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The spiral lifestyle is becoming the state of life for most people. Read a 3-hour classic movie in 5 minutes and a 500 word masterpiece. 'Fast' and 'efficient' have become the guiding principles for everyone's actions. For the market, the profits brought by "fast" are highly praised, but in addition to profits, some companies also see that the value of "slow" cannot be replaced.
On November 21st, Pinduoduo (PDD. O) released its third quarter performance report, which showed that its Q3 revenue increased by 44% year-on-year to 99.4 billion yuan, and its net profit attributable to shareholders increased by 61% year-on-year to 25 billion yuan.
At the performance exchange meeting that evening, Zhao Jiazhen, Executive Director and Co CEO of Pinduoduo Group, gave a brief introduction to the development of Pinduoduo in the third quarter. Pinduoduo has successively launched a series of measures such as "Billion Reduction", "E-commerce Westward Expansion", and "New Quality Merchant Support Plan", further increasing investment in the platform ecosystem.
This has led to a slowdown in Pinduoduo's growth rate, with a net profit attributable to shareholders of 24.981 billion yuan in the third quarter of this year, a decrease of 22% compared to the previous quarter. Chen Lei, Chairman and Co CEO of Pinduoduo Group, stated that in the coming quarters, we will continue to steadfastly implement our high-quality development strategy, continuously improve our platform and industry ecosystem, and bring more long-term returns to users, merchants, and industries.
From the feedback from the senior management of Pinduoduo, this seemingly deliberate "slowness" is not about spinning in place or standing still, but about the determination and belief in the right direction, sacrificing short-term gains for long-term value.
Although the stock price of Pinduoduo fell after the performance was released, institutions still have a positive outlook on the long-term development of Pinduoduo.
Within 24 hours of Pinduoduo releasing its financial report, several securities firms including CICC, Huatai Securities, CMB International, Everbright Securities, and Huaxing Securities (Hong Kong) gave ratings of "buy" or "outperform the industry". Huaxing Securities (Hong Kong) even set a target price of up to $162, nearly 60% higher than the closing price on November 21.
Protracted War
From a data perspective, Pinduoduo's revenue in the third quarter of 2024 increased by 44% year-on-year, reaching RMB 99.4 billion, of which online marketing service revenue was RMB 49.4 billion, a year-on-year increase of 24%; The transaction service revenue was 50 billion yuan, a year-on-year increase of 72%.
The growth of every revenue data is driven by a single transaction for both merchants and consumers, but for platforms, to do a good job in every transaction, they have to consider the long-term.
Entering 2024, especially starting from the third quarter, Pinduoduo has significantly increased its long-term investment.
Since the rapid rise of Pinduoduo in 2018, it has driven the rapid expansion of some domestic industries, such as Bozhou herbal tea, Pingdu false eyelashes and other industrial belts. In some areas, the number of merchants and factories has rapidly increased from three to five hundred to three to five thousand.
After five or six years of development, many businesses have begun to shift towards higher threshold deep processing links or research and development of more complex products, driving the transformation of industrial belts towards high added value.
This year, Pinduoduo launched the "New Quality Merchant Support Program", investing 10 billion yuan in resource packages to select new quality merchants and brands with product and technological innovation capabilities, and provide full chain support for products, marketing, operations, and supply chains.
At present, the "New Quality Merchant Support Program" has penetrated dozens of industrial belts such as Cangzhou beauty brushes, Cixi small home appliances, Pingdu false eyelashes, and Donghai wearable armor, relying on the platform's digital technology to help local merchants move from primary processing to deep processing, and from industrial white labels to new quality brands.
In addition, Pinduoduo has also launched measures such as "billions of yuan reduction" and "e-commerce westward expansion".
In mid August of this year, Pinduoduo implemented a package of measures, including lowering the first use, then pay service fee, merchant store deposit, and withdrawal threshold, and introducing the basic technology service fee refund right. For refunds only and returns without the need for merchant initiation, the platform automatically refunds the full amount of basic technology service fees already collected, comprehensively reducing the operating costs of merchants.
In addition, the platform has upgraded the after-sales service system for merchants. If consumers initiate refund requests to merchants, the platform fully supports consumers and merchants to resolve the issue through negotiation. For situations where the merchant's reception capacity is weak, such as at night (23:00-8:00), the platform will help merchants calm consumers' emotions first and wait for the merchant to go online. For abnormal orders, the platform fully supports merchants to appeal. After the merchant successfully appeals, the platform will compensate for the relevant orders. For high-quality merchants such as new quality merchants, the platform will no longer intervene and only refund the transaction orders.
In addition, in order to bring more benefits to users in remote areas such as the west, Pinduoduo has vigorously promoted the "E-commerce Westward Expansion" plan, exempting logistics transfer fees for orders from remote areas and allowing the platform to bear all costs, reducing the express delivery fees for orders sent by merchants to remote areas. Among them, the express delivery fees for agricultural and fresh produce, daily necessities and other categories have been reduced by up to 70%.
