3.6 million to 5.1 million.

Therefore, Huang Zheng believes that a brand new human world is coming, and new species will be conceived and grown in new soil in a completely different way than before.

Regarding the future, Huang Zheng said that humans once regarded time as a reversible parameter in the equation, but the epidemic awakened humans from their dreams. Time is more like an irreversible vector. "No matter how stubbornly we desire symmetry and eternity, time is always creating all kinds of asymmetry, irreversibility and death in the world."

Therefore, "we need to prove that our generation keeps pace with the times and is different from the past. We will invest more firmly in the future and work hard to build the new world before us."

Full text of Huang Zheng's letter to shareholders

What time?

What night is this?

In February this year, COVID-19 became a household word around the world and upended our daily lives. As I write this letter, half of the world's population is still staying at home, helplessly waiting for the small virus that caused the global crisis to disappear as soon as possible. At the beginning of the wait, we were eager for life to return to normal; but as the wait became longer and longer, we gradually forgot about time.

What kind of time are we in today? What exactly is time?

This is a critical moment for mankind, with rumors and chaos spreading everywhere, and people splitting and even confronting each other because of different ideas and opinions. This is a special moment that only comes once in a century, but perhaps it is just an ordinary moment in the long river of history.

Viruses are dangerous "messengers" sent by nature to humans. Out of survival instinct, we do our best to mobilize our own body energy to fight against them. The byproduct of this confrontation is self-injury or even death. Soon, the fierce battle spread from a single organism to the entire social organism. Companies, governments and countries of different sizes and types are fighting this threat in their own way, and the byproduct is inevitably self-injury.

All this is just caused by an almost invisible virus that cannot replicate without a host. It is just a small "messenger" that carries some information (RNA) and very little energy. This is in stark contrast to the atomic energy threat that we have been worried about for decades. A dark cloud that can generate huge energy, or a "messenger" that has almost no energy itself, which one will cause greater and more lasting harm to mankind?

This is really like a dream... Is this a revelation from nature? A lesson? Or a punishment for us? Or redemption? Perhaps, it is just a little joke between nature and human beings?

Time for new

The time of rebirth

When Einstein wrote his famous equations, he elegantly (and, in a sense, arrogantly) described the physical world in his mind. But he did not explain the relationship between the mental world that described it and the physical world, or the relationship between energy and information.

Today, the world is in a state of normal abnormality. Millions of people are forced to stay at home, separated from their loved ones. However, we are also connected in a spiritual and emotional way. This relationship also affects the physical world we can perceive. The boundary between the virtual world and the physical world is more blurred than ever before, and we are beginning to see (not just imagine) a new world coming.

Or, to be more precise, a completely new human world is coming. In this new world, the term "virtual reality" is outdated. Reality and virtuality can be transformed into each other, reality becomes illusory, and illusion is a kind of reality. Similarly, the distinction between human material and spiritual needs is becoming increasingly blurred.

When this tiny virus entered the human world, it accelerated the formation of a new world like a catalyst in a test tube. Some dimensions of the past world are being reconstructed, and some rules are being rewritten. This global force will fundamentally and permanently change the world we live in. As I explained in my previous two letters to shareholders when I explained the "birth of Pinduoduo", new species will be bred and grow in new soil in a completely different way than before. Now is the time for the world to be reborn and rebuilt.

Feel the time

Feel the time

1.Time with an arrow/direction

Direction of time

Humans have been trying to understand and control the world with the logic and principles we have mastered. We have indeed succeeded in many things, such as science. In the world of science, we try to separate ourselves from the objective material world, observe and understand it "objectively" from a transcendent God's perspective, and define this objective material world through limited equations. In such a framework, time becomes a reversible parameter in the equation -t = (-)t. It is just a parameter in the equation that describes the movement of an object along a predetermined trajectory.

However, when a tiny virus awakens us from our dream, we find that humans are not above the world, but are just a negligible part of this observed world. The only thing we can do is to stop everything we are doing, wait for time to pass, and feel the traces of time passing.

We then realize that time should not be a reversible parameter in the equation, but rather an irreversible vector. It is a powerful directional force that silently drives everything we see and feel. No matter how stubbornly we desire symmetry and eternity, time is always creating all kinds of asymmetry, irreversibility, and death in the world.

The first law of thermodynamics (∆U = QW) gives us a certain sense of control and certainty, while the second law of thermodynamics (∆S> = 0) makes us humbly realize that there is another existence outside the physical world composed of force and mass. Entropy (S) is related to information. I am not sure whether entropy is connected to the spiritual world, but it can help me feel and understand time. Time should not be just a reversible variable in the physical world, or an isolated existence in the imagination of the spirit. Silent and never-ending, it is more like a powerful, directional, irreversible driving force behind the appearance of the material and spiritual world.

