Pinduoduo finally made a profit, but it still can’t stop burning money


Welcome to the wechat subscription number of chuangshiji
Wang Lifeng / Editor
Source: connect insight (ID: lxinsight)
Pinduoduo finally made a profit.
According to the third quarter financial report issued by pinduoduo on November 12, under the non-GAAP financial statistics standard, the company achieved a net profit of 470 million yuan, the first time to achieve a single quarter profit.
On the whole, pinduoduo has made a brilliant achievement. Pinduoduo’s revenue in the third quarter was 14.21 billion yuan, an increase of 89.1% over the same period last year; the annual active buyers of pinduoduo had reached 730 million person times, almost the same as that of Alibaba’s 760 million person times, especially in the third quarter, the annual active users of pinduoduo increased by 48.1 million, far higher than that of aribaba in the same period.
However, compared with the profit news, whether pinduoduo can continue to achieve profit is a more concerned topic.
From the increasingly heated e-commerce war in recent years, e-commerce giants have been scrambling to attack each other’s backyard in recent years.
Alibaba and Jingdong launched Taobao special edition and Jingxi focused on sinking markets such as the third and fourth tier cities, while pinduoduo attacked the first and second tier cities through a series of brand subsidies. The boundaries of the three e-commerce giants became more and more blurred, and the areas they were fighting in became more and more extensive.
In the main battlefield of e-commerce, the subsidy war among the three companies is still continuing, and the competition for users is becoming increasingly fierce.
On November 11, this year, Wang Hai, vice president of Alibaba and general manager of Taobao c2m business department, released the user data of Taobao special price version in the first three quarters. Among them, the monthly live data reached 70 million, and the annual active users exceeded 100 million, with a rapid development speed.
Although Jingxi did not release specific data, relying on the double 11 and subsidy war, the number of users in 3-6 tier cities increased by 84.2% year on year.
Pinduoduo also quickly opened the market of the first and second tier cities with the subsidy of 10 billion yuan. Huang Zheng, founder of pinduoduo, revealed on the financial report conference call that Gmv of first tier and second tier city users of pinduoduo platform accounted for 37% in January this year, and the proportion rapidly rose to 48% in June.
In the new battlefield, the popularity of community group buying and fresh food war has also reached a new high.
From the end of August this year, when pinduoduo went online to “buy more vegetables”, Ali, meituan and even didi successively joined the battlefield. In terms of personnel and logistics allocation, all the enterprises participating in the war showed unprecedented attention. Pinduoduo also said at its third quarter financial conference that it would increase investment in agricultural products.
In the past, pinduoduo’s mode of focusing on sinking market and “pinduoduo” social networking (multi person group shopping) has gone through. However, the brand building, supply chain, logistics and other infrastructure are still the weak points of pinduoduo. In the future e-commerce war, pinduoduo should continue to improve the systematic construction from suppliers, platforms to users, and it can not stop burning money.
The main battlefield of burning money
When the domestic e-commerce platform fell into the double 11 carnival, pinduoduo was quite silent. As always, he did not participate in the release of Gmv digital games.
According to the research of open source securities companies, pinduoduo mainly relies on daily subsidies of 10 billion yuan with double 11 red envelope rain coupons.
This is not surprising. Since pinduoduo launched the “10 billion subsidy” in February this year, in order to implement the concept of “let consumers have a shopping festival every day”, Zong Hui, the person in charge of pinduoduo’s 10 billion subsidy, said, “our goal is to make consumers pass 618 every day and double 11 every night.”.
Screenshots of some subsidized products
Therefore, for domestic e-commerce, double 11 is the top priority of the year, and for pinduoduo, it is more like a low-cost daily life.
According to the financial data of pinduoduo in the first, second and third quarters, the market expenses of pinduoduo were 7.3 billion yuan, 9.11 billion yuan and 10.07 billion yuan respectively, totaling 26.48 billion yuan. The average daily cost of pinduoduo was 100 million yuan from January to September.
The purpose of large-scale burning money is to achieve two goals. One is to defend the sinking market and confront Taobao special price version and Jingxi of Jingdong. On the other hand, subsidies are used to reduce the price of products with high customer price to attack the first and second tier cities.
Judging from the situation of sinking market, the current war shows a white hot trend.
In March this year, Taobao’s special edition was officially launched after more than a year’s public test. As the name implies, the new version of Taobao’s e-commerce app directly points to the low price and the sinking market of the third and fourth line. The commodity price of Taobao’s special price version is generally within 100 yuan, and the price control of “household appliances” and other commodities is about 50 yuan. Since then, Taobao’s special edition and pinduoduo also started a positive confrontation. In July, pinduoduo proposed “Zhenxiang Festival”, while Taobao’s special edition launched “more fragrant Festival” during the national day and Mid Autumn Festival.
In addition to the low price strategy to compete for users, the two sides in the industry chain competition is more intense.
