Original title: How many people misread Pinduoduo

Editor's note: This article comes from the Venture State column AI Blue Media Exchange (lanmeih001), by Wei Xiao.

On July 2, the US stock market closed, and Pinduoduo's market capitalization once again reached a new all-time high, reaching 111,379 billion US dollars.

Stock prices have continued to soar along the way. This has been the norm in Pinduoduo's capital market in recent times.

An exaggerated fact is that since entering 2020, Pinduoduo's market capitalization has skyrocketed 146%.

An even more exaggerated fact is that since March 23, US stocks have experienced a sharp drop in fear of the epidemic. After market capitalization began to enter a recovery period, Pinduoduo's market capitalization has successively broken through thresholds such as 40 billion US dollars, 60 billion US dollars, 80 billion US dollars, and even 100 billion US dollars, and now it has been crossing 100 billion US dollars for some time now.

In other words, in just two months, Pinduoduo added 60 billion US dollars to its market value, an increase of 170%. It's just terrifying.

This myth of the capital market can already be described as undiscovered; it is even basically a lacklustre. After all, when Pinduoduo received 100 billion dollars in market value, it had only been five years since it was founded, and it had been less than two years since it went public.

Under this mythology, Huang Zheng took the initiative to make adjustments, giving away 13.9% of the shares under his name to donate, motivate management, etc., in order to “avoid his edge.”

If Pinduoduo's stock continues to rise like the current trend, he will become the richest person in the new position. If we take Huang Zheng's previous shareholding ratio of 43.3% and calculate Pinduoduo's market value after the closing of the market on July 2, his net worth has reached 48.2 billion US dollars, which is one step away from Ma Huateng, the richest man currently having a net worth of more than 50 billion US dollars.

Under this mythology, Pinduoduo has also basically stabilized its position as the fourth pole of the Chinese Internet and the second largest e-commerce.

Once upon a time, the steady pattern of Alibaba Jingdong's two e-commerce powerhouses was completely broken by Pinduoduo. The latter not only directly overtook JD in terms of market capitalization, but also replaced JD as Ali's number one rival in the e-commerce field.

Under this mythology, there are also those voices that had been misread and underestimated by Pinduoduo. They were furiously punched in the face and rubbed hard on the ground.

In fact, from the beginning of Pinduoduo's establishment, its business model and space for imagination have been questioned.

“Consumption downgrade” and “scrambling” are stories questioning Pinduoduo's fakes and counterfeit goods; “people outside the 5th Ring Road” and “slash a knife” are questioning the low of Pinduoduo's sinking market; “high growth is difficult to sustain” and “continued losses” are stories questioning Pinduoduo.

But now, in the face of Pinduoduo's soaring market capitalization, these questions have largely gone unanswered. After all, the savvy investors on Wall Street have already cast their votes with real money.

As a result, people who missed Pinduoduo, including myself, began to pat me on the thigh. Exactly where did they misread Pinduoduo, and were unable to get on the bus before.

At the same time, there are also new questions. Is Pinduoduo's current market capitalization of 100 billion dollars actually supported, or is it a capital bubble?

Everything about Pinduoduo is wrong

In the beginning, when Pinduoduo entered the mainstream vision, it appeared as users “cut a knife.”

Most people should be impressed. Their WeChat group was frantically dominated by Pinduoduo's “cut off” link, and they also had to help cut a knife to become Pinduoduo's new customers, because the people who sent the links were parents, family, and friends in third- and fourth-tier cities.

Relying on the WeChat Mini Program, Pinduoduo achieved rocket-like speed growth from 2016 to 2018. Its brainwashing commercial song has also changed over and over again. 100 million people are using it, then 300 million people are using it, and today's 600 million people are using it, all showing how fast its users are getting customers.

The WeChat social traffic pool is the first source of users Pinduoduo has reached. Also because of this, outsiders think that Pinduoduo is telling a “social e-commerce” story.

At the same time, Pinduoduo is also regarded as an e-commerce player who has “cut a knife” as a natural fit for the sinking of the third- and fourth-tier markets.

