The company joins the ranks of highly valued loss-making e-commerce platforms such as Alibaba, Amazon and Flipkart.
Founded in 2015, under parent Walnut Street Group Holding, Pinduoduo describes itself as “an innovative and fast-growing ‘new e-commerce’ platform that provides buyers with value-for-money merchandise and fun and interactive shopping experiences.”
PDD has become one of the fastest-growing start-ups in China by creating a sort of Facebook-Groupon mashup where people spot deals on products such as fruit, clothes or toilet paper, and then recruit friends to buy at a discount. It offers merchandise at up to 20 percent cheaper than market price by letting consumers buy directly from manufacturers, cutting out middlemen, advertising and acquisition costs.
In contrast to competitor Alibaba Group Holdings Limited, Pinduoduo uses a “team purchase” model where product information is shared through social networks by family, friends and social contacts who form shopping teams that have access to lower prices.
Between December 31, 2017 and the end of this year’s first quarter, the platform had an increase of 50 million active buyers rising from 245 million to 295 million.
Besides its reputation for low prices, PDD has benefited from a large base of users in lower-tier cities.
The idea behind PDD is to give people a different experience than at traditional e-commerce sites like Amazon.com or Alibaba, where shoppers tend to plug in a keyword and then pick out an item after sorting through a few options.
Pinduoduo’s daily active users surpassed that of JD.com in January and reached 55.9 million in June, according to research from Shenzhen-based consultant Jiguang. Alibaba’s Taobao app had 172 million daily active users and JD 34.3 million, it said.
In the first quarter of 2018, Pinduoduo’s operating loss was a whopping $40.3 million. Despite this, revenues grew exponentially from $5.56 million in the first quarter of 2017 to $208.19 million in same period this year. Operating expenses continue to increase with the Q1 2018 number being $210.3 million attributable to substantial rises in research and development and sales and marketing.
The company was founded by ex-Google engineer Colin Huang and counts Tencent Holdings Ltd and Sequoia Capital China as backers. Tencent owns 18.5%, and the majority of purchases are conducted through its WeChat app. Last April, Tencent participated in a round that raised $3 billion at a $15 billion valuation. This was its second investment in PDD after joining a round that raised $110 million nine months earlier. China Entrepreneur Magazine, citing unnamed sources, is indicating the $30 billion valuation for the loss-making tech company, double that from April.
Huang launched his career in Silicon Valley and then returned home to become a serial entrepreneur. His app is supposed to be more like a digital version of shopping at the mall with friends, where you can share ideas and get feedback from people you trust.
Pinduoduo will be issuing American Depositary Shares (ADS) which are dollar-denominated equity shares that can be purchased on an exchange in the US. The company has not chosen if it will list on Nasdaq Global Market or New York Stock Exchange.
- BUSINESS REPORT