China Internet

Q2 China Internet Star Pinduoduo Visits KraneShares

We were fortunate to have Miranda Shek, head of International Corporate Affairs at Pinduoduo(PDD)1, come to visit our office in New York to discuss her company.

Pinduoduo, whose name literally means “together, more and more”, just finished up a fantastic second quarter. The company’s revenue grew by 169% year over year. Second quarter revenue came to 7.29 billion RMB compared to an analyst estimate of 6.11 billion RMB2.

The company got its start by offering discounted produce and other food items through their mobile app. They have since grown their product offering and now represent a formidable force in the ecommerce space. The most important way by which Pinduoduo distinguishes itself from its competitors is its “team purchasing” model. Under this model, users receive discounts simply by having their friends and family buy the same products alongside them.

Miranda noted that this approach to shopping works particularly well in China. She commented that Chinese consumers tend to mimic the purchases of their friends. She used women’s clothing as an example, explaining that Chinese women often willfully choose to purchase the same dress as their friends as sign of status, friendship, and equal footing.

The team purchasing approach has also allowed Pinduoduo to penetrate markets that had previously been left out of the broader rise of ecommerce in China. The model means that young people may invite their less tech-savvy friends and even older family members to enter a purchasing group with them, thereby creating new customers from different demographics.

This innovative strategy has led to immense growth and considerable success for the company. Pinduoduo has surpassed 3 in terms of market share and is now the second largest ecommerce platform in China behind Alibaba4.

Pinduoduo’s founder and CEO Colin Huang is a former Google developer. He has adapted Google’s values of openness and focus on the user experience to his company. As a result, Pinduoduo is perhaps the most flexible and accessible name in Chinese ecommerce. Unlike competitors and Alibaba, Pinduoduo remains focused solely on the end-user experience, rather than seeking to dominate the entire supply chain of goods. While JD and Alibaba have invested heavily into the development of their own payment and logistics systems and subsequently made their platforms exclusive to those services, Pinduoduo accepts all payment types and is open to all logistics providers. Pinduoduo’s sole focus is the software facilitating purchases.

During our conversation, Miranda decided to dispel some rumors about her company and China’s consumer markets in general. She asserted that despite being more appealing to price sensitive cosumers at its start, Pinduoduo has always held market share in both lower-tier and upper-tier cities. According to Miranda, describing the distinction between lower-tier and upper-tier cities as one of relative purchasing power is a mistake. There are people of all income levels living in both lower-tier and upper-tier cities. Furthermore, Miranda reminded that, rich or poor, saving money has a universal appeal. Therefore, her company’s aim is to expand its customer base up the income ladder, not necessarily toward upper tier cities such as Beijing and Shanghai on China’s eastern seaboard.

We asked Miranda about her company’s experience listing in the United States and foregoing listing on a Chinese exchange. She explained that it can be difficult to explain to US investors what her company is all about. Many US-listed Chinese companies that are popular among investors have some sort of US proxy, i.e. Alibaba and Amazon. However, Pinduoduo has no such analogue in the United States. Miranda said that she constantly finds herself correcting misinterpretations of her business, such as its being likened to Groupon in the US. She remarked, as well, that a more proactive approach on the part of her company to investor education is necessary for US investors to truly conceptualize the company’s particular brand of value creation. In short, The services that Pinduoduo offers are not just new to China, but new to the world.

Miranda noted that there are many exciting developments yet to come for her company. While she said that her company is committed to China as its sole customer base at the moment, overseas expansion may be somewhere down the line. In the case that it expands overseas, Pinduoduo would seek to adapt itself to the needs of users in other countries, rather than push its original China strategies upon foreign markets. Also, she highlighted the fact that China will be introducing a new set of ecommerce consumer protection laws. Pinduoduo has the privilege of actively working closely with regulators to develop this legal framework, a task which plays to its strength at placing the customer first.

Miranda Shek: “The fun thing for me was seeing how PDD learned who I am and what products to recommend to me. It’s clever and interactive. I managed to get my entire family to join PDD.”

This article is intended for educational purposes only and should not be construed as investment advice. All opinions or views expressed in this article are current only as of the date of this article and are subject to change without notice.

  1. PDD % of KWEB net assets as of 8/30/2019: 6.38%
  2. Data from Bloomberg as of 6/30/2019
  3. JD % of KWEB net assets as of 8/30/2019: 6.67%
  4. BABA % of KWEB net assets as of 8/30/2019: 9.68%

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