The pace of making money slows down, while the high-quality development of Pinduoduo accelerates.

Pinduoduo has presented the first financial report after the "Ten Billion Subsidy Reduction".

On November 21, Pinduoduo released its financial report for the third quarter of 2024 ending on September 30. The financial report shows that Pinduoduo's revenue in the third quarter of 2024 was 99.4 billion yuan, an increase of 44% year-on-year. The market estimate was 102.8 billion yuan, which is more than 3 billion yuan lower than expected.

The net profit attributable to ordinary shareholders of Pinduoduo was 25 billion yuan, an increase of 61% year-on-year, which is also lower than the market consensus expectation of 29.2 billion yuan. Compared with the growth rate of 86% in the previous quarter, the growth rate of revenue has slowed down. The net profit decreased by 22% quarter-on-quarter.

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Specifically, the revenue from online marketing services and other services in the third quarter was 49.4 billion yuan, an increase of 24% compared to 39.7 billion yuan in the same period in 2023; the revenue from transaction services was 50 billion yuan, an increase of 72% compared to 29.2 billion yuan in the same period in 2023.

Like revenue and net profit, commission income (that is, transaction service income) also failed to meet market expectations, being 3 billion yuan less than expected; on the other hand, although advertising income (that is, the revenue from online marketing services and other services) did not fall below expectations, it still maintained a trend of slowing growth, dropping from a growth rate of 29% in the previous quarter to 24% in this quarter.

Due to the performance falling short of expectations, Pinduoduo's stock price dropped by 15% before the market opened on the day the financial report was released. The strong reaction is more due to the market's high expectations for Pinduoduo. Self-comparison, although not as outstanding as the previous performance figures, objectively speaking, Pinduoduo's performance still remains stable when placed in the overall industry environment.

The reason behind the slowdown in the growth pace is that Pinduoduo has increased its investment in ecological construction.

In the third quarter, Pinduoduo has successively launched several major initiatives such as the "Ten Billion Subsidy Reduction", "E-commerce Westward Expansion", and the "New Quality Merchant Support Program". More than ten million merchants have achieved cost reduction and efficiency increase, and also provided a wider range of high-quality supplies for consumers.

"In the past quarter, we have launched a series of subsidy reduction and support measures. Through real money refunds and reductions, we have promoted merchants to reduce costs and increase income, and pushed the industrial belt into a new stage of high-quality development," said Zhao Jiazhen, Executive Director and Co-CEO of Pinduoduo Group.

Chen Lei, Chairman and Co-CEO of Pinduoduo Group, said: "As we said last quarter, we have increased the intensity of ecological investment in this quarter, and have received positive feedback on both the supply and demand sides."

Not afraid of the current slowdown in the growth pace, Pinduoduo is more willing to sacrifice the speed of making money in exchange for more certainty in the future. Just as the company said in the first letter to shareholders issued when it went public in 2018 - Pinduoduo will be a company that dares to invest in the future and is based on the long term.

01

From Words to Actions

Looking back at the Pinduoduo conference call in the second quarter, there are already traces to be found regarding the latest quarterly performance.

At that time, Chen Lei said that the overall scale of the platform has reached a considerable size, and improving the ecological construction is not an overnight task. The management team has reached a consensus and is prepared to sacrifice short-term profits for long-term investment.

For this reason, Pinduoduo announced that it will further expand the investment scale, and will invest 10 billion resource packages to strongly support new quality merchants and new quality industrial belts with product and technological innovation capabilities, and will significantly reduce the transaction fees of high-quality merchants. It is expected to reduce 10 billion yuan in the next year.

In the following few months, Pinduoduo has continuously launched a series of detailed policies around the "Ten Billion Subsidy Reduction". 36Kr Future Consumption may sort them out for everyone:

On August 13, Pinduoduo launched a refundable right for technical service fees to merchants. For product orders generated by participating in in-site activities, after the user initiates a refund, the platform will refund 1% of the basic technical service fee for the pay-after-use orders and 0.6% of the basic technical service fee for other orders in proportion.

At the end of August, this right was further upgraded. In addition to enjoying the refundable right for service fees, the technical service fees for orders generated by merchants participating in resource position activities for pay-after-use activity orders will be directly discounted by 40%.

At the beginning of September, the "Promotion Service Fee Refundable Right" came into effect. For orders that are fully refunded before delivery, the platform will automatically return the promotion red envelopes corresponding to the amount of the merchant's promotion software service fee, and merchants do not need to initiate an appeal.

