A plunge of 218 billion! Pinduoduo encounters a 'cycle crisis'

When "low price" is no longer the panacea for the e-commerce industry, the valuation of enterprises will also be restructured.

As one of the most cyclical industries, the e-commerce industry cycles obviously faster. Before 2019, with the wave of consumption upgrading, Alibaba became the most dazzling presence in the market by virtue of its cross-border e-commerce advantages.

After 2020, when high prices and overseas purchases no longer worked, the industry logic began to change. Pinduoduo quickly became the new leader in the e-commerce industry with its two trump cards of "low price" and "refund only", and at its peak, its market value once surpassed Alibaba, becoming the new "big brother" in the e-commerce industry. In this context, Jack Ma also spoke out several times, and Alibaba made significant internal adjustments, but none were effective.

In the second half of 2024, the imbalance between merchants and consumers on e-commerce platforms became more and more serious, and the impact of "low price" and "refund only" on merchants became increasingly apparent, with growing calls for the withdrawal of "refund only".

Subsequently, under the promotion of Alibaba and JD.com, e-commerce platforms made adjustments to "refund only", and Pinduoduo's upward cycle entered a phased end in this round of adjustments.

According to statistics, since August 2024, although Pinduoduo performed well overall, its stock price still fell by 30%, while Alibaba's stock price rose by more than 50%.

Between the two, the performance is more intuitive.

On the evening of May 27, Pinduoduo released its financial report for the first quarter of 2025, showing that in the first quarter, Pinduoduo achieved revenue of 95.7 billion yuan, a year-on-year increase of 10%; operating profit of 16.1 billion yuan, a year-on-year decrease of 38%; net profit attributable to the parent company of 14.7 billion yuan, a year-on-year decrease of 47%; and adjusted net profit of 16.9 billion yuan, a year-on-year decrease of 45%.

Faced with this financial report that fell far short of expectations, Pinduoduo's stock price plummeted. As of the close of the day, Pinduoduo's stock price opened low and closed high, but the decline still exceeded 13%. The next day, Pinduoduo's stock price continued to fall, with a decline of 4.95%, and its market value evaporated by more than 30.3 billion US dollars, equivalent to about 218 billion yuan.

In the subsequent conference call, Pinduoduo Group Chairman and Co-CEO Chen Lei said that in the first quarter of this year, the external environment brought more uncertainty to the merchant group. To jointly cope with new challenges with merchants, the platform must dare to sacrifice first and provide real money to support merchants, in order to help them through short-term fluctuations.

Chen Lei also stated that although the investment in supporting merchants is recorded as accounting expenses, it is more of a long-term investment. Pinduoduo firmly believes that only by prioritizing the interests of users and merchants can a better platform ecosystem be created. "This means that in the short term, and even for a considerable period of time, our profits will face great pressure and challenges, but we value the intrinsic value of the enterprise over 5, 10, and even longer cycles."

Cyclical "Calamity"

Regarding this financial report that fell short of expectations, Chen Lei said: "This is mainly due to Pinduoduo's increased investment. Since the beginning of this year, measures such as the '100 billion reduction' have been upgraded to 'trillion support'."

Some analysts believe that from the performance of the first quarter financial report, Pinduoduo's revenue growth rate continues to slow down, and the net profit growth rate has declined significantly, which means that its previously invincible low-price strategy has been challenged.

Kan Jian Finance believes that the e-commerce industry has developed to today, and it is already a very mature business form. Therefore, the complexity of the industry also determines that the development of the e-commerce industry must be diversified. Therefore, under the large cycle of industry development, when a leading e-commerce model conforms to the market cycle at that time, the enterprise will naturally gain market favor, as Alibaba and Pinduoduo have fully verified.

From Pinduoduo's financial report this time, its growth rate slowdown is actually not just due to increased investment, because although the increased support affects net profit, it has a real impact on revenue.

From the income structure, in the first quarter, Pinduoduo's online marketing service income and other income were 48.7 billion yuan, a year-on-year increase of 15%, and transaction service income was 47 billion yuan, a year-on-year increase of 6%.

From the financial report data, it is not difficult to find that the core income growth rate of Pinduoduo has begun to slow down.