With Taobao special edition, Alibaba’s c2m (direct user connection) strategy was launched. Wang Hai, the person in charge of Taobao’s special price version, once introduced that “our c2m is different from other traditional friends. C2m is essentially an economy of scale. It is not a complete personalized customization, but a mass customization. So it has to be based on the needs of a huge mass of people, and then to do new production. ”
Large scale personalized customization refers to that consumers place orders through the platform, and the factory directly carries out design, procurement, production and delivery after receiving the order, so as to realize the direct link from the factory to the user. The basis of this process is to require large-scale people with the same demand to place orders, so as to facilitate the mass production at the factory side.
However, the difference is that the Taobao special edition pays more attention to the construction of the factory side, because along with the launch of the Taobao special edition, there are super factory plan and 10 billion production area construction. Together with the Taobao special edition, they are called the three pillars of Taobao, which means that Taobao’s supply chain will continue to upgrade and respond to the needs of users through the digital construction of the factory.
The practice of pinduoduo is to feed back the needs of the same group of people to the factory through the mode of order making, so as to realize customized production. In the supply chain, pinduoduo has to face the attack of Taobao special price version.

On the day of the double 11, Taobao special edition officially announced that the annual number of active purchase users exceeded 100 million. According to trust data statistics, the month on month growth of Taobao special edition in the third quarter was as high as 66.6%, and the net increase in active users was nearly 20 times that of pinduoduo in the same period. Taobao special edition to spell many offensive can be said to be very fierce.
In terms of Jingxi, according to the double 11 war report, on November 11, Jingxi ordered nearly 15 million orders; from November 1 to 11, the daily active users of Jingxi app increased 260% year on year, driving the average daily order volume of industrial belt merchants to increase 15 times compared with September.
In the face of such fierce hunting, burning money is the inevitable choice for pinduoduo.
If facing the sinking market, low price subsidy is the shield of pinduoduo, and attacking the first and second tier cities with brand building is the spear of pinduoduo.
From the financial data released in the second quarter of pinduoduo in August this year, the share of Gmv in the first and second tier cities of pinduoduo has increased from 37% to 48%, which can be regarded as half stepping into the “Five Ring Road”.
In terms of subsidy strategy, pinduoduo has also shifted from daily consumer goods to low-frequency and high-price products such as electronic and digital products.
Moreover, with the growth of the platform, the opportunities for new brands are growing. Now pinduoduo has also cultivated Zhejiang Sanhe, jiaweishi and Nanfang life brands.
Pinduoduo’s brand strategy is still upgrading.
At the end of October this year, pinduoduo announced a plan to upgrade its new brand comprehensively. Its focus is to help OEM enterprises expand their sales volume and change their roles as employees to build their own brand.
With the support of subsidies and the improvement of various sectors, pinduoduo is rapidly catching up with “big brother” Ali.
Fresh vice battlefield — a bitter business
On November 12, pinduoduo’s third quarter financial report meeting also mentioned a key word – “buy more vegetables.”.
“We are ready to invest heavily in developing or accelerating infrastructure in the field of agricultural products,” David Liu, vice president of pinduoduo strategy, said at the meeting
Chen Lei, CEO of pinduoduo, also said that the slowdown of pinduoduo’s growth rate and the further increase of pinduoduo’s active users are also a reason for the launch of “Duoduo shopping”.
“Buy more vegetables” to enter the fresh market is not a new field. From the beginning of “Chu orange entering Beijing”, Chu Shijian, the older generation of entrepreneurs, has made great achievements in fruit forest business and opened up the fresh market in the urban circle.
Aware of the market trend, Internet giants have also launched a layout. In 2015, HEMA was established, and in 2016, dingdong community (the predecessor of dingdong to buy vegetables) was established. However, in the early stage of the fresh food market, on the one hand, the online scale was basically 0, and the users did not form the purchase cognition. On the other hand, the fresh food market was extremely harsh in the construction of the supply chain and logistics. During this period, the enterprises entering the market were more water testing and exploration, and did not set off too much storm.
By 2018, the scale of fresh food retail market will be 1.5 trillion, and the infrastructure of fresh online retail will be improved to some extent. In addition to the exploration of this field by HEMA fresh food and Ding Dong buying vegetables, VC is surging. Today, capital, Gaorong capital and Hongshan capital, including Tencent, Goldman Sachs and Tiger Fund, have begun to increase their investment in this field.
However, soon, the battlefield in the field of fresh food has been stretched too long. For example, the third and fourth tier cities also need to realize the construction of warehousing and logistics. They burn too much money and have no hope of making profits. As a result, VC has withdrawn one after another, and the battle of running naked to burn money for fresh food has come to an end.
However, the early fresh food war was not worthless. First, it explored the experience of community group buying and formed the purchase cognition of users. Secondly, it left some experience in the construction of basic communities such as cold chain logistics and front-end warehouse. Moreover, from the b-end to the C-end, the link between farmers, businesses and consumers has been established.
Up to now, fresh food war is a reconstruction of these bases, and what needs to be changed is the playing method and mode.
Huang Zheng, founder of pinduoduo, also commented on fresh food, “it’s a good business, but also a bitter business.”
