China’s high-flying ecommerce site Pinduoduo said it was braced for losses linked to the coronavirus outbreak after its fourth-quarter revenue growth fell short of expectations.
The Shanghai-based company has achieved rapid growth in the world’s largest ecommerce market by gamifying the shopping experience, allowing customers to team up to buy everything from discounted iPhones to oranges. But it has also used promotions, coupons and large subsidies to lure in those shoppers, running up large losses in the process.
For the three-month period ending December 31, Pinduoduo reported a loss of Rmb1.8bn ($251.6m) on Rmb10.8bn of revenue, with sales increasing 91 per cent from a year earlier. The company’s shares fell more than 4 per cent in early trading.
The fourth-quarter results refer to the period before the coronavirus outbreak paralysed China’s economy for much of the start of 2020, hurting both Pinduoduo and its main competitor Alibaba. The two companies struggled with a shortage of available couriers at their delivery partners, while many merchants were unable to run their online stores.
“A number of products were sold out on our platform and could not be replenished in time, and other products were experiencing shipment delays and [were] simply undeliverable,” said David Liu, vice-president of strategy.
Executives said on Wednesday that in the current quarter they had continued to invest in ensuring that everyday essentials and protective gear were even cheaper for shoppers during the outbreak. The company put the cost of the relief programme for consumers and merchants at Rmb1.6bn.
“In the face of surging prices, we felt the need to step in,” said chief executive Colin Zheng Huang, noting that they would also raise pay for the “vast majority” of staff.
“Many companies including Pinduoduo are likely to suffer economic losses that are yet difficult to quantify,” he said. Management declined to expand further on the hit to their business.
Steven Zhu, of research firm Pacific Epoch, said that “2020 will be very tough for them”, noting that he expected Pinduoduo to continue to buy growth with consumer subsidies and maintain its large losses.
The company’s strategy of spending heavily in order to offer discounted products has led some to question its business model. Mr Zhu said he expected shoppers to leave when the subsidies ended.
“Their customers have no loyalty, their merchants have no loyalty, the so-called PDD brand is not a brand — it’s just a price target because it’s cheap,” Mr Zhu said. Pinduoduo trades under the acronym PDD on Nasdaq.
Charlie Chen, head of consumer research at China Renaissance, said the company had spent 86 per cent of its revenues on sales and marketing in the fourth quarter. “Pinduoduo is like an online dollar store,” he said.
But even as its annual shopper count rapidly catches up with that of its chief foe — PDD has 585m compared with Alibaba’s 711m — the company faces competition from new apps from Alibaba and JD.com targeting its bargain-hunting shoppers.
PDD has repeatedly returned to capital markets to raise funding. In September of last year it raised $1bn by selling convertible notes, six months after completing a $1.1bn follow-on share offering, which in turn came barely six months after its $1.6bn initial public offering.