In addition, Pinduoduo's sales and marketing expenses surged by 10 billion yuan year-on-year this quarter, reaching 33.4 billion yuan, an increase of 43%. Pinduoduo stated in the financial report that this was mainly due to increased spending on promotions and advertising activities. Behind this surge in expenses is actually the intensification of competition among enterprises and the substantial increase in customer acquisition costs.

At the same time, Pinduoduo's total operating expenses also rose sharply in the first quarter, reaching 38.6 billion yuan, a year-on-year increase of 37%. In addition, its operating cash flow this quarter also declined, at 15.5 billion yuan, a year-on-year decrease of 26%.

Kan Jian Finance believes that as the "refund only" and "low price" models gradually recede, Pinduoduo's business model has encountered challenges to a certain extent. In this cyclical background, what Pinduoduo is experiencing, Alibaba and JD.com have already experienced. For a long time, e-commerce leaders need to strike a balance between consumers and merchants. In the current market environment, merchants and consumers are no longer in a zero-sum relationship, but have shown a certain degree of differentiation.

In this context, a single low-price or high-price model is difficult to satisfy all consumers, so differentiation will become the mainstream of the e-commerce industry in the future.

In the past period, under the logic of low prices, Alibaba and JD.com encountered significant challenges, and the valuation of enterprises fell to a freezing point. In contrast, with the blessing of low prices, Pinduoduo's market value once surpassed Alibaba, becoming the new "big brother" in e-commerce.

But as the market enters a new cycle, the "refund only" and "low price" models make it increasingly difficult for merchants to bear, and industry adjustments are imperative. When Alibaba and JD.com break free from the whirlpool of "low prices", the valuation of enterprises is naturally restructured. In this context, Alibaba's market value has soared by more than 40% this year, while Pinduoduo has suffered a certain "backlash".

The "Game" of Balance

In fact, the e-commerce industry has matured completely today, and user growth and scale growth have reached a ceiling. To achieve breakthroughs, going overseas is the only answer.

But from the current global situation, this move is not easy for these e-commerce giants. Especially for Pinduoduo, which has already achieved some success overseas, especially Temu, which has faced a series of challenges, indicating that for a long time in the future, the core of development for e-commerce giants will still be domestic.

Therefore, maintaining their own consumer groups is particularly important.

In this conference call, Pinduoduo Co-CEO Zhao Jiazhen said, "The 'trillion support' for new quality merchants has expanded from the head and waist to small and medium-sized merchants. On the one hand, we continue to explore more commission reduction measures, continuously reducing costs and burdens for merchants, creating more cost space, operating space, and innovation space; on the other hand, the platform's traffic engine, black label stores, and other resources will also be fully tilted towards small and medium-sized merchants, maximizing the potential of small and medium-sized merchants."

As Chen Lei said, the market is changing rapidly, and only by supporting and nurturing merchants can we create a better platform ecosystem.

In addition, in this quarter, Pinduoduo "lost" the national subsidy for home appliances, while Alibaba and JD.com achieved good results. This also prompted Pinduoduo to tilt more resources towards merchants.

As early as September last year, Pinduoduo launched the "New Quality Merchant Support Plan", which aims to go deep into hundreds of industrial belts, cultivate a batch of new quality merchants with product and technological innovation capabilities, and drive industrial transformation and upgrading through the "leading goose effect" of new quality merchants.

Not only that, Pinduoduo has also added a "100 billion merchant feedback plan" to the platform's 100 billion subsidy channel, investing 10 billion yuan in consumer vouchers to provide excessive subsidies for all categories of goods.

Kan Jian Finance believes that in the past period, Pinduoduo's "refund only" and "low price" models allowed it to enjoy a period of market dividends, but with changes in the market environment, the challenges it faces are inevitable. The game of balance between merchants and consumers needs to be adjusted by the market, and Pinduoduo's period of pain will still exist in stages. Therefore, we predict that in the short term, Pinduoduo's performance growth rate will continue to slow down, but the challenges will not be particularly great.

It is worth noting that as of the end of the first quarter of this year, Pinduoduo's cash and equivalents were 187.2 billion yuan, which means that Pinduoduo has enough funds to support its long-term development. Healthy cash flow is Pinduoduo's confidence to cross cycles. Therefore, we need to rationally view the slowdown in Pinduoduo's revenue growth and the sharp decline in net profit. For Pinduoduo, although its financial report this quarter fell short of expectations, looking at the long cycle, this is also an unavoidable test for its development. $PDD(PDD.US)