On November 21st, Pinduoduo released its third quarter 2024 performance report.
Recalling the shocking scene of Pinduoduo's stock price plummeting by 30% in an instant after the release of its last quarter financial report, it is surprising that once again, the stock price suffered a heavy blow with a drop of over 10% after the release of this quarter's financial report.
In fact, since its peak of $155.67 on October 4th this year, Pinduoduo's US stock market has continued to decline, with a current drop of over 35%, only $99.31, and a market value evaporation of over 100 billion yuan!
This means that Pinduoduo's revenue in the third quarter still did not meet market expectations. This result raises the question: What exactly did Pinduoduo experience in this quarter? What is its performance exactly?
Disappointed, slammed on the brakes, the third quarter growth rate "halved"
In the third quarter, Pinduoduo's total revenue was 99.354 billion yuan, a year-on-year increase of 44%; Operating profit was 24.293 billion yuan, a year-on-year increase of 46%; The net profit attributable to common shareholders was 24.981 billion yuan, a year-on-year increase of 61%.
Compared to its e-commerce peers, this is still an impressive report card. However, compared to the previous four quarters, the revenue growth rates were as high as 94%, 123%, 131%, and 86% respectively. In the third quarter of this year, the year-on-year growth rate suddenly dropped to only 44%, which is almost halved.
Although the decline in growth rate is seasonal, it is mainly due to supportive policies such as reducing transaction service fees for high-quality merchants and providing freight subsidies in western regions. Reflected in the financial report, in the third quarter of this year, Pinduoduo's total operating costs were 39.71 billion yuan, a year-on-year increase of 48%, mainly due to the increase in delivery and payment processing fees. The total operating expenses were 35.35 billion yuan, a year-on-year increase of 39%; Among them, sales and marketing expenses amounted to 30.48 billion yuan, a year-on-year increase of 40%. This increased expenditure is not small.
Repeatedly criticized, with constant complaints and concrete negative marketing effects
Perhaps just by chance, on the eve of Pinduoduo's financial report release, it had just suffered a highly anticipated "bombardment".
On November 19th, Zhong Suisui, the founder of Nongfu Spring, harshly criticized Pinduoduo's pricing model in public. He said bluntly: "The Internet platform has lowered the price system, especially the price system like Pinduoduo, which is a great harm to Chinese brands and Chinese industry."
Subsequently, Zhong Suisui further emphasized, "This is not just a matter of 'bad money driving out good money', but also related to the direction of the entire industry
In other words, Zhong Suisui's remarks imply that the pricing system adopted by Pinduoduo has a profound influence, which is enough to force the entire industry to take "price" as the core orientation. This is no longer limited to the scope of the platform economy, but may trigger a series of broader social issues.
This is not the first time that Pinduoduo has been criticized. To be honest, the attacks and criticisms on Pinduoduo's "low price competition" and "malicious marketing" have never stopped, and the increasing voices recently prove that the "negative effects" it brings have begun to materialize.
From the seemingly never-ending final blow to the rampant proliferation of counterfeit and knockoff products, consumers and businesses have expressed their dissatisfaction. As of 14:00 on November 27th, the total number of complaints against Pinduoduo on the Black Cat Complaints Platform has accumulated to 1215917, covering various aspects such as substandard product quality, false advertising, purchase of counterfeit goods, and lack of after-sales service.
Data source: Black Cat Complaints
Low prices and trust crisis in Pinduoduo's business model: "deep-rooted weaknesses"
So, where are the shortcomings of the Pinduoduo model reflected? What 'flaws' are hidden in its business model?
1. Brand trust crisis behind low price frenzy
Pinduoduo, a new force in the e-commerce industry, has regarded low prices as its golden signboard since its inception. By using group buying and group buying methods, it has successfully attracted a large number of low-income consumers and further lowered product prices through strategies such as "billions of subsidies". With the help of a wide user base and the dissemination power of social networks, it has achieved rapid growth in user scale.
