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Pinduoduo IPO opening bell Shanghai July 2018
Pinduoduo listed on the NASDAQ in a $1.6 billion IPO in July 2018. Image credit: Pinduoduo

‘China’s largest ag platform’ reports bumper growth, founder quits for foodtech

March 18, 2021

Pinduoduo founder Colin Huang has resigned from his roles as chairman and director of the Chinese agrifood e-commerce platform, just as it reported better-than-expected financial results for the past year.

In a statement, Pinduoduo said that Huang stepped down “to pursue research in the food and life sciences, disciplines where breakthroughs could drive the future of China’s largest agriculture platform.”

Former chief technology officer Chen Lei, who replaced Huang as CEO in July last year, has been appointed to take over as chairman while continuing in his current role.

In a letter to shareholders, Huang said that Pinduoduo’s success in boosting farmer incomes and cutting costs for consumers had been driven by its improvements in downstream distribution and midstream supply chain efficiency.

But he suggested that the company will need to shift its focus to upstream innovation, in areas such as foodtech and biotech, to remain relevant in the longer term.

“Improved efficiency in distribution and sales still does not fundamentally add value to agricultural products, nor inherently improve our health significantly,” he wrote.

“What can we do if we were to take a step further and go beyond efficiency improvements? As the founder of this company, I am probably the most suitable person to take on this task by stepping out of the business and the comfort zone.”

$42 billion in agrifood products

Huang, a former software engineer at Microsoft and Google, established Pinduoduo in 2015 as a farmer-to-consumer business. Initially it purchased produce from growers before selling it on to shoppers, but later transitioned to a pure marketplace, hosting third-party vendors on its site and connecting them directly to consumers.

The Shanghai-based company was one of the pioneers of the community group-buying model, which allows individual consumers to team up via the Pinduoduo app and collectively buy goods in bulk from sellers. This enabled customers to get better bargains on produce, while farmers were able to sell larger amounts and cut their costs.

Pinduoduo gradually began to sell other goods through its platform, though agrifood products have remained its focus. In April 2019, it launched Duo Duo Farm – an educational platform aimed at upskilling farmers in areas like online selling, marketing, and business management. Later that year it introduced Duo Duo Live, allowing its farmers and other merchants to get in on China’s livestream-selling craze. Duo Duo Maicai, a next-day grocery service, was launched during the Covid-19 pandemic in August 2020.

It listed on New York’s NASDAQ stock exchange in a $1.6 billion IPO in July 2018.

The company claims it handled over ¥270 billion ($42 billion) of agriculture-related products in 2020, connecting more than 12 million farmers with hundreds of millions of consumers.

Xingsheng raises $700m from JD as group buying faces food industry backlash – read more here

Huang’s departure was announced just as Pinduoduo published better-than-expected annual and quarterly results.

Total annual revenue almost doubled year-on-year, beating analysts’ predictions by reaching ¥59.5 billion ($9.12 billion) from FY2019’s ¥30.1 billion ($4.63 billion), driven by an increase in revenues from online marketing services and merchandise sales.

Pinduoduo’s operating loss widened slightly from ¥8.54 billion ($1.31 billion) in FY 2019 to ¥9.38 billion ($1.44 billion) in FY 2020.

The platform clocked just over 788 million ‘annual active buyers’ (AABs) between January and December 2020, marking a 35% increase on FY2019’s 585 million and beating Alibaba’s 779 AABs over the same period – the first time that Pinduoduo has overtaken its better-known domestic rival in terms of user numbers.

Gross merchandise volume (GMV) — in other words, the total value of goods sold — in FY 2020 reached ¥1.67 trillion ($256 billion) – a 66% increase on FY 2019.

‘Path to profitability remains unclear’

However, all was not as rosy as it may at first seem. Mitchell Kim, an independent analyst publishing on equity research platform Smartkarma, pointed out that Pinduoduo still isn’t profitable – unlike Alibaba.

“GMV growth continued to decelerate in Q4 2020. Pinduoduo needs both buyer numbers and revenue-per-buyer to [grow at least 30% per quarter] to maintain 60%-plus revenue growth. It recorded 35% and 23% growth, respectively, in Q4,” he wrote.

“The path to profitability remains unclear. Gross margin continues to come under pressure and operating loss margin widened [excluding new merchandise sales]. We don’t see meaningful evidence of ‘ready-to-turn profitable’ yet.”

“To be fair, revenue growth was still impressive at 146% year-on-year. However […] this did not lead to operating profit,” Kim added.

“We can, and should, do more,” CEO and newly anointed chairman Chen said during an investor conference call about the results.

“We hope that in the next stage Pinduoduo will become the world’s largest agriculture and grocery platform, and [will] make groceries sourced around the world affordable and available to our users.”

Pinduoduo has been variously described — by itself and by observers — as “the world’s fastest growing tech company” and “China’s largest agriculture platform.” It claimed to have handled

But its spectacular ascent has come with a human, as well as a financial, cost. In January, it was reported that one Pinduoduo employee died, purportedly of exhaustion, after working regular morning to late-night shifts; while one of the company’s engineers committed suicide. Another employee later posted a video on social media claiming that Pinduoduo expects some staff to work as much as 380 hours per month; he was subsequently dismissed by the company.

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