One background is that during Pinduoduo's fastest development period from 2016 to 2018, Ali and Jingdong were participating in the consumer upgrade trend. They not only pursued quality e-commerce, but also created concepts such as new retail without boundaries. Overall, they all enhanced the user's shopping experience and wanted to serve middle class consumers.

On the other hand, in the eyes of the outside world, the “social e-commerce” and “sinking market” stories told by Pinduoduo are viewed as “consumption downgrades.”

As much as keeping a low profile, such as Huang Zheng, they all had to respond. The real consumption upgrade was not for Shanghainese people to live the lives of Parisians, but for people in Anqing, Anhui, to use kitchen paper and have good fruit to eat. The implication is that Pinduoduo does not downgrade consumption, but rather allows users in a sinking market to also upgrade their consumption.

Naturally, this is a PR standpoint, but this does not reverse Pinduoduo's low-end e-commerce image in the outside world.

Precisely because of this first impression, and even because of the frequent chaos of products such as fakes and counterfeit goods on the Pinduoduo platform at the time, Pinduoduo made fun of Pinduoduo into an extension of “Pinduoduo's imagination”, etc., and people misjudged Pinduoduo's imagination.

After all, whether it's “social e-commerce” or a “sinking market,” the ceiling is quite obvious. One obvious consensus is that the purchasing power of third- and fourth-tier users is limited. Furthermore, the “scrambling” of counterfeit goods and low-priced goods is itself once again influencing people's imagination of Pinduoduo's market capitalization space. At the end of the day, it was 34 billion US dollars.

However, the results proved that these were all wrong, and many people were punched in the face because of this.

First, the so-called “sinking market” concept of Pinduoduo is just an intuitive appearance. Essentially, no user can refuse low-priced products of the same quality and brand. In other words, distinguishing users as “within and outside the Five Rings” is a big misunderstanding.

At first, as a startup e-commerce company, Pinduoduo lacked sufficient voice for the brand's product supply chain, so it first started with users in the sinking market who had no strong understanding of the brand, used overcapacity in traditional manufacturing and inventory, etc., to complete the export of low-cost products, thus gradually building its own strong voice on the supply chain side, and began gradually implementing the “rural encirclement city” plan to build users, build their own brand e-commerce system, enrich platform SKUs, etc.

In other words, Pinduoduo is targeting the entire user base, and sinking market users is only the first stage.

At the same time, what Pinduoduo is not talking about “social e-commerce” at all; even to a certain extent, Pinduoduo is anti-traditional traffic thinking.

In the eyes of most people who misjudged Pinduoduo and were punched in the face, they only saw that Pinduoduo used WeChat social traffic and sharing mechanisms to obtain customers at a low cost, but they didn't see that Pinduoduo's logic actually gathered homogenized demand through social networking, moving the entire e-commerce industry from the original Google-style “gathering things by class” era to a Facebook-style “people divided by groups” era. At the same time, the gathering of users' needs in a short period of time has also brought great opportunities to optimize the supply chain, so that the cost performance ratio can be higher.

In a nutshell, Pinduoduo obtains traffic at the lowest price, obtains users, then forces back-end supply chain reforms through front-end batch customization requirements, and pushes the realization of a supply-side “market economy” with half a “planned economy”, forming a positive cycle. This is Pinduoduo's core competitiveness.

Pinduoduo is always evolving

Obviously, differences in initial perceptions of Pinduoduo, a new type of e-commerce, and even some degree of demonization, led many people to misjudge their imagination space.

At the same time, since Pinduoduo rose so fast, it reached the threshold of a market capitalization of 10 billion US dollars too early and became a new Internet giant, so much so that people overlooked the fact that Pinduoduo was still a startup company.

However, as a startup company, Pinduoduo's own combat power, efficient organizational efficiency, trial and error ability, and the energy of its talents have made it possible for it to continue to evolve ahead of the curve.

Facts have proven this too.

Once upon a time, Pinduoduo relied on rapid growth brought about by low prices, which was accompanied by disdain and mass ridicule from users in Tier 1 and 2 cities. They have created a chain of disdain for e-commerce shopping.

