Asia E-commerce

Pinduoduo’s Rapid Growth Slows Sharply

Source: SuperSymmetry Technologies

Chinese discount shopping app Pinduoduo has grown explosively to challenge the country’s biggest ecommerce giants, Alibaba and JD.com, paving the way for the company to go public in the U.S. in July. But new data suggests Pinduoduo’s growth in transactions has slowed in the past four months, throwing into question whether the group-buying app’s viral spread will continue.

The previously unpublished data, from Beijing-based analytics startup SuperSymmetry Technologies, suggests the Nasdaq-listed company might not meet analysts’ expectations this year for gross merchandise volume. That’s a measure of the total value of orders in its online marketplace. (See above chart.) GMV is distinct from revenue and is a closely watched metric that shows how fast an ecommerce site is growing relative to its competitors. That uncertainty could fuel volatility in the stock, which jumped as high as $30.48 a share last week, after weeks of trading around its IPO price of $19. On Tuesday, Pinduoduo stock was trading around $24, giving the company a market capitalization of about $27 billion.

The Takeaway
A sharp slowdown in growth at Chinese discount shopping app Pinduoduo could mean its rapid growth phase has come to an end. Pinduoduo was threatening bigger rivals Alibaba and JD.com.

Shanghai-based Pinduoduo, a marketplace where a pair of shoes can be as cheap as a few dollars, is the bargain basement of China’s $1 trillion ecommerce market. To buy an item on Pinduoduo, each shopper teams up with other shoppers to make a group purchase. The company describes itself as a mix between Costco and Disneyland, meaning it provides both value for money as well as entertainment, according to company statements. To encourage consumers to spend more time in its app, the company offers game-like features where users can win discount coupons and other rewards.

The three-year-old ecommerce startup, founded by ex-Google employee Colin Huang, began to grow rapidly in early 2017 by making its marketplace available within China’s ubiquitous social-messaging app, WeChat.

Pinduoduo has said GMV in the trailing 12 months through June rose nearly seven-fold to 262.1 billion yuan when compared with 38.4 billion yuan in the same period last year. However, it didn’t provide monthly or quarterly GMV figures. Year-on-year comparisons between two 12-month periods smooth out seasonal bumps, such as lower sales during a holiday period, but may mask emerging short-term trends.

Pinduoduo’s month-over-month GMV has grown at a much slower rate since April, according to SuperSymmetry, which sells data to venture-capital and investment firms such as GGV, Sequoia and Hillhouse.

“As a listed company, Pinduoduo is unable to comment on market speculation,” a company spokesman said. “The data provider has no access to Pinduoduo’s operating data. We do not recognize such data, and our strong quarterly earnings is where our data is released.”

A SuperSymmetry representative said it’s confident with its methodology, which the startup uses to track other popular ecommerce sites in China. SuperSymmetry’s data, produced by machine-learning algorithms that scrape changes to Pinduoduo’s app every hour, provides new insight into the company’s performance. It raises questions about whether the Chinese company is capable of sustaining momentum.

Like Alibaba’s popular Taobao marketplace, Pinduoduo earns revenue primarily by collecting advertising fees from merchants that pay for keyword ads that show up during product searches and other marketing tools. A slowdown in the site’s overall transactions doesn’t necessarily mean a slowdown in revenue growth.

In the second quarter, Pinduoduo’s revenue skyrocketed to 2.71 billion yuan from 104.6 million yuan in the same quarter last year, according to company statements. The year-on-year growth rate is dramatic partly because Pinduoduo’s ad business for merchants was still new and tiny one year ago. However, its net loss for the quarter widened to 6.5 billion yuan from 110 million yuan in the same period last year, the company said.

Goldman Sachs predicts Pinduoduo’s GMV this year will triple from last year to $64 billion.

To meet that estimate, Pinduoduo’s month-over-month GMV would need to grow at a faster pace for the remainder of the year versus recent months, data shows.

For example, Pinduoduo’s GMV in August was 3.2% higher than July, according to SuperSymmetry. That’s much slower than month-over-month growth of 27% between July and August last year, the data shows.

While Pinduoduo hasn’t disclosed much about its users, data from Chinese research firms suggest the app’s popularity has been fueled by strong demand from consumers who don't live in China’s richest and most developed cities such as Beijing, Shanghai and Shenzhen. Pinduoduo has helped introduce ecommerce to first-time online shoppers who typically reside in rural areas and rely entirely on brick-and-mortar stores.

Nearly half of Pinduoduo’s items cost less than 50 yuan ($7.30) each, according to data compiled by SuperSymmetry. Pinduouo has started selling more high-ticket items to broaden its customer base, although clothes still make up the largest category of its transaction volume, its data shows. In August, the top-selling product by GMV was a 20-yuan pair of shoes from the Playboy VIP Collection that was purchased more than 800,000 times, according to its data.  

SuperSymmetry, founded by Hengkui Wu, a former research physicist, and Gabriel Morris, a former banker at Goldman Sachs, presented last month at the Morgan Stanley China Technology, Media and Telecom Conference. Although the startup can’t track individual consumers’ shopping records, its numbers were within 95% accuracy of Pinduoduo’s released figures for GMV in both the trailing 12 months through March and the trailing 12 months through June.

—Yunan Zhang contributed to this report


Juro Osawa is a reporter covering tech in Asia, from Alibaba and Tencent to startups. He previously worked for The Wall Street Journal. He is based in Hong Kong and can be found on Twitter at @JuroOsawa.
Wayne Ma is a reporter covering U.S. tech in Asia, from Apple's supply chain to Facebook's and Google's operations in the region. He previously worked for The Wall Street Journal. He is based in Hong Kong and can be found on Twitter at @waynema.