**Chinese E-commerce Giant Pinduoduo’s Market Value Drops by $55.37 Billion Overnight**
Chinese e-commerce platform Pinduoduo Holdings saw its market value evaporate by $55.37 billion overnight. The “pessimistic” signals conveyed by Pinduoduo’s management in its financial report have unsettled the market even more compared to the specific data in the performance report. Economists point out that e-commerce platforms are a direct window to observe people’s livelihoods, and with the current overall weak domestic demand in China, the prospects for industries directly related to people’s livelihoods are not optimistic.
On August 27th Beijing time, Pinduoduo closed at $100 per share, plummeting by 28.51%, with a total market value of $138.877 billion. Overnight, Pinduoduo’s market value dropped by $55.37 billion.
This stock plunge not only affected Pinduoduo but also dragged down the entire Chinese concept stock market. Alibaba’s stock price fell by 4.27%, reducing its market value to $191.6 billion. On November 29, 2023, Pinduoduo’s market value once surpassed $192.4 billion, surpassing Alibaba for the first time to become China’s highest-valued e-commerce enterprise. However, in just over half a year, Pinduoduo has fallen from its peak.
On August 26, Pinduoduo released its second-quarter financial report ending June 30, 2024. The report showed that Pinduoduo’s second-quarter revenue was 97.06 billion Chinese yuan (approximately $13.62 billion), an 86% year-on-year growth, lower than the market’s expected 99.985 billion Chinese yuan (approximately $14.025 billion).
After the release of the financial report, the market’s reaction to Pinduoduo’s revenue falling short of expectations was intense. In the first quarter, Pinduoduo’s revenue was 86.8 billion yuan (approximately $12.2 billion), nearly $10 billion more than market expectations.
In fact, looking at the overall e-commerce industry, Pinduoduo’s financial data is not bad. Alibaba’s latest financial report shows that in the last quarter, its subsidiary Taotian Group’s revenue was 113.337 billion yuan (approximately $15.956 billion), a 1% decrease year-on-year. JD.com’s retail business revenue reached 257.072 billion yuan (approximately $36.192 billion), a 1.5% increase year-on-year, with operating profit of 10.11 billion yuan (approximately $1.42 billion), a 24.2% increase year-on-year. Vipshop, also focusing on low prices and value for money, had revenue of 26.9 billion yuan (approximately $3.77 billion) in the second quarter, a decrease of $1 billion yuan (approximately $140 million) from the same period last year. In terms of revenue and profit growth rates, Pinduoduo still leads most of China’s e-commerce peers.
The financial report shows that Pinduoduo’s revenue grew by 11.8% quarter-on-quarter in the second quarter. Considering that this quarter includes the e-commerce “618” mid-year promotion, this quarter-on-quarter growth rate suggests that Pinduoduo may face a more significant slowdown in growth in the coming quarters. In comparison, in the second quarter of 2023, Pinduoduo’s quarter-on-quarter growth rate was as high as 38.9%.
Overall, from the second-quarter financial report, Pinduoduo is still achieving growth and continuing to maintain a leading growth rate in the e-commerce industry. However, in a fiercely competitive market environment, Pinduoduo is also gradually being absorbed into the trend of weakened e-commerce growth.
Interestingly, two weeks before Pinduoduo’s stock price plunge, the company’s founder, Huang Zheng, was named China’s richest man by the Bloomberg Billionaires Index. However, with Pinduoduo’s stock price slump, Huang Zheng’s net worth plummeted by $14.1 billion. According to the Bloomberg Billionaires Index, Huang Zheng is currently the fourth richest person in China, with a net worth of $35.2 billion. Zong Shanshan, Chairman of Nongfu Spring, reclaimed the top spot on China’s rich list with a wealth of $50 billion.
On August 28, Taiwan’s overall economist Wu Jialong, in an interview with Epoch Times reporters, stated that the decline in domestic demand in China is closely related to employment and income. If employment and income can continue to rise, consumer purchasing power can be maintained or even increased. However, the current market’s pessimistic view on domestic demand stems from employment and income falling short of expectations.
Wu Jialong said that in this situation, consumer spending will be affected, indicating a growing pessimism about employment prospects. Small and medium-sized enterprises may face bankruptcy or layoffs, leading to a deterioration of employment and income conditions. He said, “Basically, if you want to track the real economy, the first thing to look at is employment. Employment drives income, income drives confidence, and ultimately boosts the purchasing power of the domestic market. This is the logic behind it.”
Qiu Junrong, a professor of economics at National Central University in Taiwan, told Epoch Times that e-commerce platforms reflect “residents’ economy,” being the most direct window into people’s livelihoods. If people’s livelihoods improve, e-commerce platform revenue will also improve. However, the current overall weak domestic demand situation in China has led to significant stock price declines, which is not surprising. He believes that not just Pinduoduo, but industries directly related to people’s livelihoods, especially the e-commerce industry, may also face challenging conditions.
Beyond the specific data in the financial report, what worries the market more is the pessimistic signals transmitted by Pinduoduo’s management during the financial conference call.
Pinduoduo’s Chairman and Co-CEO Chen Lei stated that the past profit growth was mainly due to the asynchrony between the short investment cycle and the financial cycle, which cannot be a guide for long-term development. He mentioned that the current business is facing fierce competition and the impact of external environmental factors, leading to fluctuations in business development and a slowdown in revenue growth.
