Insights

Pinduoduo’s Latest Results: Robust Growth Continues

Pinduoduo Inc (NASDAQ: PDD) reported robust revenue growth for its latest quarter. Here’s what investors need to know. – Pinduoduo website

Pinduoduo Inc (NASDAQ: PDD), or PDD, is a leading e-commerce company in China, alongside Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) and JD.com Inc (NASDAQ: JD) (SEHK: 9618).

Last Friday, the company announced its second-quarter results for 2020. Here’s what investors should know from the announcement.

Overall performance

I’ll start by looking at the key financials from the latest quarter.

Total revenue for the quarter grew by 67% from RMB 7.3 billion (US$1.05 billion) last year to RMB 12.2 billion this quarter.

Revenue growth was across the board for online marketing services and transaction services. Despite reporting higher revenue, Pinduoduo recorded an operating loss of RMB 1.6 billion, which was 10% higher year-on-over amid higher operating costs.

Overall, I think the growth numbers were commendable considering that Alibaba, its biggest competitor, reported a 34% year-on-year increase in China’s e-commerce business.

Operational metrics

Pinduoduo’s revenue growth came on the back of strong operational performance. Here are a few of those metrics that the company has been tracking:

  1. GMV in the twelve months ended 30 June, 2020, was RMB 1.27 trillion, an increase of 79% from the same period last year.
  2. Active buyers in the trailing twelve-month period were 683.2 million, an increase of 41% from 483.2 million last year.
  3. Annual spending per active buyer improved by 27% year-on-year to RMB 1,857 this quarter.

Balance sheet

As you can see from the summary above, Pinduoduo continued to report an operating loss despite its strong revenue growth thanks to its investment in marketing and research, and development costs.

Fortunately, it has quite a decent amount of cash and short-term investments on its balance sheet, totaling RMB 49 billion as of 30 June, 2020. It also has a low debt – relative to its cash – of RMB 8.3 billion.

With its strong balance sheet, Pinduoduo has the necessary resources to invest in growing its users, even as it faces formidable competitors like Alibaba, JD.com, and others.

Foolish takeaway

Overall, Pinduoduo continued its strong growth amid higher active buyers and spending per buyer.

Yet, it continues to report significant losses with no clear sign of turning that around any time soon. Investors should, therefore, keep that in mind when investing in this stock.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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