At a delicate moment of intense market value competition and industry competition with Alibaba, Pinduoduo continues to soar.
On May 22, Pinduoduo (NASDAQ: PDD) released its financial report for the first quarter of 2024 as of March 31. The financial report shows that the total revenue of the company during the reporting period was 86.8121 billion yuan, a year-on-year increase of 131%. The net profit attributable to ordinary shareholders of Pinduoduo was 27.9978 billion yuan, a year-on-year increase of 246%; Not in accordance with US GAAP, the net profit attributable to the common shareholders of Pinduoduo was RMB 30.6018 billion, a year-on-year increase of 202%.
According to the financial report, revenue growth is mainly driven by an increase in revenue from online marketing services and transaction services. Pinduoduo stated that benefiting from the recovery of domestic GDP growth to over 5% in the first quarter of 2024, seasonal factors such as Spring Festival consumption, and favorable policies such as trade in, the group achieved steady growth in its first quarter performance.
For five consecutive quarters, Pinduoduo's performance has exceeded market expectations, and it seems that Pinduoduo is more willing to "hide" itself. Regarding Temu's overseas business, which has attracted much attention from the outside world, the financial report did not disclose more detailed data and information. At the analyst conference after the financial report was released, the company's executives stated that they are not fixated on short-term performance, but rather focus on high-quality development and long-term value creation. They advised investors not to predict long-term growth based on short-term performance.
Regarding the intensification of industry competition, Chen Lei, Chairman and Co CEO of Pinduoduo Group, responded that he welcomes healthy competition as his peers increase their investment.
High quality development entering deep water areas
In 2023, the competition in the e-commerce industry is exceptionally fierce, and peers are reshaping their low price mentality. Starting from the second quarter of 2023, Pinduoduo will vigorously promote its high-quality development strategy. From the current perspective, Pinduoduo will continue to deepen its high-quality development strategy in 2024.
"After our long-term investment, we are delighted to see that the Pinduoduo platform's mindset of 'being more affordable and providing good service' is gradually taking root in people's hearts," Chen Lei said during a conference call. Pinduoduo stated that 2024 is an important year for deepening high-quality development and increasing investment. Zhao Jiazhen, Executive Director and Co CEO of Pinduoduo Group, pointed out that "in the future, the company will continue to make efforts in three aspects: consumer side, supply side, compliance, and platform ecology."
From the financial report data, it can be seen that behind the continuous growth of revenue, sales and marketing expenses are also continuously increasing. Pinduoduo's total revenue in the first quarter of 2024 was 86.8121 billion yuan, an increase of 131% from 37.6371 billion yuan in the same period of 2023.
The overall operating expenses of Pinduoduo in the first quarter of 2024 were 28.1437 billion yuan, an increase of 44% from 19.5827 billion yuan in the same period of 2023. Among them, sales and marketing expenses amounted to 23.4107 billion yuan, an increase of 44% from the same period in 2023 of 16.2597 billion yuan, mainly due to increased expenses on promotions and advertising activities.
However, it is worth noting that while Pinduoduo's revenue has increased, its transaction service revenue has exceeded its online marketing service revenue. According to the financial report, Pinduoduo's revenue from online marketing services and other services in the first quarter was 42.4562 billion yuan, an increase of 56% from the same period in 2023, which was 27.2444 billion yuan; The revenue from trading services was 44.355.8 billion yuan, an increase of 327% from the same period in 2023, which was 10.3926 billion yuan.
The growth of transaction service revenue represents the continuous growth of commission income from merchants (including commission income from Duoduo Maicai, partial commission income from billion yuan subsidy projects, commission income from cross-border e-commerce platforms, etc.), and the potential for commission growth reflects specific indicators such as GMV (total commodity transaction volume), number of merchants, and order volume growth.
"From the financial report data, in the face of fierce competition from peers, Pinduoduo still dares not recklessly shrink its investment. However, Pinduoduo is shifting towards more efficient ways of making money, which is the potential meaning of high-quality development. A long-term observer of Pinduoduo pointed out that it is transitioning from relying on sales to relying on commissions to make money. Once the minds of cheap and good products are formed, they will continue to accumulate into transactions.".
On the consumer side, Pinduoduo stated that it will continue to improve in terms of "more affordable" and "good service".
