Is Pinduoduo's user growth stagnating?

Pinduoduo (PDD) became a hot topic due to the “price-bargaining” storm.

A few days ago, a host invited tens of thousands of viewers in the live broadcast room to witness his participation in Pinduoduo's "bargain and get a free mobile phone" event, but in the end he failed even after bargaining to five decimal places. This incident once again caused users to question Pinduoduo's "bargaining" model for attracting new customers.

In fact, Pinduoduo’s “bargain and get it for free” campaign has been criticized for a long time, and after many users failed to participate in the campaign, Pinduoduo’s user data also began to suffer a “Waterloo”.

On the evening of March 21, Pinduoduo released its fourth quarter and full year financial report for 2021 ending December 31. The financial report shows that the company's monthly active users in the fourth quarter only increased by 1.9% year-on-year, and even decreased month-on-month.

Some industry insiders pointed out that the fourth quarter of each year is traditionally the peak season for e-commerce. The number of monthly active users of Pinduoduo App in the fourth quarter actually decreased by 8.1 million compared with the third quarter. This provides some insight into the dilemma of Pinduoduo 's user growth .

A senior industry insider told Caixin that "Pinduoduo relied on its own new customer acquisition methods to promote the company's rapid development in the early years. Now that more and more negative factors are emerging, it is a clear signal of a slowdown in growth."

However, relying on the user scale accumulated in the early stage, Pinduoduo still achieved a revenue of nearly 100 billion yuan, and its net profit turned from loss to profit.

In this regard, Zhang Xiaorong, director of the Deep Technology Research Institute, told Caixin reporters: "Pinduoduo achieved profitability in part because they received a one-time rebate from the server provider, which was a surprise profit."

On March 21, the first trading day after the release of the financial report, Pinduoduo's stock price turned from rising to falling, and finally closed down 6.13% to US$39.99 per share; its current total market value is US$50.1 billion, down more than US$200 billion from last year's high.

User growth is hindered

A live broadcast of price-bargaining has put Pinduoduo at the center of public opinion over its new model.

On March 17, a game anchor from the game live streaming platform Douyu used two hours of live broadcast to attract 60,000 to 70,000 viewers in the live broadcast room to witness a Pinduoduo bargaining event. The anchor said that his goal was to use the huge number of viewers to get a vivo phone for free, and then give the phone to the audience.

After a round of large-scale bargaining, the bargaining progress bar finally got stuck at 99%. According to the information the anchor later revealed on Weibo, he failed to bargain even after he had bargained down to five decimal places, and later had to give up the relevant bargaining activities. Surprisingly, after the anchor went off the air, he received a 0.01 yuan shopping voucher with no threshold, which allowed him to "successfully" buy the phone.

In response to this, Pinduoduo said that the claim of “failed to cut prices successfully” was untrue. Pinduoduo said that event information showed that the blogger had successfully bargained at 16:40 on March 17, and the platform had sent a special coupon to his account for the product according to the event rules.

Pinduoduo’s price-bargaining activities were also questioned by users earlier. Previously, Pinduoduo was sued for "always being one step short of bargaining". Public reports show that in January this year, Shanghai lawyer Liu Yuhang revealed details of his negotiations with Pinduoduo on a price-bargaining case, saying that for a mobile phone product he participated in price-bargaining at Pinduoduo, he was only 0.9% away from getting the phone for free, and the progress bar stopped at 99.1%.

The lawyer said that during the trial, Pinduoduo claimed that because the number of digits displayed on the page was limited, they omitted a percentage with at least 6 decimal places and displayed it as 0.9%.

Pinduoduo's problem of bargaining to attract new customers has attracted the attention of regulatory authorities. On May 10, 2021, according to the WeChat official account of the Shanghai Consumer Council, complaints in the Shanghai consumer market were generally stable before and after the May Day holiday, but at the same time, consumer disputes on online platforms were relatively concentrated and frequent. To this end, the Shanghai Consumer Council summoned Pinduoduo for a meeting in the afternoon of the same day and pointed out six prominent problems in Pinduoduo's consumer rights protection, one of the main problems of which was price-cutting to attract new customers.

The Shanghai Consumer Council requires Pinduoduo to abandon the traffic-only mentality in the process of operating its platform and truly implement the platform's main responsibilities from the perspective of protecting the legitimate rights and interests of consumers. It clearly requires the Pinduoduo platform to correct its false and misleading behaviors in its new customer acquisition activities in accordance with the requirements of relevant laws and regulations.

Behind the frequent problems of price-cutting to attract new customers, Pinduoduo's user data growth began to slow down.

