PDD still has a way to go but if the top line growth accelerates on the same trend along with the rapid acquisition of new users then the potential is there.Ĭhinese e-commerce sales in 2016 amassed to $750bn from 460m online shoppers according to Goldman Sachs. PDD posted RMB 37m total revenue in Q1 2017 which grew by about 37 times to RMB 1.38bn by Q1 2018, during this period the company posted a net loss of RMB 0.2 bn. Growth in daily active users: Source: Bloomberg, Jingdau Strong user growth and revenue growth coupled with 77% margins should allow Pinduoduo to become profitable by next year as the additional revenues will go straight to the bottom line (if the current business model is maintained). As lower tier cities become larger and wealthier they will inject further consumption potential into the economy, if PDD can continue to harvest this the company will continue to grow rapidly. PDD has a large following from China’s lower tier cities and has so far managed astronomical growth in daily active users, surpassing JD.com earlier this year (see below graph). This provides robust gross margins of around 70%. Revenue is largely generated via the services as PDD does not sell any of its own inventory. This discount is achieved through allowing consumers to purchase directly from manufacturers. New users are enticed as friends can use referrals to band together for group discounts, the merchandise is around 20% cheaper than in store. The app is designed to imitate shopping with friends in a mall, on a digital platform. PDD is only three years old and is already the 6th most downloaded app on the Chinese app store. PDD plans to sell 85.6 million American Depositary Shares at a mid-price of $17.5 giving the company a valuation of $19.8bn before they have made a profit. "We have consciously built our platform to resemble a 'virtual bazaar' where buyers browse and explore a full spectrum of products on our platform while interacting with one another," the company said in the Pinduoduo IPO prospectus. PDD describe themselves as "Costco meets Disneyland", combining value and entertainment. Rapidly growing Pinduoduo has ambitions to dethrone Alibaba’s Taobao and JD.com in the Chinese e-commerce leagues by rapidly acquiring new users.
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