Pinduoduo witnessed a significant boost in commission income during the third quarter through its TEMU venture, reshaping the cross-border e-commerce landscape. Analysts believe this could reinvent Pinduoduo, influencing its valuation. On November 28th, Beijing time, before the U.S. stock market opened, Pinduoduo’s third-quarter results showcased its stature as a “Chinese concept stock star”. Let’s delve into how this global champion made a remarkable impact:
- TEMU Reinvents Pinduoduo
TEMU’s potential to significantly enhance Pinduoduo’s valuation, previously questioned, now seems undeniable. Pinduoduo’s commission revenue (from TEMU) doubled quarterly from 14.4 to 29.2 billion yuan, highlighting TEMU’s potential for transformation.
The potential lies in the vast opportunities in cross-border sectors. Players accustomed to a laid-back approach were disrupted by Pinduoduo’s vigorous entry. Combining blue-collar “human mines” producing goods with white-collar “human mines” creating apps and operations led to a transformative synergy.
Starting this quarter, the market needs to seriously consider TEMU’s valuation in Pinduoduo’s overall assessment.
- Private Labels + Price-Sensitive Users = Stronger Earning Power for Pinduoduo
Pinduoduo’s main site business, following an explosive second quarter, remained strong. With a GMV nearing a trillion yuan (possibly half of Alibaba’s GMV), its ad and commission revenue reached about 45 billion yuan, roughly 65% of Alibaba’s 68.7 billion yuan customer management income.
Despite similar revenues, Pinduoduo, with its small and private label merchants, seems more efficient in monetization than Taobao and JD.com, focusing on brand-centric businesses. This phenomenon deserves industry reflection.
- Maximizing the “Human Mine” Business
Pinduoduo’s efficiency may even surpass early Alibaba. Despite a 30 billion yuan increase in revenue, internal R&D and administrative costs remained virtually unchanged, indicating effective resource utilization.
Key external costs include:
1) Third quarter additional revenue vs. increased costs, suggesting TEMU’s gross profit margin (revenue – cost – performance) might have turned positive, exceeding market expectations.
2) Marketing expenses rose by over 40 billion yuan, lower than expected by 5 percentage points.
- A Relentless Money-Making Machine
Pinduoduo’s operational profit reached 16.7 billion yuan, 4 billion more than the already impressive second quarter, surpassing market expectations.
(For more details, refer to the comprehensive analysis in the main text.)
Changqiao Haizhi’s Perspective:
The real value this quarter lies in TEMU’s impact on Pinduoduo and its revaluation. The company’s incredible operational efficiency and execution capability have likely ended market skepticism about its performance.
This quarter’s report reveals:
1) Pinduoduo’s investment in its grocery venture has defended its user base against the incursion of more frequent fresh produce businesses, solidifying its main site’s moat.
2) Its foray into cross-border business has definitively opened a new growth trajectory.
From a valuation standpoint, Pinduoduo’s main site’s pre-tax net profit is estimated to be around 23-24 billion yuan, translating to an annual net profit of about 80 billion yuan. Even with reduced growth expectations, the main site’s standalone value nears 170 billion U.S. dollars.
With TEMU now holding independent valuation significance, its valuation elasticity for Pinduoduo is becoming evident.
Detailed Financial Report Analysis
- TEMU Reinvents Pinduoduo!
Pinduoduo’s third-quarter revenue of 68.8 billion yuan significantly exceeded market expectations by nearly 15 billion yuan.
TEMU’s contribution to this revenue was substantial. Before analyzing the main site business, it’s essential to clarify TEMU’s impact. Based on market research, expert interviews, and company communications, key takeaways include:
1) TEMU’s revenue model is similar to its grocery business, primarily deriving from commissions that cover costs from basic markups to fulfillment.
2) Subsidies for overseas users are included in marketing expenses.
3) TEMU’s monthly GMV is close to 30 billion U.S. dollars, indicating its significant contribution.
Overall, TEMU’s quarterly revenue might have reached 15-20 billion yuan, marking a substantial presence.
- Pinduoduo’s Main Site Also Shines
Pinduoduo’s main site narrowly focuses on online ad revenue, which reached 39.7 billion yuan this quarter, growing by 40% year-on-year.
Pinduoduo’s comprehensive monetization rate might have reached around 4.7%, surpassing its competitors. This rate reflects Pinduoduo’s stronger bargaining power over white-label manufacturers in a market with shrinking demand and surplus goods.
- Concerns About Gross Margin? TEMU Distorts Revenue Structure
This quarter’s gross profit of 42 billion yuan and a gross margin of 61% seemed lower than expected, mainly due to TEMU’s significant revenue impact.
- Demonstrating White-Collar “Human Mine” Power
Pinduoduo’s core assets are its app and active users. The company’s investment in new ventures like grocery shopping and TEMU, along with its main site development, have maximized its revenue and profit potential.
- Pinduoduo: A Ruthless Profit-Making Machine
Despite the low gross margin of TEMU’s business model, Pinduoduo managed to maintain a steady operational profit margin. The net profit reached 15.5 billion yuan, with the main site’s pre-tax net profit estimated at 23-24 billion yuan.