This also led many people at the time to think that Pinduoduo could not reach this high-quality user group within the 5th Ring Road, and this was Pinduoduo's biggest ceiling.

Of course, it's also backed by data.

After entering 2018, Pinduoduo's user growth entered a downward channel. Even on the basis of strong investment in marketing, there was no change in the status quo. The lowest was in Q1 2019. The net increase in users in a single quarter was only 24.8 million, a significant decline from the peak.

There has been almost no increase in the sinking market. Users within the 5th Ring Road not only don't need Pinduoduo, but they also want to make fun of it. Has Pinduoduo's high growth come to an end?

Nothing.

What do you think? Pinduoduo's timely entry into the market with its 10 billion dollar subsidy directly broke the impasse where user growth was slowing. In particular, the use of Apple phones, a category of products in the 5th Ring Road, made users in the 5th Ring Road bow their heads one after another and say: It's really fragrant.

In the mobile phone subsidy special during the 2019 618 campaign, the prices of various popular mobile phones, including iPhones, on the Pinduoduo platform were reduced across the board, a drop of about 500-1,000 yuan compared to other e-commerce platforms. The same was true when the iPhone SE was launched this year. The starting price on the official website was 3,299 yuan, and on Pinduoduo it was 2,899 yuan.

Pinduoduo's earnings report also proved that its offensive was effective.

By the end of 2019, the number of Pinduo's multi-year active buyers reached 585.2 million, a net increase of 48.9 million in a single quarter, a net increase of 167 million over the same period of the previous year, the average number of monthly active users in Q4 reached 481.5 million, a net increase of 51.9 million in a single quarter, and a net increase of 209 million over the same period of the previous year. User growth has re-entered the upward channel.

Moreover, the 10 billion subsidy not only exerts power in user growth, but also solves another problem that has been questioned by Pinduoduo for a long time: the customer unit price is too low. According to Pinduoduo's 2019 annual report, Pinduoduo's GMV exceeded 1 trillion yuan for the first time this year.

Naturally, after covering the user population within the Fifth Ring Road, Pinduoduo's market capitalization can no longer be measured by the concept of a “sinking market.”

Meanwhile, in addition to GMV and users (average MAU and annual active buyers), the repurchase rate is also a key indicator.

After Pinduoduo used WeChat traffic and low-cost grouping methods to cultivate the online shopping habits of users in the sinking market in the third and fourth offline market, many people thought that these users who learned to buy online would gradually flow to Alibaba Jingdong, pursuing shopping upgrades with higher quality, better service, and faster logistics.

This means that under inertial thinking, there will be some problems with Pinduoduo's user retention and repurchase rate.

However, in reality, Pinduoduo's repurchase rate has been growing.

In 2018, the average annual spending of active buyers on the Pinduoduo platform was 1126.9 yuan, a double increase from 576.9 yuan in the same period last year; the average number of orders from active buyers on the platform reached 26.56 per year, an increase of 51% over 17.55 in the same period last year. By 2019, the average annual spending of active buyers on the Pinduoduo platform further increased to 1720.1 yuan, an increase of 53% over the previous year.

On the one hand, Pinduoduo has been expanding its own platform's SKUs and the continuous promotion of 10 billion dollars of subsidies, etc., and has maintained the “same product low price” platform characteristics. On the other hand, it has also benefited from Pinduoduo's introduction of a series of gameplay such as Duoduo Orchard and monthly cards, thereby promoting user retention and repurchases.

As can be seen, it is the continuous evolution of Pinduoduo that solved quite a few problems during its growth, breaking through many ceilings and dimensions of questioning that were predetermined by the outside world.

But that is still not all that the capital market has given it 100 billion dollars in market value.

Sometimes, how much you're worth depends on your opponent.

The opponent failed to stop successfully

Beginning in 2018, the two Internet giants Ali and Jingdong finally realized Pinduoduo's threat. They began to lay out the sinking market and gather forces to contain Pinduoduo.