Taking the first quarter of this year as an example, in terms of "multiple benefits", Pinduoduo launched the New Year's Goods Festival in early January, investing over 3 billion yuan in on-site resources and red envelope discounts, and continuously offering profits through activities such as billion yuan subsidies, ten thousand person groups, and multi person groups.
In terms of "good service", the "old for new" action for consumer goods is one of the important measures to promote consumption nationwide this year. Pinduoduo actively collaborates with third-party service platforms to provide users with "old for new" services, covering categories such as mobile phones, digital devices, air conditioners, refrigerators, washing machines, televisions, etc. Currently, the number of service users has exceeded ten million.
In addition, to enable consumers in remote areas to enjoy the shopping service of "free shipping area", Pinduoduo has upgraded its express delivery service and pioneered free delivery of e-commerce packages to villages in remote provinces, shortening the distance between the end delivery network and consumers to within 2 kilometers. Thanks to this, the platform's order volume in these regions has grown rapidly year-on-year, forming a virtuous cycle of improved platform service capabilities and business growth.
Low key competition
In sharp contrast to the soaring performance, the management of Pinduoduo remained low-key.
At the analyst conference after the performance announcement, Chen Lei responded to the competition by saying that consumers have formed the habit of "cross platform consumption". Consumers will compare and make choices from multiple dimensions such as product category, price, and service quality among different platforms. "Faced with such a trend, we see that in the first quarter, peers have significantly increased their investment and welcome healthy competition."
When discussing performance growth, Chen Lei reiterated the content of Pinduoduo's first shareholder letter when it went public, emphasizing that the company's performance development is not linear, sometimes "too good", sometimes "biased", and should not be simply measured by quarterly performance.
Faced with the highly anticipated second growth line of Pinduoduo - its cross-border e-commerce platform Temu (Duoduo Cross border), Chen Lei said, "Duoduo Cross border is still in the exploratory stage and there is still a lot of room for improvement."
According to Pinduoduo, Temu was launched in September 2022 and has currently promoted high-quality products from over a hundred manufacturing industry belts across the country to more than 50 countries and regions worldwide. Since the beginning of this year, Temu has also carried out dozens of industrial belt docking activities in the Yangtze River Delta, Pearl River Delta, Beijing Tianjin Hebei, and Jiaodong regions, including 12 large-scale comprehensive industrial docking meetings, to support more industrial belt enterprises to seize new opportunities for export.
It is worth noting that Temu launched a semi hosted model in the first quarter. At present, this model has been extended to multiple countries such as the United States, Canada, the United Kingdom, and Australia. A Temu merchant confirmed to reporters that the biggest change in the semi custody model is that merchants can flexibly choose transportation modes, and warehousing and logistics have changed from a mandatory option to an optional one. The semi custody still has "free entry and zero commission", but still emphasizes lower prices than competitors.
In addition, competitors are also vigorously promoting the semi custody model. Unlike Pinduoduo, the semi hosting model promoted by Alibaba AliExpress is to transfer pricing power and brand operation to merchants, and the platform solves logistics fulfillment services. Last March, AliExpress launched Choice overseas based on its custody model, with both fully managed and semi managed products labeled as Choice and enjoying Choice traffic. Choice orders account for over 70% of the overall orders on AliExpress.
From the current competition, the competition in overseas markets has rapidly replicated the tactics of domestic e-commerce business. Taking Alibaba as an example, it is also grafting its own ecological resources into overseas markets. However, in overseas business, The situation faced by Temu is obviously more complex. In addition to its inherent competitors, it also needs to compete on the same platform as Amazon, while considering the risks and impacts that geopolitics may bring The above Pinduoduo observers believe that Temu is still in the expansion stage, and in addition to a positive charge in the market, Pinduoduo clearly wants it to be more covert in its external strategy.
How will Temu compete in overseas markets in the next step? Chen Lei said that during the tough battle, we will not overly focus on Temu's short-term growth, but should practice internal skills, strengthen the foundation, and strengthen the supply chain, compliance, and service capabilities. "When these capabilities come together to bring more and more value to consumers from different countries and businesses seeking international market expansion, we hope that the platform can also gain more market and audience welcome and recognition."