However, behind this low price frenzy lies a shadow - a seesaw game of price and quality. Despite Pinduoduo's killer move of "billions of subsidies" and "one to ten compensation for fake products," counterfeit and shoddy goods still roam the platform like ghosts, making every purchase by consumers full of unknown risks. For example, well-known brands such as Wuliangye have pointed out that they have not set up official flagship stores on Pinduoduo, making it difficult for consumers to ensure that the products they purchase are genuine.
Pinduoduo's low price strategy is like a double-edged sword, with one side being the smiling faces of consumers who revel in low prices, and the other side being the bitterness of gradually eroding product quality and brand trust. For a long time, the illusion of "low price equals high quality" on the platform has been like an anesthetic, making consumers' demands for product quality vague, and this is undoubtedly a potential crisis for Pinduoduo's future. How to maintain low prices while ensuring product quality has become a huge challenge in the face of multiple challenges.
Traffic is king, but where is the foundation?
Pinduoduo, with its social e-commerce model, effectively enhances user stickiness by sharing group buying and purchasing information on social platforms such as WeChat, achieving rapid growth in user traffic and stimulating users' desire to purchase. However, this traffic centric business model has also exposed some serious problems.
Pinduoduo cleverly weaves a web of price temptation with low prices and group buying gimmicks, causing consumers to wander between impulse and rationality, and accidentally fall into the trap of blind consumption. These promotional methods, rather than increasing the fun of consumption, are more like utilizing people's sense of scarcity and price sensitivity, stimulating their inner purchasing impulse.
The core of Pinduoduo's social e-commerce model is undoubtedly that traffic is king. It is like a high-speed engine, constantly attracting new users to join this carnival. But as time passed, the emptiness of content and the imbalance of value began to surface. The platform is racing on the road of pursuing traffic, but gradually neglecting the importance of product quality and consumer experience. This is like a castle built on a beach, although it looks magnificent, its foundation is on the verge of collapse. Pinduoduo needs to realize that true success lies not only in the amount of traffic, but also in providing consumers with truly valuable and high-quality goods and services.
3. Billion dollar subsidy: the backlash of low price strategy
Pinduoduo's persistence in providing "billions of subsidies" is like a lover's deep attachment to old emotions. Whether in the era of e-commerce's prosperity or the harsh winter of industry reshuffle, this persistence has never changed.
The 'billion dollar subsidy' strategy, ultimately, is just an upgraded version of its low price strategy, a lure to attract price sensitive consumers to frequently place orders on its platform, thereby driving up the transaction rate. For Pinduoduo, the "billion dollar subsidy" is more like a carefully planned marketing game rather than a sincere gesture that truly benefits consumers.
For brand owners and distributors, this low price strategy also brings heavy pressure. Brands such as Wuliangye have pointed out that the prices of goods on the Pinduoduo platform are far lower than their official suggested retail prices, which seriously disrupts the market price system and leads to increasing conflicts between brand owners and distributors, even resulting in the phenomenon of "cross selling", further exacerbating the instability of market supply.
Although Pinduoduo can occupy the market in the short term with its low price strategy, the result of its price war and low price strategy is the instability of the platform ecosystem. Merchants and brand owners have not truly benefited, but due to Pinduoduo's low price strategy, brand premiums and dealer profit margins have been continuously compressed. Over time, whether Pinduoduo can maintain this model remains a huge question.
The third quarter financial report of Pinduoduo is a magnifying glass, reflecting not only the downturn it encountered in that quarter, but also the hidden concerns in Pinduoduo itself and its strategic strategy. It can be said that Pinduoduo's current awkward situation is the "bitter fruit" of its stubborn and conservative development model.
If Pinduoduo cannot fundamentally reform its platform operation, business model, and competitive strategy, but only selectively avoids problems and challenges, then it may face even greater storms in the future.