Pinduoduo's Rollercoaster: 86% Revenue Surge Meets 28% Stock Plunge, Founder Loses Crown
Tuesday, Aug 27, 2024 5:00 pm ET
1min read On August 26, Pinduoduo released its second-quarter results, showing revenues of RMB 97.06 billion, an 86% increase year-over-year, but falling short of the expected RMB 99.985 billion. Despite the impressive growth, the financial report triggered a sharp drop in Pinduoduo’s stock price by over 30% during intraday trading, closing down 28.51% at $100 per share.
This was the largest one-day decline since its 2018 IPO, profoundly impacting the net worth of its founder Huang Zheng, who saw his fortune plummet by $14.1 billion, consequently losing his position as China’s richest individual. While the financial performance was notable, falling short of sky-high market expectations led to immediate adverse reactions.
Goldman Sachs maintained a positive outlook on Pinduoduo, attributing the drastic market response to several factors. Firstly, investors had set high expectations ahead of the earnings release, leading to a 20% stock price increase since late July, whereas the KWEB index decreased by 4% during the same period.
Secondly, the slowing growth in online marketing services raised concerns, with a year-over-year increase of 29% falling short of the market’s forecasts. Management's conservative guidance for slower future revenue growth, attributing it to intensified competition and an emphasis on high-quality development, further amplified investor fears.
In a conference call, the management stated that Pinduoduo would take RMB 10 billion over the next 12 months to support high-quality merchants, aiming for long-term investment rather than immediate returns. This balance between “support and governance” is set to cultivate a more sustainable ecosystem.
Despite the dramatic stock price fluctuations, Goldman Sachs continued to endorse Pinduoduo with a buy rating. According to their report, the current low Price-to-Earnings (P/E) ratio, under 10 times, already reflects investor concerns about domestic competition and geopolitical tensions related to the Temu business. They highlighted that Pinduoduo’s Gross Merchandise Volume (GMV) and transaction services income exceeded expectations, driven by the sustained momentum of Temu.
Pinduoduo maintains a robust technology-driven strategy, leveraging its advertising technology capabilities and competitive supply chain. The company is projected to experience growth fueled by these strategic investments, which Goldman Sachs projects will yield long-term gains.
However, the report also warned of potential downside risks, including lower-than-expected returns on e-commerce investments, heightened geopolitical challenges, and fiercer competition from major players. Additionally, the lack of detailed performance disclosure for different segments could complicate the analysis of domestic and international (Temu) performance.
Hence, while the road ahead appears challenging with anticipated short-term profit sacrifices, the focused strategy on high-quality development positions Pinduoduo for sustained growth, as underscored by continued institutional support.
This was the largest one-day decline since its 2018 IPO, profoundly impacting the net worth of its founder Huang Zheng, who saw his fortune plummet by $14.1 billion, consequently losing his position as China’s richest individual. While the financial performance was notable, falling short of sky-high market expectations led to immediate adverse reactions.
Goldman Sachs maintained a positive outlook on Pinduoduo, attributing the drastic market response to several factors. Firstly, investors had set high expectations ahead of the earnings release, leading to a 20% stock price increase since late July, whereas the KWEB index decreased by 4% during the same period.
Secondly, the slowing growth in online marketing services raised concerns, with a year-over-year increase of 29% falling short of the market’s forecasts. Management's conservative guidance for slower future revenue growth, attributing it to intensified competition and an emphasis on high-quality development, further amplified investor fears.
In a conference call, the management stated that Pinduoduo would take RMB 10 billion over the next 12 months to support high-quality merchants, aiming for long-term investment rather than immediate returns. This balance between “support and governance” is set to cultivate a more sustainable ecosystem.
Despite the dramatic stock price fluctuations, Goldman Sachs continued to endorse Pinduoduo with a buy rating. According to their report, the current low Price-to-Earnings (P/E) ratio, under 10 times, already reflects investor concerns about domestic competition and geopolitical tensions related to the Temu business. They highlighted that Pinduoduo’s Gross Merchandise Volume (GMV) and transaction services income exceeded expectations, driven by the sustained momentum of Temu.
Pinduoduo maintains a robust technology-driven strategy, leveraging its advertising technology capabilities and competitive supply chain. The company is projected to experience growth fueled by these strategic investments, which Goldman Sachs projects will yield long-term gains.
However, the report also warned of potential downside risks, including lower-than-expected returns on e-commerce investments, heightened geopolitical challenges, and fiercer competition from major players. Additionally, the lack of detailed performance disclosure for different segments could complicate the analysis of domestic and international (Temu) performance.
Hence, while the road ahead appears challenging with anticipated short-term profit sacrifices, the focused strategy on high-quality development positions Pinduoduo for sustained growth, as underscored by continued institutional support.