Pinduoduo, a Chinese e-commerce platform that rose rapidly with its innovative group-buying model, has gained market recognition for strong revenue growth and proactive social responsibility initiatives. It also shows亮点 in international expansion and agricultural innovation, but faces regulatory challenges and the need to fulfill social responsibilities.
Earnings Overview
Pinduoduo's Q2 2024 earnings showed revenue up 85.7% year-over-year to RMB 97.06 billion, missing analyst expectations of RMB 100.1 billion.
Net profit attributable to ordinary shareholders was RMB 32.0094 billion, up 144% YoY; adjusted net profit was RMB 34.4321 billion, up 125% YoY, beating market expectations. On a per-share basis, net profit was RMB 21.61, and adjusted EPS was RMB 23.24, above the analyst estimate of RMB 20.43. Revenue growth was mainly driven by transaction services, which surged 234% YoY to RMB 47.9437 billion. Online marketing services and other revenue grew 29% YoY to RMB 49.1159 billion.
On the cost side, Q2 cost of revenue was RMB 33.6981 billion, up 80% YoY. Operating expenses rose 48% YoY to RMB 30.7969 billion, with sales and marketing expenses at RMB 26.0491 billion, up 48% YoY.
Management said that due to intensifying competition in e-commerce, the company plans to waive RMB 10 billion in fees for quality merchants over the next year to support sustainable ecosystem development. The company will continue to increase investment in operations and R&D, which is expected to impact short-term profits but is necessary for long-term healthy growth. R&D spending in Q2 reached RMB 2.9 billion, up 6% YoY.
Pinduoduo's cash flow remained strong, with net cash from operating activities in Q2 at RMB 43.7926 billion, up 87.2% YoY. As of June 30, 2024, the company held RMB 284.9 billion in cash, cash equivalents, and short-term investments.
(Source: Pinduoduo)
(Source: Futu Moomoo)
(Source: Futu Moomoo)
(Source: Futu Moomoo)
Key Business Analysis
Pinduoduo's Q2 online marketing services and other revenue (mainly advertising) grew 29% YoY to RMB 49.12 billion, below market expectations of 33.1% growth.
Q2 transaction services revenue grew 234% YoY to RMB 47.9 billion, below market expectations of 248.6% growth.
Outlook
The company will waive RMB 10 billion in transaction fees over the next year and increase investment in agriculture and high-quality development. Pinduoduo said future profits will gradually trend downward, a necessary cost for long-term health.
Management Discussion & Analysis (MD&A)
Pinduoduo Chairman and Co-CEO Chen Lei said that the platform's overall scale has become considerable, and improving the ecosystem is not a one-time effort. Management has reached a consensus to sacrifice short-term profits for long-term investment.
Chen also said that e-commerce competition has intensified this year, and the platform will invest tens of billions of resources to support new-quality merchants, waiving RMB 10 billion in fees for quality merchants over the next year, to continuously improve supply chain quality and efficiency, and enhance ecosystem governance to cope with increasing competition.
Notably, the earnings performance was not particularly disappointing and did not deviate significantly from expectations, so it should not have caused such a large drop. The key issue was CEO Chen Lei's response to a question from Bank of America Merrill Lynch analyst Joyce Ju, where he said:
"The profit growth in the past few quarters is the result of asynchronous short-term investment cycles and earnings cycles, and cannot be used as long-term guidance. Additionally, our business is currently facing fierce competition and some external environmental factors, which will inevitably bring volatility to our business development, and revenue growth will also slow down." This is understandable, as Chinese concept stocks often face envy from overseas forces after growing large, especially with TEMU focused on the North American market facing sanctions and performance constraints. However, the statement "I and other management all agree that capital-level buybacks or dividends are not appropriate at this time. In the foreseeable future of several years, we also see no need for this" ignited investor panic. Intel's recent announcement of no dividends caused its stock to drop over 30% in a single day, and management's conservative stance on future dividends and buybacks raised questions about the company's sustainable development prospects.
Market Reaction
(Source: Futu Moomoo)
As of press time, Pinduoduo fell over 28% in a single day, once dropping over 30%
(Source: Futu Moomoo)
Trading volume expanded rapidly compared to previous days, ranking second in US stock market turnover, about ten times that of Apple, which ranked eighth.
Below is the remaining part of the earnings report:
(Source: Pinduoduo)
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Risk Disclaimer: The views in this article are for reference only and do not represent any investment advice. Market risk exists; invest with caution.
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