“Good business” lies in that it is a large enough market. According to the 2020 online fresh food industry report released by China market information survey industry association, the fresh food market scale is expected to reach 247.57 billion yuan in 2020, with a year-on-year increase of 48.9%. As Chen Lei said, high-frequency and low-cost fresh food is very suitable for the natural extension of e-commerce.
“Bitter business” lies in the continuous investment of fresh money, and it is the same as the competition of competitors to burn money. Since the launch of “buy more vegetables” online, meituan has launched meituan optimization, meituan shopping, Didi’s online orange heart optimization. Alibaba’s hungry, HEMA, rookie and Ali agriculture have also been divided into multiple channels, and the war is rife.
At the third quarter financial report meeting, pinduoduo also specially emphasized the difference between “buy more vegetables” and community group buying. “Duoduo shopping is not an independent business, it is a service on our existing platform, and users can choose different services on our platform.” In this way, pinduoduo can bypass the group buying leader of the community, and users can place orders and deliver goods through the platform. Therefore, for pinduoduo, the problem of fresh food war has shifted from “group building” to infrastructure problems such as supply chain and logistics.
“We are already investing in human resources, we are already working with third-party services, we are also investing in warehousing and fleet management systems and will continue to optimize the e-commerce platform,” said David Liu. But we believe that in the future, we still need to make some investment in infrastructure development, including more localized guidance operation. ”
Pinduoduo has also launched intensive preparations, Huang Zheng said, “thousands of people have gone to Duoduo to buy vegetables and other new business lines.”.
Pinduoduo has made up his mind to spend money on this new track.
Chen Leidi said that “it is very important for us to make a lot of investment in infrastructure, and it is also very important for us to make sure that all the infrastructure needs will happen smoothly.”
Is it sustainable?
Although pinduoduo’s third quarter earnings report delivered a brilliant data. But compared with pinduoduo’s past development, the slowdown is also a fact.

In terms of Gmv, the annual Gmv of pinduoduo in the third quarter was 1457.6 billion yuan, with a year-on-year growth of 73.5%, lower than the growth rate of 143.7% in the same period of last year; the operating revenue was 14.21 billion yuan, with a year-on-year growth of 89.11%, a significant difference compared with 122.84% last year; in terms of ARPU (revenue per user), the year-on-year increase was 27.2%, and the data in the same period last year was 75.2%.
Pinduoduo has entered an “L” type of development stage, that is, after the explosive growth in the past few years, pinduoduo will enter into a slow and stable growth period.
Pinduoduo’s revenue growth and insight mapping
In terms of market value, Wu Qi, a senior analyst of Internet, told 36 krypton that according to the current market value of pinduoduo of nearly 160 billion US dollars and corresponding to 30 times of PE, pinduoduo should obtain at least 5 billion US dollars of net profit, which is still very small today.
Back to pinduoduo’s profit problem, pinduoduo’s accounting standards are not completely accurate. Pinduoduo adopts non GAAP in accounting standards. Compared with non GAAP, GAAP can more truly reflect the performance of the enterprise, because under the non GAAP standard, many non operating related and accidental profits and losses will be eliminated. Under the GAAP standard, pinduoduo lost 785 million yuan to its parent in the third quarter.
At the same time, the outside world is worried about whether pinduoduo’s user growth has touched the ceiling. In fact, at present, pinduoduo has achieved this volume through burning money subsidies. The slowdown will come sooner or later, and only by slowing down can it conform to the business logic.
Pinduoduo needs to improve its own short board, especially in getting rid of the “low price” label and brand building. So far, the product quality problems derived from pinduoduo’s “low price” have not been completely improved.
Product quality problems and brand building have always been the “lifeblood” of e-commerce. Early Taobao was also faced with the query of fake products and low brand. Later, through a series of supply side rectification and improvement of the after-sales system, and then to the independent launch of tmall brand, online gathering cost-effective was able to change.
Jingdong has the same problem, which is to ensure the quality of products through Jingdong’s self support, and Ali and JD have invested a lot in this respect.
Pinduoduo’s “carp leaping into Longmen” is not a simple thing, especially for pinduoduo, an e-commerce platform with its own “low-cost” gene, which started from the third and fourth tier cities, is more difficult for people to change their impression.
In recent years, pinduoduo has made progress in brand and quality control. Whether it can continue to make profits depends on whether it can retain users and improve ARPU on the platform.
Tuyuan pinduoduo Weibo
Pinduoduo achieved a single quarter profit this time, causing some doubts. However, previously, Jingdong also used the same accounting method to achieve its first profit in the second quarter of 2016. It took 18 years for Jingdong to establish in 1998, and only 5 years for pinduoduo.
After the announcement of the financial report, pinduoduo’s share price soared for two consecutive days, rising more than 20%. Pinduoduo has proved its ability to make money and the value of the previous 10 billion yuan subsidy.
It can be predicted that pinduoduo’s 10 billion subsidy can not stop, which is crucial for pinduoduo’s growth. The next challenge for pinduoduo is to cultivate internal skills and achieve sustainable profits, so as to become a comprehensive platform for stable growth.
(statement: This article only represents the author’s point of view, not Sina’s position.)