Duan Yongping's Investment Logic in Heavily Buying Pinduoduo

Everyone. Duan Yongping has increased his position in $PDD(PDD.US) to 8%. Although he has always said he doesn't understand Pinduoduo, his actions speak louder than words😂

Dadao used to say that investing in Pinduoduo was 'venture capital' but never clearly explained why. Today, let's adopt Dadao's perspective and 'think rationally, long-term, and fundamentally' to understand Pinduoduo.

Dadao: Business model and corporate culture come first, price comes third. (2019-05)

So let's start with these three aspects:

1. Business Model

Dadao: A good business model means it can make a lot of money in the long run and sustain it. (2019-05)

Three soul-searching questions: Long-term? High-profit? Sustainable?

Long-term (long slope)? The e-commerce industry is long and wide enough. No retail form has been seen to disrupt it in the next 10 years. The currently popular interest-based e-commerce and instant retail can only serve as supplements, not disrupt the industry.

High-profit (thick snow)? Just look at the financial reports of Pinduoduo, Alibaba, and JD.com. The e-commerce sector is the cash cow for each, indeed a highly profitable business.

Sustainable (deep moat)? Can Pinduoduo maintain its competitive advantage and strong cash flow in the next 10-20 years? To be honest, there are indeed doubts here.

After all, in the last decade, Pinduoduo successfully overtook Alibaba, which 'couldn't see any competitors even with a telescope.' Who can guarantee that in the next decade, a newcomer won't come along and 'beat the master with random punches'?

Dadao: I always feel I can't see through e-commerce. I don't know where the moat is or who will still be doing well in 10 years. For example, I find it hard to understand why Alibaba and others don't learn or can't replicate the things Pinduoduo excels at. If everyone learns the good stuff, who will be better in 10 years? Apple's stuff is hard to learn. In this world, things that can't be learned are actually rare. (2023-12)

Simply put, Dadao has always had a question mark: How deep and wide is Pinduoduo's moat? This certainty is indeed weaker compared to companies like Moutai, Apple, and Tencent, which he 'understands.'

Dadao often says he 'doesn't understand' Pinduoduo because of doubts about the depth of its moat.

2. Corporate Culture

Dadao: To summarize corporate culture in one sentence: Do the right thing! (2019-05)

Is Pinduoduo doing the right thing?

As Duan's protégé, Huang Zheng has embedded 'integrity' into the company's values, focusing on consumer orientation, staying focused on the core business without unnecessary distractions, acknowledging risks, and executing efficiently. These align well with Dadao's philosophy of 'doing the right thing and doing things right.'

After Huang Zheng stepped back, Pinduoduo not only didn't slow down but accelerated even more without losing focus. What does this mean? Consumer orientation and integrity are indeed been ingrained in Pinduoduo's DNA.

Dadao has shared interviews with Huang Zheng and Pinduoduo executives several times, showing his strong approval of Pinduoduo's corporate culture.

Dadao: I think the most important thing in corporate culture is the core values. Not doing things that go against the core values is the most important. (2020-10)

Although Dadao hasn't said Pinduoduo has done anything wrong.

But as a Pinduoduo seller and heavy consumer, I must honestly say: I think Pinduoduo has flaws in 'integrity,' such as being very harsh on merchants and not strictly managing false advertising and low-quality products.

3. Good Price

In recent years, Dadao rarely mentions 'good price,' believing a reasonable price is enough.

Dadao: Whether it's a good price should be judged from the future looking back. (2020-12)

So, from the future looking back, is Pinduoduo expensive now? Let's apply Dadao's algorithm when he bought Apple:

Dadao: When I bought Apple in 2011, it had a market cap of about $300 billion, with $100 billion in net cash, annual profits close to $20 billion, and I predicted profits would reach $50 billion in 5 years.

So, investing in Apple at that time meant spending $200 billion to buy a company making close to $20 billion/year, expected to make $50 billion/year or more in 5 years (and likely continue to do well). (2019-05)

Applying this to Pinduoduo:

• Market cap ~$170 billion
• Net cash (cash + short-term investments - current liabilities) $55 billion
• Annual profit $15 billion
• In 5 years (considering Temu's overseas expansion), profits could reach $20 billion/year

So, buying Pinduoduo now means spending $115 billion to buy a company making $15 billion/year now and $20 billion/year in the future. By this calculation, Pinduoduo is cheap.

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Summarizing Dadao's perspective:

Business model: Can make a lot of money long-term, but the depth of the moat is questionable (the biggest uncertainty).

Corporate culture: Integrity, consumer-oriented, reliable and capable team, can survive healthier and longer.

Price: Attractive

So Dadao's decision-making logic is clear: He values its strong profitability + reliable corporate culture + reasonable price. Although the moat isn't as clear as Apple or Moutai, overall, the risk-reward ratio is high enough to justify an 8% position.

As for the following hot topics, in Dadao's eyes, they are not 'fundamental' and can be taken with a grain of salt:

1. With billions in cash on the books, no dividends or buybacks—does this ignore investor returns?

Dadao: I'm also curious but won't ask (why Pinduoduo keeps so much cash on hand) because they've already made it clear. The difference between me and most speculators is: I think they're serious. If I were their competitor, I'd be a bit nervous right now. Are they building a fortress? What kind of fortress, what kind of moat? What will happen in 10 years? Let's wait and see! (2024-09)

Dadao doesn't care about dividends or buybacks. On one hand, investor returns aren't 'fundamental.' On the other, he believes Pinduoduo's team will use the money to widen the moat, which is a good thing.

2. Due to certain reasons, there's a delisting risk.

Dadao: Delisting doesn't affect a company's intrinsic value, only trading convenience. Many companies have never been listed, and some are very valuable. (2025-04)

Dadao believes buying stocks is buying a part of the company. If it's a good company, it doesn't matter if it's listed or not.

Moreover, Pinduoduo just switched its accounting firm to Hong Kong's EY last month, increasing the likelihood of a secondary listing in Hong Kong!

3. Are tariffs a negative for Pinduoduo?

Dadao: Tariffs are essentially a tax on the people; nothing else is affected. (2025-03)

Dadao: If the fundamentals don't change, there's no need to focus too much on macro changes. (2025-03)

There are always countermeasures to policies. After Trump announced tariffs, Pinduoduo's team acted quickly (e.g., stocking up in the U.S.). Good companies have the ability to overcome challenges; macro disturbances are nothing to fear.

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Understanding the moat is important, but understanding 'people' (corporate culture) and calculating the 'numbers' (value and price) also point to fuzzy correctness. Investing is about finding high-probability answers amid uncertainty.

Follow me to see various investment opportunities from Dadao's perspective!