Pinduoduo’s strategy sows further seeds of doubt – Reuters

People are seen at their desks at the headquarters of Chinese online group discounter Pinduoduo in Shanghai, China July 25, 2018. Picture taken July 25, 2018. REUTERS/Stringer

Register now for FREE unlimited access to reuters.com

HONG KONG, Nov 25 (Reuters Breakingviews) – Pinduoduo (PDD.O) stormed onto the scene by going hard at Alibaba (9988.HK), but its larger rival’s struggles are unlikely to be of much use now. Following policy crackdowns and rising costs, the smaller Chinese e-commerce company has lost nearly 40% of its market value over the past six months and is expected by analysts to swing back to an adjusted quarterly operating loss . New boss Chen Lei would benefit from looking beyond farming for growth.

A meteoric rise helped $102 billion Pinduoduo overtake Alibaba by one measure last year, as it reached nearly 800 million active users. When Pinduoduo unveils third-quarter results, planned for Friday, sales are forecast to have increased 87% from a year earlier, according to estimates compiled by Refinitiv. More good news could be hard to find.

While Alibaba is subsidising merchants and sacrificing revenue to placate Beijing, Pinduoduo instead may have milked customers to wring more out of them for ads and beyond. Complaints from some vendors have surfaced on social media saying that they’ve been asked to either cut prices or pay more for customer traffic.

Register now for FREE unlimited access to reuters.com

That risks attracting more regulatory attention in the age of common prosperity. And unlike JD.com’s (9618.HK) mostly self-sufficient operation, Pinduoduo’s marketplace model already resembles Alibaba’s in ways that are irritating Beijing. Alibaba’s steeper-than-expected slowdown partly reflects those concerns. Pinduoduo could be even more vulnerable: it banked on consumers referred from Tencent’s (0700.HK) WeChat app, but such exclusive arrangements are being shaken up by new policy initiatives.

Increased competition threatens profitability. Pinduoduo’s sales and marketing costs are seen climbing by 50% after a brief plateau. General expenses, including at least $1.5 billion pledged for agricultural initiatives over time, are also expected to soar and without any obvious return in sight.

All eyes will be on its grocery division, Duo Duo Grocery, for signs of progress, but new restrictions on subsidies could lead to disappointment for the fledgling operation. Alibaba’s diversification into cloud computing, Southeast Asia and beyond ultimately may provide some cushion. Chen’s challenge will be to dig up fresh places to invest to justify Pinduoduo’s premium valuation.

Follow @ywchen1 on Twitter

CONTEXT NEWS

– Quarterly revenue at Chinese e-commerce company Pinduoduo is expected to grow 87%, to 26.6 billion yuan ($4.2 billion), from a year earlier, according to analyst forecasts compiled by Refinitiv. Its adjusted operating loss in the three months ending Sept. 30 is expected to widen from a year ago, to 617 million yuan, after generating a profit in the previous quarter.

– Pinduoduo plans to report its latest financial results on Nov. 26.

Register now for FREE unlimited access to reuters.com

Editing by Jeffrey Goldfarb and Thomas Shum

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

Sorgente articolo:
Pinduoduo’s strategy sows further seeds of doubt – Reuters

User ID Campaign ID Link
d9a95efa0a2845057476957a427b0499 l-99999994 Small Business CRM
d9a95efa0a2845057476957a427b0499 l-99999993 B2B Keyword tool
d9a95efa0a2845057476957a427b0499 l-99999996 Webinar Software
d9a95efa0a2845057476957a427b0499 l-99999984 Free Web Host