Pinduoduo's Earnings Surge Despite Warnings of Future Profit Decline

Pinduoduo (PDD) shares rose 4.77%.
On August 26, Pinduoduo released its Q2 2024 earnings report. During the earnings call, the company's co-CEOs warned the market that Pinduoduo’s high growth is unsustainable, and a decline in net profit in the upcoming quarters is inevitable.
The company aims to transition from high growth to high-quality growth, investing 10 billion yuan to support new quality merchants and waiving 10 billion yuan in fees for premium merchants. Additionally, Pinduoduo plans to upgrade its technology to foster a sustainable platform ecosystem.
CEO Chen Lei mentioned that Pinduoduo faces new challenges amid evolving consumer demands, intensified competition, and global uncertainties. Enhancing supply chain capabilities and efficiency is crucial for Pinduoduo's high-quality development.
In Q2, Pinduoduo reported revenue of 97.1 billion yuan, an 86% year-on-year increase, yet down 45 percentage points sequentially. The adjusted net profit attributable to shareholders was 34.4 billion yuan, a 125% increase year-on-year. However, this performance did not meet market expectations of 99.985 billion yuan.
Comparing Pinduoduo's performance with competitors reveals that although its growth rate has slowed, it remains a company with stable growth. In the past three quarters, its revenue growth was 94%, 123%, and 131% year-on-year, respectively.
The slowdown was attributed to intensified competition and external environment factors, explaining that past profit growth was due to the short-term investment cycle not aligning with the financial reporting period. This cannot be seen as a long-term guide.
Pinduoduo's commitment to sustainable, high-quality development means investing in premium merchants, which will impact short-term profits but is essential for long-term health.
Example cases like Bozhou's herbal tea industry have shown significant growth, spurred by Pinduoduo's support, resulting in 5,000 merchants employing 80,000 people with industry revenues reaching 10 billion yuan. These merchants are leading trends in new consumer goods through product iteration and technological innovation.
To support such merchants and industries, Pinduoduo is investing heavily. Zhao Jiazhen emphasized that on the supply side, Pinduoduo will continue enhancing its support for premium brands, including subsidies and promotional events, while improving the agricultural supply chain.
In Q2, Pinduoduo's "Cloud Farming" initiative brought seasonal fruits to urban markets, leveraging technology and subsidies to help farmers sell their produce.
This quarter has solidified Pinduoduo's path towards high-quality growth. The company intends to further build its ecosystem, bolstering consumer goods from agricultural regions and supporting merchants.
Pinduoduo’s management understands the significant effort required in creating a sustainable platform ecosystem. This involves large-scale investments in superior merchant support while ensuring the platform's offerings are well-curated.
In conclusion, Pinduoduo is steadfast in adopting a quality-focused growth strategy, advocating for long-term investment and readiness to endure short-term profit fluctuations for a sustainable future.