Pinduoduo’s Vice President of Finance, Liu Jun, also mentioned that due to increased competition and external challenges, revenue growth will inevitably face pressure, and profitability may also be affected.
During the financial report conference, Pinduoduo management explicitly stated that “future profits will gradually enter a downward trend.” As Pinduoduo faces a slowdown in revenue and profit growth, this statement conveys anxiety far beyond Pinduoduo’s current situation.
An employee from Pinduoduo revealed to Chinese media that within the company, employees indeed feel the weakening of competitive advantages and the pressure brought by their peers. Against the backdrop of weak consumer spending, major e-commerce platforms are ramping up subsidies, which to some extent erodes Pinduoduo’s cost advantage.
Another major concern for Pinduoduo is the “significant increase in uncertainty,” mainly pointing to the development of Temu. This e-commerce retailer operates the discount-promotion-focused platform Pinduoduo in China and the Temu e-commerce platform in international markets.
Temu entered the U.S. market in September 2022 and quickly became one of the most downloaded applications, growing to become one of the world’s fastest-growing e-commerce platforms with over 200 million global monthly active users.
Currently, Temu has expanded to over 70 countries and regions globally and has rapidly expanded in several markets in the U.S. and Europe. Data from website analysis tool SimilarWeb released in December 2023 shows that Temu had 467 million independent visits, on par with Alibaba’s AliExpress, ranking second globally. Amazon, the most visited with 2.65 billion users, ranked first.
However, during the financial conference call on August 26, Chen Lei stated that Pinduoduo’s global business is facing a more severe and accelerating international environment with an increasing interference of abnormal commercial factors. There is a significant increase in uncertainty in future business development, and a gradual slowdown in revenue will be an inevitable result. He also mentioned that the company is facing fierce competition on multiple fronts and is still in the investment stage, with no plans for buybacks or dividends in the coming years.
Qiu Junrong expressed that in recent years, the overall economic downturn in China, the sluggish real estate market, and poor employment conditions have led to a cliff-like decline in consumer confidence in the domestic market. Therefore, it is not surprising that Pinduoduo is pessimistic about future market prospects. The front-line private economy feels the continued slump in consumer spending, resulting in a generally pessimistic outlook on the development prospects of various enterprises.
Qiu Junrong stated that in foreign trade relations, whether it’s new energy products like electric vehicles, known as the “new three items,” or traditional industries like steel, the Chinese Communist Party (CCP) sells products through dumping. In fact, Chinese e-commerce platforms operate similarly in overseas markets, employing the same low-price competitive tactics.
He said, “China is a manufacturing powerhouse. Chinese e-commerce platforms obtain products at lower costs compared to local platforms in Europe and the U.S., causing a significant impact on European and American e-commerce platforms. Faced with strong competitive pressure from Chinese e-commerce platforms, European and American e-commerce platforms have begun to retaliate, accusing Chinese e-commerce platforms of unfair competition.”
Qiu Junrong added, “Therefore, European and American governments and markets have begun to resist Chinese e-commerce platforms, including Pinduoduo.” He elaborated saying, “This means that the good times in the past have ended, and now competitors are fighting back. Therefore, the future prosperity in overseas markets may be hard to replicate.”
Pinduoduo’s overvaluation in the last two years is closely related to Temu’s rise. Although Pinduoduo’s financial reports do not directly reflect Temu’s performance, the growth curve of Pinduoduo’s commission income closely aligns with Temu’s business expansion timeline. However, in recent years, Pinduoduo faces increasing compliance risks in overseas markets.
Since the beginning of this year, Temu has faced increasing regulatory pressure in the U.S., and its growth in monthly active users in the U.S. has started to slow down. The U.S. and the EU are reviewing multiple allegations against Temu, including forced labor, product safety, intellectual property infringement, tax loopholes, and privacy violations.
Tim Griffin, Attorney General of Arkansas, previously warned that U.S. users should be vigilant about the Temu marketplace application, as its actual business involves “data theft.” He stated that Temu is not an online marketplace like Amazon or Walmart but a company that conducts data theft through the sale of goods.
Griffin explained that the company uses malicious and spyware to invade users’ phones and devices, collecting their data. He said, “Temu not only collects traditional consumer data but also obtains all user information through malicious software and spyware. Additionally, its code-writing method can evade detection.”
He also mentioned that Temu is operated by the parent company based in Shanghai, China, and within the company, there are “former CCP officials” serving in positions.
The Texas Public Policy Foundation also issued a similar warning about the application, stating that it can “access virtually all content on the phone,” meaning that CCP officials could “theoretically install applications and spyware on personal devices to monitor all user activities.”
Anders Corr, publisher of the U.S. political risk magazine Political Risk, and head of Corr Analytics, raised a risk.
Corr, who also writes for the English Epoch Times, in a column warned that Temu appears to be intent on replacing Amazon, and swift action is needed from Washington. He cautioned that if intervention is delayed until Temu establishes a foothold in the U.S. market, a challenge similar to TikTok’s could arise.
In his article, Corr wrote, “Temu can push viral marketing, beat competitors with products below market costs, selectively target U.S. manufacturers with low-priced products to eliminate them from the market, then raise prices to monopoly levels, or use supplies for political purposes. Beijing has used this trick before.”
Corr also stated that Temu’s goal might be to replace Amazon, so U.S. consumers should be cautious of products promoted by the CCP.