Chinese e-commerce platform Pinduoduo collapses after lack of revenue

The Pinduoduo logo can be seen in this illustrative photo taken July 17, 2018. REUTERS / Thomas White / Illustration

BEIJING, Nov.26 (Reuters) – U.S.-listed shares of Pinduoduo Inc (PDD.O) plunged to 18% early in Friday after the Chinese ecommerce platform missed expectations of quarterly income as new coronavirus outbreaks hit consumer spending.

Shares of Shanghai-based Pinduoduo had already fallen nearly 54% this year as Chinese authorities cracked down on big tech companies to control monopoly practices and protect personal data.

Pinduoduo said third-quarter total revenue of 21.51 billion yuan ($ 3.37 billion), lower than analysts’ average estimate of 26.59 billion yuan, according to IBES data from Refinitiv.

New clusters of COVID-19 outbreaks in China have prompted consumers to become more cautious about spending.

On a earnings conference call, general manager Chen Lei said the company will focus more on investing in research and development. “This is a significant change in strategy from our first five years where we focused a lot more on sales and marketing,” he said.

Natalie Wu, managing director of Hong Kong-based brokerage firm Haitong International, said the move in the share price before the market was released was an overreaction. “The seemingly large shortfall is largely due to low-margin self-managed products, and the growth in the GMV (gross value of goods) market is indeed quite resilient amid macroeconomic headwinds,” she said in a research note.

“Pinduoduo’s growth rate is stabilizing as it approaches 900 million users,” she added.

The company said during the call for the results that it plans to increase investment in technological agricultural solutions to meet critical industry needs.

“Investment in agriculture will be heavy and long-term,” said Liu Xingliang, an independent Internet analyst based in Beijing. “It’s good for the business in the long run, but investors won’t be as patient.”

Liu also said that Pinduoduo’s growth rate is slowing as its user base nears a peak. “The aggregation phase for a large number of new users is complete.”

U.S.-listed shares of rival Alibaba Group Holding Ltd, which slashed its annual earnings outlook earlier this month, fell 2.7%, while those of JD.com Inc were 1.7 %. Read more

Meanwhile, Meituan (3690.HK) forecast weaker prospects for its core food delivery business next year, after reporting its biggest quarterly loss in three years. It has also faced economic headwinds as consumption in the world’s second-largest economy slows. Read more

Pinduoduo said the number of its average monthly active users in the quarter increased 15% to 741.5 million.

Excluding items, it gained 2.18 yuan per share, against estimates of 0.15 yuan.

($ 1 = 6.3880 yuan Chinese renminbi)

Report by Tiyashi Datta in Bangalore and Sophie Yu in Beijing; Editing by Susan Fenton, Mark Potter and Anil D’Silva

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