Talk about Pinduoduo Inc. 's third quarterly report and its investment value

Last Friday, Pinduoduo Inc. released its financial report for the third quarter of this year. In this financial report, the net profit was higher than the market expectation, but the revenue was lower than the market expectation. Unfortunately, the outbreak of a new variant Novel Coronavirus in South Africa triggered a global stock market crash, and the two factors combined to form a resonance, causing Pinduoduo Inc. 's share price to plummet.

Is Pinduoduo Inc. 's financial report really that bad? I read the earnings report on Friday night, After listening to the conference call, I read the financial report carefully over the weekend, It is basically certain that, Pinduoduo Inc. 's financial report is not too bad, The main reason for the sharp drop in stock price lies in the adjustment of the company's business strategy this year. There are also some changes in the revenue structure, but this change lacks communication with the capital market in advance, which leads to a big difference between the revenue and market expectations in this quarter. In addition, the US stocks were jittery last Friday night, so Pinduoduo Inc. 's share price showed a big decline.

This article is divided into two parts. In the first part, I will continue to talk about Pinduoduo Inc. 's business strategy last quarter. In the second part, it is relatively important. Is Pinduoduo Inc. worth investing in when it has fallen so badly?

In the first part, I first talk about Pinduoduo Inc. 's business strategy


We can better understand Pinduoduo Inc. 's operations by combining Pinduoduo Inc. 's financial data this quarter. Pinduoduo Inc. 's operating income in this quarter was 21.506 billion yuan, a year-on-year increase of 51%. Among them, the operating income of online marketing services was 17.947 billion yuan, a year-on-year increase of 44%; Commission income was 3.477 billion yuan, a year-on-year increase of 161%; Commodity sales revenue reached 82 million yuan, down 79% year-on-year. The company's revenue performance was lower than the market consensus expectation, mainly due to the obvious decline in the sales revenue of self-operated goods in Pinduoduo Inc., and the online marketing service revenue was also lower than the market expectation.

As for the sales revenue of self-operated goods, which has the greatest impact on operating income, Pinduoduo Inc. management said that the company mainly tends to let third-party merchants meet the needs of users, and only when third-party merchants cannot meet the needs of users, the company will adopt self-operated methods to fill the vacancy of users' needs.

Last quarter, Pinduoduo Inc. 's self-operated goods sales revenue was 2 billion yuan. Many investors and investment institutions believe that with the fierce competition of community group buying, Pinduoduo Inc. will increase its investment like Meituan, and its self-operated sales revenue will also rise sharply, especially for several major overseas investment banks. However, Pinduoduo Inc. 's self-operated sales revenue in the third quarter was only 80 million yuan, which was far from the market expectation.

This is the error in the judgment of revenue structure in the capital market caused by the change of operation mode. In fact, the company's own operation is still in a healthy growth state, so Pinduoduo Inc. 's financial report in the third quarter is not very bad.

In the third quarter, Pinduoduo Inc. 's net profit exceeded market expectations, achieving a net profit of 1.64 billion yuan under Non-GAAP caliber and a net profit of 3.152 billion yuan under GAAP caliber. The company continued to achieve a single-quarter profit.

In the second quarter, Pinduoduo Inc. 's net profit was 2.4 billion yuan, which greatly exceeded market expectations. In this quarter, it achieved a net profit of 1.6 billion yuan, with a total net profit of 4 billion yuan in the two quarters.

The main reason why Pinduoduo Inc. 's net profit exceeded expectations was that the investment in marketing expenses became more and more restrained. In the first quarter of this year, Pinduoduo Inc. 's marketing expenses were 13 billion yuan, while in the second and third quarters, they remained at around 10 billion yuan.

This is a very critical number. Since its establishment, Pinduoduo Inc. has taken the huge traffic brought by WeChat social fission as the first-class rocket, and the high-speed growth of GMV driven by tens of billions of subsidies as the second-class rocket, which has made the company create miracles in the impossible and become the third largest e-commerce giant in China in just a few years.

Within two years after the launch of the 10 billion subsidy strategy, Pinduoduo Inc. 's marketing expenses soared from 13.3 billion yuan in 2018 to 41 billion yuan in 2020, while JD.com's marketing expenses in 2020 were only 27 billion yuan.

This year, Pinduoduo Inc. stepped on a sudden brake on marketing expenses. In the second quarter, the marketing expenses were 10.4 billion yuan, up 14% year-on-year, and in the third quarter, the marketing expenses were 10 billion yuan, up zero year-on-year.

On the other hand, JD.com increased its marketing expenses in Jingxi and Alibaba in Taobao Special Edition. In the third quarter, JD.com's marketing expenses increased by 42% year-on-year, and Alibaba's marketing expenses increased by 66%, with a net increase of 11.5 billion yuan in a single quarter.

In fact, Pinduoduo Inc. has achieved moderate growth in a defensive manner, which can be said to be good. Pinduoduo Inc. 's annual buyers totaled 867 million this quarter, up 19% year-on-year. It is not bad to achieve such a result without increasing marketing expenses.

There is no doubt that the stage of high growth of users and GMV driven by the growth of high marketing expenses has passed. The annual buyers in Pinduoduo Inc. are 867 million, which will be close to 900 million at the end of the year and will definitely exceed 900 million next year. Basically, the ceiling can be seen, so strategic transformation is imperative.

Pinduoduo Inc. 's strategic choice is to deepen agriculture, I wrote an article last quarter explaining, This year, China's e-commerce industry entered the most competitive year, With the rapid rise of live e-commerce in Tik Tok and Aauto Quicker, and the government's ban on platforms to exert pressure on two brands, the competition for brand merchants among various home appliance platforms has become fierce, and Tik Tok e-commerce has become the biggest beneficiary by virtue of its traffic and user advantages, which makes Alibaba somewhat unbearable.