2.Time, crowd and uncertainty

Time, people and uncertainty

When Newton first revealed F = M (dV / dT), it gave us the illusion of "controlling the world", or at least some understanding and hint of the power we can control. We no longer have to worry because the trajectory of each object can be calculated from its position, mass, velocity and force. We assume that all the past history of each object is completely contained in its current state, and each object is independent. Under this assumption, the large number of interactions between a large number of objects will become more and more complex, chaotic, and uncertain and random over time. The arrow of time seems to create chaos and uncertainty. The so-called probability is an approximate statistical description of the set of trajectories of deterministic objects under a large number of interactions.

However, as we are isolated in our homes, waiting in anxiety and restlessness, we begin to doubt whether the "independence of each object" is really a correct assumption when we try to understand and explain the world. In our desire for certainty, we selectively accept simple assumptions such as "independence between objects" to help us explain the complex world. Our desire is so strong that we begin to believe that this is the truth.

But what if probability and randomness are the natural properties of every object? What if a large number of objects are inherently intertwined and interconnected? Just like our human society, no matter how independent each individual is, we define our existence through interconnections in the real and virtual worlds. Because of these intrinsic connections between objects, the method of trying to block the connections between objects and studying isolated individuals is no longer so effective.

On the contrary, we see that the massive interaction between individuals over time has become a force that brings order and certainty to society and the world. We once again feel the power and magic of time.

Seize the time

Seize the day

When the novel coronavirus swept the world, every organism had to face the cruel challenges brought by nature. Relatively young people may have some luck and comfort in their hearts. This does not mean that we should take advantage of the "danger" to gain benefits. Any idea of ​​taking advantage of others' dangers or using loopholes to benefit oneself is extremely stupid in the face of time, which is tantamount to an arrogant gambler trying to win time in the casino.

On the contrary, we feel the urge and motivation to work harder. This is because we understand and cherish our precious youth more than ever before. We are more aware of our responsibilities. We need to prove that our generation is in line with the times and different from the past. In this new world, new species and new creatures will surely be born and thrive.

The flourishing and trend of nature cannot be changed by any individual will. Understanding these natural rules should not make us feel superior, let alone give us the ability to rule nature. Instead, it enables us to humbly recognize and acknowledge that we are just a drop in the ocean of the world's natural evolution.

As a poet wrote: "I look back at the past with cold eyes, and see that all the sorrows and joys it has irrigated have disappeared into an eternal desert. Only then do I realize that all my efforts have only accomplished an ordinary life."

With this perspective, we feel humbled and at peace, but also grateful for the precious youth we have and the great responsibility we bear. Therefore, we will invest in the future with greater determination and work hard to build the new world before us. In this new world, our wonderful journey has just begun.

Huang Zheng

On behalf of Pinduoduo

April 20, 2020

Original English version of Huang Zheng's letter to shareholders

What time?

In February, the world learned a new word, “COVID-19”, which upended our lives. As I write this, half of the world remains confined at home, waiting for the tiny virus that causes COVID-19 to leave us. During the early days of the outbreak, as we waited in solidarity, we eagerly hoped to return to normal. But as the world has been put on hold week after week, we start to forget time.

We cannot help but ask ourselves, what is the time we are in now and what is time?

We are in a time of crisis – of division, misinformation, and chaos. The virus has caused countless conflicts and contrasts as we watch the news around us and worldwide. It is an unprecedented time to most of us. Yet if we put it in the context of the human history, it might just be a normal incident, a drop in the ocean.

This virus is a messenger by Mother Nature. Out of self-protection and preservation, our bodies desperately fought it using all the strength and energy available. Soon enough, the war against this seemingly unstoppable virus extended from our own bodies to the broader organisms that make up our society (if we see every institution as a living organism made up of people and relationships with a mission and purpose). Companies, governments, countries, big and small, are all scrambling in their own ways to combat this life-threatening virus. In these attempts, we possibly have unintentionally introduced more damage to ourselves.

These all started with an almost invisible virus, a tiny messenger carrying some information (RNA) and a negligible amount of energy that, independent of a host, cannot even replicate. It is in stark contrast with nuclear threat, the power we feared for decades. Which is more capable of greater and more prolonged damage to our human society then – a mushroom cloud representing massive destructive energy, or a “messenger” with virtually no energy?

We cannot help but wonder if this is a lesson purposefully delivered, a punishment, a redemption, or simple irony? No matter what it is, it is surreal to me.

Time for new

When Einstein wrote down his famous , he elegantly (in some sense also arrogantly) depicted a physical world in his mind. However, what he did not explain in his theory of relativity is the relationship between the human mind and the physical world, nor the relationship between energy and information.

