Pinduoduo’s moment for calm may be short-lived, facing fiercer competition from Alibaba

Source:Global Times Published: 2019/2/13 16:58:40

Pinduoduo's search for calm will go on. Even by Chinese tech company standards, the $31 billion e-commerce outfit, which pushes group discounts on everything from fresh produce to clothes, has had a volatile start, since it went public in July. A further $1 billion equity, raised on Friday, is a welcome step toward easing wild price swings, but ballooning losses, competition with Alibaba, and legal woes will continue to complicate matters.

The four-year-old company, led by former Google engineer and billionaire Colin Huang, has emerged as an unlikely challenger to Jack Ma's $434 billion e-commerce titan. Pinduoduo's services, matching "teams" of online shoppers with sellers, which has currently racked up over 400 million active users across China. Revenue is forecast to hit 12.2 billion yuan ($1.8 billion) in 2018, analysts at China Renaissance estimate, an impressive seven-fold increase from the previous year.

Yet the shares have ricocheted wildly since they started trading, dipping below the issue price on multiple occasions, as Pinduoduo  grappled with allegations of counterfeit products, an investigation from Chinese regulators, as well as a US lawsuit from a disgruntled diaper maker. It also caught the eye of short-sellers, with hedge fund Blue Orca accusing Pinduoduo of overstating revenue, among other things. The company said it had complied with the relevant US rules. In January, hackers stole tens of millions of yuan worth of discount vouchers.

One thing in its favor, however, is timing. Pinduoduo managed to sell the additional new and existing shares at a 32 percent premium to their initial market value, although at an 18 percent discount to the undisturbed price. Now the company's public free float will significantly increase to over 13 percent, leading to improved liquidity, which should, in turn, help to reduce sharp impact of a few buyers and sellers. 

Other headaches, however, will  still need to be addressed. Even as Huang has promised to cooperate with regulators and vet the app's sellers and products, competition with Alibaba is pushing Pinduoduo further into the red: operating losses in the nine months to September soared more than tenfold from a year earlier, and are on track to hit $1.7 billion for the full year, according to the average analyst forecast on Refinitiv. Pinduoduo's moment of calm may be short-lived.

The author is Robyn Mak, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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