In this case, it is a good strategy to deepen agriculture and enlarge and strengthen agricultural products.

Since Chen Lei took over Pinduoduo Inc., he has continuously reduced marketing and emphasized research and development, and invested all the profits in the second and third quarters into the "10 billion agricultural research project". Continue to pay heavy attention to agriculture.

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During the Eleventh Golden Week, orders for agricultural products in Pinduoduo Inc. increased by 279% compared with the same period of last year. One end of Pinduoduo Inc. platform is connected with 867 million buyers and users, and the other end is connected with 16 million farmers. It can be said that Pinduoduo Inc. is the first platform for benefiting farmers.

Pinduoduo Inc. will invest 10 billion yuan in agriculture to upgrade the whole supply chain of agricultural products in China, including more digital production technology, more efficient logistics system, lower circulation loss and more personnel training.

Agricultural products can differentiate Pinduoduo Inc. from other platforms enough to ensure that Pinduoduo Inc. will become an e-commerce platform with 900 million users, and at the same time, it can enhance user stickiness and increase user repurchase rate. Products are the category with the highest stickiness for users. Pinduoduo Inc. still subsidizes the real value of goods, and the marketing expenses in the third quarter still exceed 10 billion yuan. In addition, Pinduoduo Inc. also knows more about people. For example, Liang Ning improved in his speech, users bought fruit chicken breast, Pinduoduo Inc. recommended sports bras, and users turned to other categories after frequent consumption of agricultural products.

While clarifying the business strategy, Chen Lei also accelerated the construction of young management. Chen Lei said that since the epidemic last year, many young members of the team have demonstrated their core values of serving users and society, and made practical business decisions and implemented them steadily. "In the next six months to one year, more young managers will go to the stage and play an important role in writing the future of the company."

In the first three quarters of this year, Pinduoduo Inc. 's R&D expenditure reached 7 billion yuan, with a year-on-year growth rate of over 40%. According to this growth rate, Pinduoduo Inc. 's annual R&D expenditure can reach 10 billion yuan, which is not easy for a company that has only been listed for three years. It is not easy to know that Pinduoduo Inc. 's R&D expenditure in 2017 is only 130 million yuan. Looking at the whole Chinese business community, there are really few companies willing to invest huge sums of money in agriculture to help farmers in research and development.

On October 12th, Fortune, a world-famous financial magazine, published the list of "Changing the World in 2021", in which Pinduoduo Inc. was impressively listed because of its special contribution in agriculture.

Pinduoduo Inc. 's strategic transformation from marketing to growth has entered the stage of launching the third stage rocket, which is the strategic stage of turning down and deepening agriculture. This marks that Pinduoduo Inc. has entered a more mature and stable strategic stage.

The second part, talk about the valuation of Pinduoduo Inc.


Pinduoduo Inc. 's share price plummeted, did investment opportunities come out?

In my opinion, Pinduoduo Inc. 's share price has entered the "aiming zone". Although it is not yet time to pull the trigger, it is not too far away.

Pinduoduo Inc. 's stock price plummeted this time, mainly because its revenue fell short of expectations, which was due to some discrepancies between the company's operating structure and market expectations. However, the company's overall operating conditions were relatively healthy, its strategic transformation was relatively smooth, and it also avoided fierce competition with other e-commerce platforms.

Pinduoduo Inc. 's GMV is expected to reach about 2.2 trillion yuan this year, which is about 30% year-on-year increase on the basis of 1.67 trillion yuan last year. Assuming that GMV will increase by about 25% year-on-year next year, the total amount of GMV can reach 2.75 trillion yuan,

For an e-commerce platform dominated by third-party merchants, GMV of nearly 3 trillion yuan will be very considerable.

In the first three quarters of this year, Pinduoduo Inc. 's revenue was 66.7 billion yuan, and the annual revenue must be above 90 billion yuan. If calculated at a growth rate of 25%, the total revenue next year will reach more than 110 billion yuan. If the marketing expenses are well controlled, even if the investment in R&D and agriculture will increase, Pinduoduo Inc. will enter a profit harvest period. For Pinduoduo Inc., a business model platform, it is not unusual to increase the net profit by one or two billion yuan a year.

At present, the market value of Pinduoduo Inc. is US $85.8 billion, which is 547.4 billion yuan at the exchange rate of 6.38. As of September 30, 2021, the company has cash, cash equivalents and short-term investment of RMB 97.9 billion.

After subtracting cash and cash equivalents from the account, the market value is about 450 billion yuan, which is about 70 billion US dollars. This price is definitely not high. I believe there is no problem for Pinduoduo Inc. to achieve a net profit of 10 billion to 20 billion a year in the future.

However, it is not Pinduoduo Inc. 's own price that prevents investors from pulling the trigger, but external market factors. US stocks are still in turmoil. At the same time, China's domestic regulatory storm for the Internet industry is still not over, and the shock of China Stocks will continue for some time. Investors have a high probability of waiting for better opportunities.

On the whole, Pinduoduo Inc. is still an e-commerce giant with nearly 900 million buyers and users. Moreover, the growth continues, the competitiveness of core business is constantly strengthening, and the profitability is constantly improving. The actual value of this company is not as bad as the plummeting stock price, but this contrast is creating opportunities for investors, who should have good patience to wait for the arrival of the "shooting moment".

$Pinduoduo Inc.(PDD)$

# 老虎财报热评

Disclaimer: The above content represents only the personal views of the poster and does not constitute investment advice on this platform.

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