A series of subsidy reduction measures have led to a 48% year-on-year increase in the total cost of Pinduoduo in the third quarter, from 26.8 billion yuan in the third quarter of 2023 to 39.7 billion yuan in this quarter. The total operating expenses increased from 25.4 billion yuan to 35.4 billion yuan, with a growth rate of 39%. Pinduoduo's profits also declined in this quarter, with a net profit attributable to shareholders of 24.981 billion yuan in the third quarter of this year. Although it increased by 61% year-on-year, it decreased by 22% month on month.
Pinduoduo Financial Report Screenshot
Zhao Jiazhen said, "In the past quarter, we have launched a series of measures to reduce costs and increase income for businesses through real money refunds, reductions, and other means, promoting the industrial belt to enter a new stage of high-quality development
UBS believes that although Pinduoduo's performance has not been ideal, the impact on the core market profit margin seems controllable or explainable at this stage, and the core e-commerce business is still healthy.
After slowing down its performance, Pinduoduo seems to be deliberately fighting a protracted battle.
Zhao Jiazhen stated during the conference call, "We firmly believe that high-quality development of ecology and supply side is an important foundation for the long-term development of the platform and the creation of long-term value for consumers. This is a long and patient process. We are prepared to fight a protracted war, and changes in the external competitive environment will not affect our pace
Look ahead
Chen Lei, Chairman and Co CEO of Pinduoduo Group, has also made a judgment on the future. He believes that with the development of Pinduoduo's business, consumers and various external stakeholders are also demanding higher standards. The competition faced by Pinduoduo's global business is becoming increasingly fierce, and this competition combined with a complex external environment will inevitably cause fluctuations and impacts on Pinduoduo's development trend.
However, these short-term impacts will not shake our determination to continue exploring forward, "said Chen Lei.
In the third quarter of this year, Pinduoduo increased its research and development investment on the basis of "support+reduction" and profit sharing. In the third quarter, Pinduoduo's research and development expenses reached 2.4 billion yuan, a year-on-year increase of 10%, which also reflects Pinduoduo's emphasis on strengthening its platform's core technological capabilities.
In addition to investing in research and development, Pinduoduo has also further strengthened its compliance construction. On the one hand, we will increase efforts in compliance governance, invest in professional compliance teams, update compliance guidance, and provide compliance education materials for businesses; On the other hand, we will optimize the standards and processes for merchant entry and product listing from a technical perspective. By combining technology and manual screening, we will proactively inspect and manage products, strengthen the ability to discover and respond promptly to potential product safety risks.
At the exchange meeting, the management of Pinduoduo also reviewed the past third quarter. Zhao Jiazhen believes that the offline consumer market has shown good growth since the second half of this year. We can see that the domestic market in China is very active, but there are also many changes. The business model of the market is more diversified, and competition has become more intense
But he believes that when dealing with certain changes, the Pinduoduo team needs to constantly improve its own abilities.
He gave an example, "Macro policies that have had a significant positive impact on some industries and consumption since the beginning of this year. Our team is limited by the historical ability of third-party platform operations and has not fully grasped the dividends of these macro policies. As a result, in order to maintain the same product competitiveness, we need the platform to provide significantly higher costs than other peers, which will inevitably affect the current and future profitability of Pinduoduo platform
Zhao Jiazhen emphasized that in the future, Pinduoduo will further elevate its standards, strengthen its core business capabilities, continue to seek new investment opportunities in the supply chain and platform ecology, make long-term high-quality investments, and transform these capabilities into higher and more cost-effective products and services provided to consumers.
The management of Pinduoduo believes that in the long run, these efforts will benefit platform merchants, consumers, and the platform itself. Pinduoduo believes that upgrading its supply chain will create more value for consumers.
Within 24 hours of Pinduoduo's financial report release, several securities firms including CICC, Huatai Securities, CMB International, Everbright Securities, and Huaxing Securities (Hong Kong) gave ratings of "buy" or "outperform the industry".
In addition, H& P is believed to be managed by Duan Yongping, the founder of BBK; H International Investment Fund has also been exposed for significantly increasing its holdings in Pinduoduo in the third quarter.
Looking back at Pinduoduo's past, whether it was the domestic market's single order model or the cross-border platform Temu's "Team Up, Price Down" slogan, Pinduoduo not only found its own path, but also gradually consolidated the e-commerce "city" it had built.
Nowadays, the development of e-commerce has entered a new stage, and Pinduoduo seems to have decided to "slow down" and fight a long-term battle. This' slow 'is not a meaningless accumulation of time, but a stable and undisturbed posture. Under the temptation of short-term benefits, still persist in being "slow" and withstand the storm.
CandyLake.com is an information publishing platform and only provides information storage space services.
Disclaimer: The views expressed in this article are those of the author only, this article does not represent the position of CandyLake.com, and does not constitute advice, please treat with caution.
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