On March 21, Pinduoduo released its financial report showing that the company's monthly active users in the fourth quarter of 2021 were 733.4 million, a year-on-year increase of 1.9% compared with 719.9 million in the same period of 2020; compared with 741.5 million in the third quarter of 2021, the number of monthly active users decreased by 8.1 million, a month-on-month decrease of 1.1%. As of the end of 2021, Pinduoduo's number of active buyers was 869 million, a year-on-year increase of 10.2%, and a net increase of 1.4 million quarter-on-quarter.

"Pinduoduo itself lacks innovation, and its old practices can no longer attract users," Zhang Xiaorong told Caixin reporters.

He believes that Pinduoduo's user growth has entered a period of deceleration. In addition to the lack of innovation, it is also affected by two major factors. First, the macroeconomic development is weak, domestic demand is sluggish, and the public's willingness to consume is declining; second, the e-commerce industry is highly competitive, and major platforms are competing fiercely for users, and Pinduoduo's advantages are weakening.

Can profitability continue?

Although user growth has slowed down, Pinduoduo's operating data is still impressive thanks to the user scale accumulated in previous years.

The company's latest financial report shows that in the fourth quarter of 2021, the company's revenue was 27.231 billion yuan, a year-on-year increase of 3%, lower than the previous market expectation of 30.1 billion yuan.

This is the first time that Pinduoduo's quarterly revenue growth has fallen to single digits year-on-year since it began keeping performance records. Previously, Pinduoduo's lowest quarterly revenue growth rate occurred in the first quarter of 2020, when the growth rate was close to 44%.

Looking at the full year of 2021, the company's revenue was 93.95 billion yuan, compared with 59.49 billion yuan in 2020, a year-on-year increase of 58%, mainly from the increase in online marketing service revenue and transaction service revenue.

This growth rate also set a new low since Pinduoduo started recording its performance. Wind data shows that Pinduoduo's revenue growth rate in 2020 was 97.37%. The revenue growth rate from 2017 to 2019 exceeded 100%.

Pinduoduo's main revenue consists of three parts, including merchandise sales revenue, online marketing service revenue and transaction service revenue. In 2021, the company's online marketing services and other revenue was 72.563 billion yuan, an increase of 51% from 47.954 billion yuan in the same period of 2020; transaction service revenue was 14.14 billion yuan, an increase of 144% from 5.787 billion yuan in the same period of 2020; merchandise sales revenue was 7.246 billion yuan, an increase of 26% from 5.75 billion yuan in 2020.

However, as revenue growth slowed, the company's profits turned from losses to profits.

The financial report shows that the company's net profit in the fourth quarter of 2021 was 6.62 billion yuan, far exceeding the market's previous expectation of 1.568 billion yuan. This is Pinduoduo's third consecutive quarter of profitability since the second quarter of 2021. At the same time, Pinduoduo achieved annual profit for the first time in 2021, with a net profit of 7.769 billion yuan; in comparison, in 2020, the company suffered a loss of 7.18 billion yuan.

Liu Jun, Pinduoduo's vice president of finance, said the company's profit growth in the fourth quarter was mainly due to reduced marketing expenses and the offset of one-time expenses.

Pinduoduo executives said at the performance meeting that marketing expenses continued to decline on a quarter-on-quarter basis from the first to the third quarter of 2021, with the decline reaching the lowest level in the fourth quarter.

Tianfeng Securities analysis believes that due to the slowdown in user growth and fluctuations in user purchasing activities, Pinduoduo's revenue growth has slowed down accordingly. Based on this, the reason why the company still achieved profitability in the fourth quarter of 2021 was that Pinduoduo implemented stricter expenditure control, and a service provider provided a one-time rebate, which made a certain contribution to the profit of the current quarter.

Regarding the turnaround from loss to profit amid slowing revenue, a senior industry insider told Caixin: "These listed Internet giants in China, including Pinduoduo, have basically lost their characteristics of rapid growth. Both revenue and users have reached the ceiling. Their valuation logic will also transform from growth stocks to high-performance stocks, so they need to work hard to achieve performance and profitability."

However, at the performance meeting, relevant executives of Pinduoduo stated that Pinduoduo has not changed its profit strategy. When it saw the slowdown in growth, Pinduoduo adjusted costs and reduced one-time commissions and other expenses.

Since its listing on the Nasdaq in the U.S. in 2018, Pinduoduo's stock price has experienced a roller coaster ride. After its number of users ranked first in the industry in 2021, its stock price experienced a highlight moment and once broke through the $210 mark. However, its stock price has continued to fall over the past year, hitting a low of $23.21 per share on March 15 this year, down nearly 90% from its previous high.

Author: Yang Xiuhong

Source: Reading One Number (ID: dushuyizhi007)