Today, in this bizarre time, millions of people are staying at home, physically cut off from their families and friends. Yet we are connected and unified in spirit through shared sentiment, which in turn affects the physical world. The boundaries between the virtual and physical worlds are unprecedentedly blurred, and we are beginning to see (not just envision) a new world. needs is also becoming vague.

When this tiny virus was dropped into our world, it acted just like a catalyst in a test tube, accelerating the formation of a whole new world. Inevitably, some dimensions of the previous world are being restructured, some rules are being rewritten. The impact of this sweeping force will fundamentally and permanently change the world we are in now. Just like what I explained in the previous shareholder letters about PDD's formation, new models are bound to emerge and grow in a whole new setup. We are indeed seeing the phasing out of some as new ones emerge. It is the time of reestablishment.

Feel the time

3.Time with an arrow/direction

Human beings have long used reason to try to understand and control the world. In many cases, we succeeded, for example, science. In science, we strive to detach ourselves from the physical world we are in, to watch it as if we are a higher being “objectively” observing, understanding, and defining the world into a finite number of equations. In this framework, time is a reversible parameter in the equation -t = (-)t. It is merely a parameter in an equation to describe a predetermined trajectory of an object.

However, when an almost invisible virus awakens us to the reality that we are not above the world, but just a negligible part of the world to be observed, the only thing we can do is to sit still and let time carry its course. We then realize time is not really a parameter in an equation, but an irreversible vector. It is a silent and relentless directional force driving everything we see and feel. It effortlessly creates asymmetry, irreversibility and mortality, no matter how stubborn and desperately we yearn for symmetry and immortality.

While the first law of thermodynamics (ΔU = QW) gives us a sense of control and certainty, the second law (ΔS ≥ 0) humbles us to acknowledge the unknown beyond just force and mass we used to define our physical world. Entropy (S) also relates to information. I am not sure if entropy relates to the spiritual world, but it does help us feel and comprehend time. Again, it is not a reversible parameter, but a silent and irreversible driving force beyond and behind both the physical and the spiritual world.

4.Time, crowd and uncertainty

When Newton revealed F=M(dV/dT), it gave us a delusive sense of control, or at least it allowed our wishful thinking that we can finally harness force. We no longer have to worry, because every object has a calculable trajectory determined by its position, mass, velocity and force. We assume each object's current state fully encompasses and explains its past and that each object is independent. With that, large number of interactions among large number of objects over time would increase complexity and appear chaotic and uncertain, hence probabilistic. It seems that time has created this chaos and uncertainty. And probability is just a statistical aggregation of the trajectories of a large number of objects.

However, when we are isolated at home, waiting with anxiety and unsettling emotions, we start to doubt whether the notion of each object being independent is really a valid assumption in our attempt to understand and explain the world. In our yearning for certainty, we have conveniently chosen to accept some assumptions, such as independence among each object, that can help us explain the world. Our desire for certainty is so strong that we start believing it is truth.

But what if probability is a fundamental feature of each object, rather than a result of statistical aggregation? What if the large number of objects is intrinsically intertwined and interconnected? Just like our human society, no matter how independent each individual is, we are intrinsically connected both physically and spiritually. And these connections define who we are and our existence.

Because of these connections, the divide-and-conquer approach is no longer effective to reduce uncertainty. Instead, we see the large number of interactions among individuals over time becoming a force that brings order and certainty to the society. Again, we feel the force and magic of time.

Seize the time

When COVID-19 swept the earth, every organism was confronted with the brutal reality of Mother Nature. Some of us who are relatively young cannot help but to feel grateful and lucky. This is not to say that we see an opportunity to take advantage of during the crisis. In fact, I despise the saying “don't waste a crisis”. A crisis is a crisis. Nobody can come out as a winner in the midst of a catastrophe. Any wishful thinking to capture the 'opportunities' (or exploiting loopholes) to benefit oneself seems foolish in the face of time. It is akin to a presumptuous gambler trying to outsmart time at a casino.

Instead, we feel the urge to work even harder. Because we, more than ever, understand and appreciate how precious youth is. More than ever, we realize that we now have our duty to fulfil. We need to demonstrate that our generation is innovative and different, that in this new world, new species and new creatures are bound to emerge and grow. Mother Nature will flourish and progress, regardless of any individual's will. Understanding these rules of nature does not make us feel superior, nor does it give us the power to rule and order. On the contrary, it humbles us to admit that we are just part of a natural evolution of the world. One poet captured it all: “As I silently look back, all the sorrows and joy, all the twists and turns, of life, vanished like sands in the desert. And now I know, all I have accomplished, is just a part of life.”

With this perspective and in this new world, we feel humble and calm. We are tremendously grateful for our precious youth, and we feel the weight of our duty. As a result, we will be more than ever committed to investing in the future, and to be part of the driving force to the new world we are seeing. The journey has only started.

This is our Carpe Diem. This is our C'est La Vie.

via Leidi.com Lei Jianping