- U.S.-listed Pinduoduo (PDD) is now the third-largest e-commerce player behind Alibaba and JD.com in China.
- A large part of PDD’s appeal is the group buying function where the more people who buy a product leads to a lower price.
- The company recently issued new shares and also made its first major investment as it looks to expand.
- But JD and Alibaba have both launched rival products to PDD which could bring stiff competition to the smaller rival.
U.S.-listed Pinduoduo (PDD) may not be a big name outside of China. But within the world’s second-largest economy, the e-commerce firm is growing faster than major rivals Alibaba and JD.com and gaining share quickly.
Behind that success has been its “social shopping” model that encourages users to share links to items they purchase with friends and participate in group buying.
Here’s a look at how the platform works, its financial performance and how it competes with Alibaba and JD.
How does PDD work?
A large part of PDD’s appeal is the group buying function. When a user selects an item on Pinduoduo, they can choose to participate in group buying. The more people that join in, the lower the price of the item goes.
This encourages buyers to share links to the item they are buying with friends and family or over social media.
Each item has a minimum number of buyers required to complete the purchase. If that number is not met within 24 hours, then the group buy is cancelled and those who have already committed money will be refunded.
There is an option to just buy the item directly but the price of that product is higher than that of buying it in a group.
PDD has also focused on making personal recommendations within its app.
Currently, 100% of PDD’s revenue comes from what it calls “online marketplace services.” This is broadly made up of commission PDD takes from sales on its platform as well as advertising it runs.
While Alibaba and JD.com make most of their money from e-commerce, they both have other emerging businesses such as cloud computing. So PDD’s income stream is narrower.
But its revenue is growing faster in percentage terms. In the December quarter, PDD’s revenue hit 10.79 billion yuan ($1.55 billion), an increase of 91%. In the same quarter, Alibaba’s revenue was up 38% from last year but it raked in 161.45 billion yuan or $23.19 billion, nearly 15 times as much as PDD.
Both Alibaba and JD.com made a net income in the fourth quarter of 2019 while PDD recorded a loss.
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A large part of PDD’s appeal is the