On September 5, the basic deposit for merchant stores will be reduced from 1,000 yuan to 500 yuan, and the initial deposit for newly registered individual stores and enterprise stores will also be reduced to 500 yuan.

On September 9, the logistics transfer fees for merchants in remote areas will be waived. Merchants only need to send the orders to the transfer warehouse, and the logistics transfer fees for the secondary delivery from the transfer warehouse to remote areas such as Xinjiang will be borne by the platform.

On September 12, the technical service fees for pay-after-use orders were all reduced from 1% to 0.6%, covering all merchants.

In Pinduoduo's revenue composition, technical service fees, etc. are included in the commission income. When they are "subsidized and reduced by ten billion", this also explains why the commission income has a large gap with the market expectations.

The reason why the market remains optimistic about commission income is that it is not convinced that Pinduoduo would actually make such real money subsidies and reductions. Therefore, as stated in the analysis of Dolphin Research, it may indeed lead to the market underestimating the impact of the above-mentioned subsidy reduction and refund policies on commission income.

From the perspective of gross profit, Pinduoduo's gross margin in the third quarter was 60%, which is 5.3 percentage points lower than the previous quarter. According to the analysis of Dolphin Research, the same is due to the subsidy reduction and refund of commission fees, and almost 100% is transmitted to the decline in gross profit, resulting in a significant decrease in the gross margin.

If before the release of the third-quarter financial report, the market's prediction deviated due to suspicion, the financial figures now presented prove that Pinduoduo's substantial investment is not an empty talk.

In fact, the merchants' experience has earlier verified the subsidy reduction intensity of the platform.

After Pinduoduo launched a series of "Ten Billion Subsidy Reduction" policies, many merchants said that they have benefited from the favorable impact and saved a considerable amount of expenses in technical service fees, promotion service fees, deposits, and logistics fees in remote areas.

Mipopo, a rice wine brand from Xiaogan, revealed that since August, the basic technical service fees for several stores on Pinduoduo have been reduced by 3%. Some merchants calculated that only the technical service fee can save more than one hundred thousand yuan a year.

A herbal tea merchant in Bozhou has received the promotion fees refunded by the platform for several months, with an average of more than one thousand yuan per day. At this rate, the red envelope amount refunded in a year is nearly 400,000 yuan. It is reported that the merchant has more than ten stores on Pinduoduo, with an annual sales of more than 40 million yuan. After the implementation of the new policy of the platform to refund the promotion fees, his net profit is roughly estimated to increase by 1%.

Another chicken product merchant also revealed that the promotion fee can be refunded by three to four hundred thousand yuan a year. Previously, the daily promotion fee of the store was between 15,000 to 20,000 yuan, and the ROI was 1:5.8. The refund of the advertising fee has increased the ROI to 1:6.5, an increase of 0.7%.

The reduction of the deposit has further reduced the operating costs of merchants. Among the many merchants contacted by 36Kr Future Consumption, they usually operate multiple stores on Pinduoduo, with as many as hundreds. This means that they can get a refund of several thousand to more than one hundred thousand yuan on the deposit.

As for the exemption of transfer logistics fees in remote areas, it is even more obvious.

Due to the long distance for delivery in remote areas, the overall courier fees are significantly higher than in other areas, about 3 to 5 times that of other areas. For example, the orders from the above-mentioned herbal tea merchant's store to remote areas such as Xinjiang, Inner Mongolia, and Tibet account for nearly 10%, but the direct courier fee is often as high as 18 yuan per kilogram.

The high logistics cost limits the profit space and also dampens their enthusiasm to expand the market in remote areas. But now only the courier fee to the transfer warehouse needs to be paid, and the transfer fee of 3 to 5 yuan per order for the transfer link does not need to be borne. The courier fees for agricultural products, daily necessities and other categories have been reduced by up to 70%.

What is saved is the cost, and what is brought is not only the profit, but also the business in remote areas. In the past, many merchants simply gave up the opportunities in these places due to logistics pressure, and stated in the details page that "remote areas such as Tibet and Xinjiang do not deliver / do not include free shipping". Now the new gate is opened, and the sales of many merchants have also achieved a growth of several tens of percent, greatly igniting the merchants' enthusiasm to explore the western market.

Considering that the fourth quarter includes the Double 11 promotion, etc., the investment figure of Pinduoduo's "Ten Billion Subsidy Reduction" is likely to be at a higher level. With the prosperous development of merchants, the platform has its own future.

