fbpx

Education Series: Single-Stock ETPs

Pinduoduo: Online Retail Gamified

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

We had already discussed “e-commerce companies” in China (read Part 1 here and Part 2 here) – Alibaba is the king of the roost but there are challengers aplenty in the keenly-contested e-commerce market. We had mentioned JD.com as being uniquely differentiated from Alibaba by focusing on “Tier 2” and “Tier 3” regions, i.e. areas mostly in the interior regions of China as opposed to the coastline.

We had mentioned Pinduoduo as being a close competitor to JD.com on account of its focus in those same areas. This article will highlight exactly how Pinduodou differentiates from JD.com and its unique standing in the cut-throat online retail market of China.

 

Differences and Advantages

Like JD, Pinduoduo also operates a marketplace that connects sellers to customers. However, Pinduoduo differs markedly in a few key aspects:

  1. JD operates a substantial direct sales business. Pinduoduo doesn’t.

  2. JD operates one of China’s largest fulfillment infrastructure systems, covering almost all of the country’s counties and districts. Pinduoduo relies completely on 3rd-party delivery companies.

  3. JD has ventures in logistics, finance, and healthcare. Pinduoduo remains focused on online retail.

  4. JD has a growing presence in the U.S., Thailand, Indonesia, et al. Pinduoduo remains focused on China.

As highlighted in a previous article, Pinduoduo has nearly double the number of user accounts than JD but the latter has a higher average spend. This is partially attributable to the fact that JD’s direct sales have a preponderance of high-value goods while Pinduoduo has a more pocket-friendly feature: the “team purchase” which leads to substantial discounts from suppliers.

In Pinduoduo, suppliers list two prices for each item – one for individual purchase and one for team purchase. A user can either:

  1. initiate a team purchase and encourage friends via social media to join their team or;

  2. join an existing team purchase.

If the team is completed within 24 hours, the items are shipped at the team purchase price. If not, all participants receive refunds. The benefits of this feature are so attractive to users that nearly all Pinduoduo transactions are completed using team purchase.

Pinduodou went beyond non-perishable items into groceries under a similar model. Formally spun into its own segment called Duo Duo Grocery in August 2020, it operates in 300 Chinese cities where orders placed before 11 pm through the app are ready for collection after 4 pm the following day at selected collection points. In 2020, Pinduoduo doubled its agriculture-related Gross Merchandise Value to 270 billion yuan ($42 billion) from the year before, cementing its place as China’s largest agriculture platform.

There are a number of other ways in which the company gamifies the shopping experience:

  1. Daily Check-Ins encourages users to login for small values of redeemable credit.

  2. Price Chop allows users to get certain products for free by sharing a custom link with their friends. The number of friends who click on the link within 24 hours drives the discount. If the discount drives down to 0 in 24 hours, the link sharer gets the item for free.

  3. The Card Program offers a number of different loyalty cards for users: the “Free Pass Card” enables a team purchase discount without joining a team, the “Brand Black Card” offers discounts on branded items in exchange for reviews, and the “Brand Card” which users can give away to friends so that they can receive discounts on branded goods.

The company also operates literal games: In Duo Duo Orchard, for instance, a user creates a virtual fruit tree which, when nurtured, results in the user receiving a box of fresh fruit delivered for free. Water and other essentials for this tree are generated through app activity, purchases and interactions – all of which can be shared with friends.

The gamification of online shopping experience has led to a large and dedicated customer base for the company in a country where the purchase of goods and groceries continue to be largely driven by recommendations. This has led to a higher “active” user base than Alibaba.

The company also has an interesting trajectory in one very interesting metric especially when compared to JD and Alibaba: the gross profit margin, which is the amount of profit made before deducting selling, general, and administrative costs. As of the end of March, the gross profit margin for Pinduoduo has trumped that of both Alibaba and JD.

In the 12 months trailing March 2021, the company posted a staggering 133.7% growth in revenues. While the company is yet to show profitability in its “Earnings Before Interest and Taxes” (EBIT) metric, its costs have shown remarkable improvement over the past year, indicating that the company is steadily showing economies of scale in building out a customer scale. Thus, while it’s hard to determine whether “gamification” directly translated to increased buys, it certainly did help the company’s growth to a certain extent.

 

In Conclusion

Pinduoduo has a significant Achilles heel: its lack of a dedicated delivery infrastructure. In areas of delivery services, Alibaba rules the roost by its agreements with a large roster of top delivery companies – a number of which it has investments in. If the price of delivery were to shoot up, Pinduoduo’s profit margins will collapse.

There may be a ray of hope in the current tech crackdown: Alibaba has been roundly chastised by the government for abusing its market position and is unlikely to do so any time soon.

The tech crackdown hasn’t been kind to Pinduoduo either: the company – along with rival Meituan – was accused in May by the antitrust watchdog of pressuring partner companies and listing counterfeit products, among other misconduct. Earlier this month, regulators have asked the likes of Pinduodou to “learn from Alibaba” and complete a “comprehensive self-inspection” within a month. Since June, the company had lost nearly 27% of its value till date. The company’s partnership with Tencent could also be in jeopardy, on account of regulatory scrutiny on the latter.

Given the ongoing troubles with JD and Pinduoduo and the language by the regulators regarding Alibaba, the Year-To-Date (YTD) performance is probably unsurprising.

The fact that Pinduoduo continues to decline, despite encouraging metrics, highlights that there is some anticipation of punitive action. However, much like Alibaba, it wouldn’t be impossible to see a strong rally immediately following said action. The current period, therefore, can be expected to be a “Dip”: buying into the company’s growth story at this period might just work out to be a bargain over the next few months.

This is, of course, one outlook. In reality, given the uncertainty caused by the crackdown, the current situation in China continues to create polarising narratives for both institutional and private investors alike.

References:

  1. How Pinduoduo beat Alibaba to be China’s top e-commerce?, TechWire Asia
  2. China’s richest tech titans have seen $87 billion of personal wealth wiped out since the start of July amid government crackdown, Business Insider
  3. Pinduoduo surpasses Alibaba, JD.com in user numbers, as founder Colin Huang steps down as chairman in surprise move, South China Morning Post

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Related Posts

Search

Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt
Filter by Categories
AAPL
AMD
AMZN
BA
BABA
BARC
BP
C
CRM
Deutsche Videos
Education
ETPs
FB
Featured
GOOG
GS
HSBC
HSBC
In the press
Insight
Insights
JPM
Market Insights
MSFT
MU
NFLX
NVDA
PYPL
RDS
Research
Research
SHOP
SQ
TSLA
TWTR
UBER
Uncategorized
Uncategorized
Uncategorized
V
VOD
Websim
ZM
Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt
Filter by Categories
AAPL
AMD
AMZN
BA
BABA
BARC
BP
C
CRM
Deutsche Videos
Education
ETPs
FB
Featured
GOOG
GS
HSBC
HSBC
In the press
Insight
Insights
JPM
Market Insights
MSFT
MU
NFLX
NVDA
PYPL
RDS
Research
Research
SHOP
SQ
TSLA
TWTR
UBER
Uncategorized
Uncategorized
Uncategorized
V
VOD
Websim
ZM

Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Director

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2. 

By clicking you agree to the Terms and Conditions displayed.