New China Billionaire Drops $2.8 Billion as PDD Shares Tumble

(Bloomberg) -- One of China’s freshly minted billionaires saw his net worth plunge $2.8 billion after the e-commerce company he founded, Pinduoduo Inc., tumbled in U.S. trading on mounting losses.

The Shanghai-based company reported revenue leapt more than four fold during the quarter ended in December, but lost 2.4 billion yuan ($358 million) compared with a small profit a year earlier. PDD shares dropped 17 percent, the most since it went public last year. That cut the net worth of Huang to $13 billion from $15.8 billion, according to the Bloomberg Billionaires Index.

Huang, a prolific entrepreneur who started his career at Google, founded PDD in 2015 as Alibaba Group Holding Ltd. and other existing e-commerce operators appeared to have a lock on the market. Yet he distinguished the startup by developing a mobile app with game-like characteristics and promoting group-buying discounts over social media like WeChat. PDD rapidly became China’s third-largest online mall, behind Alibaba and JD.com Inc.

If You Can Explain China’s Pinduoduo, Lunch on Me: Tim Culpan

Now however, rivals are employing the same strategies of group discounts and expansion in smaller cities, backed by better established logistics networks and larger balance sheets. PDD’s losses climbed as it spent more heavily on advertising and the technology needed to grow its e-commerce share.

“More and more players are looking at lower tier cities and they’re also trying to mimic what PDD is currently doing. But I think the greater emphasis from the competitors actually is good for increasing the size of the pie,” Huang said on a conference call with investors. “We can also see that our users are visiting more frequently and are spending more on our platform. This is a healthy indication that they are more pleased with what we offer.”

PDD said it was in no hurry to monetize because it still needed to demonstrate the company’s value to shoppers and merchants - a strategy that could impact its revenue in the near future. The company counts WeChat operator Tencent Holdings Ltd. as a major backer and has more than $3 billion in cash and equivalents on its balance sheet.

“We expect PDD’s GMV and user growth to remain solid going forward,” CICC analyst Natalie Wu said in a note to clients before the earnings. “Its unique value proposition and rich traffic hinder existing giants or new players to compete directly.”

• While China’s economy is slowing, PDD’s low-cost focus will help it win more customers as consumers tighten their belts, Wu said.
• GMV, or the total value of goods transactions, rose three-fold to 471.6 billion yuan in the 12-month period ended December.
• The number of shoppers who used the app at least once in 2018 rose 71 percent to 418.5 million from 244.8 million in 2017.
• On its earnings call, the company said those expenses were driven in large part by online and offline brand building, especially around Singles’ Day and New Year’s countdown opportunities.
• PDD spent 6.02 billion yuan on sales and marketing in the fourth quarter. By comparison the much-larger Alibaba Group Holding Ltd. spent 12.1 billion yuan over the same period.
• VP of Finance Tian Xu said spending on sales and marketing in 2019 would be "opportunistic" rather than linked with any rise in gross merchandise volume and that it would take time for PDD to deepen its brand awareness.
• "We will invest in order to achieve this goal," Xu said.
• PDD had 3.6 million merchants as of Dec. 31, 2018, up from 1 million merchants in March 2018.
• The company’s February fundraising effort brought in more than $1 billion.

--With assistance from Venus Feng.

To contact Bloomberg News staff for this story: David Ramli in Beijing at dramli1@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Peter Elstrom

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With assistance from Bloomberg