02

A New Quality Supply and Demand Matching

The "Ten Billion Subsidy Reduction" is not enough.

In order to allow excellent merchants to grow better in this soil, Pinduoduo has also launched the "New Quality Merchant Support Program", investing 10 billion resource packages to provide full-link support in products, marketing, operations and supply chain for new quality merchants and new quality brands with product and technological innovation capabilities.

It is reported that in the "Harvest Festival" event in early September alone, Pinduoduo invested 1 billion subsidy funds and 2 billion traffic resources to support new quality agricultural merchants such as Wenxian Yam, Pinghe Pomelo, Kaifeng Sweet Potato, Huili Pomegranate, etc., promoting seasonal agricultural products to leave the village and enter the city, and helping agricultural production areas achieve high yields and increased incomes. During the Double 11 in 2024, Pinduoduo vigorously supported "New Quality Brands" through the Hundred Billion Subsidy and the "Super Double Subsidy" event.

Just picked Huili Pomegranate

The soft jujube kiwi, known as the "King of Fruits", used to cost as much as 200 yuan per catty in supermarkets. Later, Hu Binglong, a villager in Dandong, Liaoning, achieved large-scale cultivation after 20 years of planting and exploration. However, he was initially trapped by poor sales channels, but later achieved explosive growth on Pinduoduo. Due to its characteristics such as breakthroughs in planting technology and excellent varieties, it has become one of the agricultural products that the platform focuses on supporting. During Double 11, Pinduoduo listed the jujube kiwi on the flash sale channel. With the support of platform traffic exposure, the daily sales reached more than 20,000 catties.

With the support of the platform, the sales of new quality brands continue to set new growth records.

Take Bull Socket as an example. All five types of power strips launched on Pinduoduo were sold out, and the sales volume increased by 12 times compared to September. The relevant person in charge introduced: The wire length of the new quality power strip is 1.5 meters, slightly shorter than the conventional model. And the shape of the conventional model is more rounded, while the shape of the new quality power strip is more simple, so the overall cost performance is higher, and the cost is reduced by 5% to 10%.

In addition, the sales volume of two new products, health-keeping kettle and electric kettle, under Bear Electric Appliance increased by 7 times and 9 times respectively compared to the previous month. Due to the high exposure and high sales volume brought by the "Super Double Subsidy", Bear Electric Appliance achieved more than 30% growth on Pinduoduo in 11.11 this year.

The industrial belt is also an important position for the in-depth implementation of the "New Quality Merchant Support Program".

At present, Pinduoduo has deeply entered dozens of industrial belts such as Cangzhou Beauty Brush, Cixi Small Household Appliance, Pingdu False Eyelash, Donghai Wearable Nail, Bozhou Herbal Tea, Lu'an Wedding Dress, etc. Relying on the digital technology of the platform to help local merchants move from primary processing to deep processing, from industrial white-label to new quality brands, and lead the industrial belt to accelerate into high-quality development.

For example, after at least two rounds of outbreaks on Pinduoduo in 2019 and 2021, the number of employees in Donghai Wearable Nail has reached more than 50,000, and the annual sales of only handmade wearable nails are nearly 3 billion yuan, with a production volume of more than 100 million pairs.

In addition to benefiting merchants with various subsidy reduction and subsidy policies, Pinduoduo also opens its platform data capabilities to them, monitoring the market dynamics in real time, and promptly feeding this information back to merchants, enabling merchants to quickly adjust their production and sales strategies according to market feedback.

In addition to high traffic and high sales volume, Pinduoduo has also become an important platform for merchants to test products. Zhang Da, a wearable nail merchant, said that by comparing the click rate and conversion rate of wearable nails, Pinduoduo can test the popular products within seven days at the latest. He once tested a "Starlight Chocolate" with a total sales of 100,000 orders in three days and a popular wearable nail "Beveled French Style" that has been selling well for half a year.

Around 2021, the merchants of the wedding dress industrial belt in Lu'an tasted the sweetness on Pinduoduo. For example, the annual sales of Wang Chuan's wedding dress store have been stable at seven to eight million yuan, which also makes the locals firmly believe in a truth - more orders can be found on Pinduoduo.

Later, as more and more participants entered, in order to avoid homogeneous competition, the local merchants began to carry out industrial upgrading, making better-quality toasting dresses and original gowns, and transforming to mid-to-high-end gowns. Li Ya, a merchant who has been operating on Pinduoduo for just one