In fact, since Pinduoduo entered the market as a new e-commerce player, the threat from the e-commerce giants Ali and Jingdong has always existed, which is equivalent to crossing Pinduoduo's head two mountains.

After all, the latter have been involved in e-commerce retail and other fields for a long time, and have strong financial resources and talent reserves. Even if Pinduoduo uses the WeChat ecosystem to take advantage of its inability to break through a rift, it seems to many people that when Ali and Jingdong react and take hold of the giants, Pinduoduo will fall into an unfathomable competitive situation.

However, they did not anticipate that in the battle with the giants, Pinduoduo did not lose ground; on the contrary, they performed better.

First, let's look at JD, the nominal e-commerce platform, actually a retail company under the banner of the Internet.

This fundamental attribute is doomed; JD is not good at manipulating traffic.

You need to know that JD had a WeChat portal and connected to the WeChat traffic pool for a long time, but it was Pinduoduo that ultimately leveraged the WeChat e-commerce ecosystem. It is equivalent to JD having been rich in this traffic for many years, but there has been no effective development. Later, in the process of blocking Pinduoduo, JD also made efforts to sink the market, giving Jingxi a first-level WeChat portal, but the results are still hard to say.

Later, JD basically chose to retreat from the battlefield of blocking Pinduoduo.

Judging from Liu Qiangdong's “Who is JD?” internal letter from Liu Qiangdong, JD will tend to be conservative, that is, JD will strengthen its cultivation in advantageous fields that have been proven by the market, rather than opening up new fields, seeking new business opportunities, etc.

Let's take another look at Ali.

What Pinduoduo ate was originally the cake on Ali's plate, and was also under the heaviest competitive pressure from Ali.

In the second half of 2018, Ali actually listed Pinduoduo as their number one opponent. Actions such as upgrading and gathering deals and launching Taobao special editions continued with the intention of blocking Pinduoduo.

However, judging from the results, Ali's blocking effect was not obvious.

Most of the new e-commerce users were taken away by Pinduoduo. As of the fourth quarter of 2019, Pinduoduo added 48.9 million new active buyers in a single quarter, while Ali added 18 million new active buyers. Pinduoduo's annual active buyers was 80% of Ali's, and the growth rate was three times that of Ali.

As of the first quarter of this year, Pinduoduo added 42.9 million new active sellers in a single quarter, and still maintained a user growth rate of more than 40%; this single quarter's net increase exceeded Alibaba's 15 million and JD's 25 million.

At the same time, the gap between Pinduoduo and Ali in terms of the number of users has narrowed further.

For the 12 months ending March 31, 2020, Ali announced 960 million annual active consumers worldwide, including 726 million annual active consumers in the Chinese retail market. In addition to Taobao and Tmall, this includes data from other businesses such as Hema. In the same period, Pinduoduo had 628 million active buyers, and the gap with Ali in the Chinese retail market narrowed to 100 million.

Obviously, as expected, Pinduoduo received strong threats from Ali and Jingdong during its expansion, and even its own development was blocked. Judging from the results, this did not happen.

In terms of the capital market itself, a large part of Pinduoduo's imagination actually depends on how much share it can get from the e-commerce market controlled by Ali and Jingdong. This means that in measuring Pinduoduo's market capitalization index, Ali and JD's defenses against Pinduoduo actually have a very high weight.

Once the latter two fail to successfully stop Pinduoduo, Pinduoduo's market capitalization will clearly rise.

Overall, Pinduoduo's path to a market capitalization of 100 billion dollars is full of disputes and questions.

Some were misconceptions and misjudgments, some were resolved in their own evolution, and others were due to changes in the competitive landscape. These were all bitterly punched in the face by Pinduoduo and turned into a backdrop of 100 billion dollars of market capitalization.

However, some of them may not be right; Pinduoduo still needs to prove more.

This article was published with permission from the columnist Chuangbang, and the copyright belongs to the original author. The article is the author's personal opinion and does not represent the position of the Chuangang State. Please contact the original author for reprinting. If you have any questions, 请联系editor@cyzone.cn.