“Accidental” profit exceeded 10 billion, Pinduoduo opened a new battlefield for cross-border e-commerce in the third quarter of the Internet of Things week

Ahead of the market opening on the 28th, Pinduoduo released its financial report for the third quarter of 2022 ending on September 30. The company achieved revenue of 35.5 billion yuan in the third quarter, a year-over-year increase of 65.1% and a one-month increase of 12%. In terms of profit, the company achieved GAAP net income of 10.589 billion yuan, a year-on-year increase of 545.66%, and non-GAAP net income of 12.447 billion yuan, a year-on-year increase of 295.13 %. , outperforming the market Expected to get a leap in profit level.

The advantage of exceeding expectations is reflected in the share price: As of the close of US shares on November 28, Pinduoduo closed at USD 74.05, an increase of 12.62% from the previous trading day.

Despite the better-than-expected profit, management appears to be playing it safe. In the performance conference call, company executives have repeatedly stressed that the profits achieved this time were “affected by accidental factors.” So what is Pinduoduo’s performance in the third quarter?


The expense/cost ratio decreases

Let’s first look at what the “accidental factor” described by management is. According to Liu Jun, vice president of finance of Pinduoduo, the increase in temporary accounting profit in the third quarter was mainly influenced by sporadic factors such as the delay of various projects, which could not fully reflect the company’s actual production situation . the future, with the gradual restart of projects and zero investments, will not be sustainable.

The company attributed the main reason for the profit increase to the reduction in project expenses, which is reasonable from the company’s cost and expense perspective. In the third quarter, the company’s overall gross profit rate was 49.76%, a decrease of 11.18 percentage points from the same period last year and a slight increase of 2% from the second quarter. In terms of breakdown, the company’s selling/operating/R&D expense ratios were 39.57%, 2.55%, and 7.60%, respectively, with year-over-year changes of -7.17%, +1, respectively. .00% and -3.66%.

In terms of actual values, the company’s third-quarter selling, operating and R&D expenses were 14.048 billion, 906 million and 2.698 billion yuan, respectively, an increase of 40%, 171% and 11% over at the same time last year. year. The company has not slowed down its investment spending level, but due to the epidemic, the growth rate of its investment is not as good as the increase in revenue growth, which has led to a decline in the expense ratio.

This situation was in fact reflected in the second quarter of 2022. According to management, the company’s overall expense ratio in the second quarter was only 47%. The reduction in the expense ratio was mainly due to the impact on the normal business and investment activities, travel restrictions, telecommuting and other factors caused delays in the project. The company’s management believes that reducing the expense ratio is not conducive to long-term development, and the company will continue to increase investment in the future.


Significant increase in gross profit

Leaving aside the payment level, the company’s revenue scale and gross profit margin improvement are real. The company’s revenue is mainly composed of platform revenue and marketing services revenue. In the third quarter, enterprise marketing services revenue reached 28.426 billion yuan, an increase of 58.4% year on year. According to CEO Chen Lei’s conference call speech, earnings growth is mainly focused on the increase of cooperative brand owners, including agricultural products, 3C, home appliances, beauty cosmetics and other categories have received good feedback.

Platform revenue this quarter was 7.022 billion yuan, a 102% year-over-year increase and a 12% increase over the second quarter. The company did not announce specific GMV data in the third quarter, but it can be seen that in the third quarter, when the selling expense ratio was lowered, the company’s platform revenue still maintained triple-digit year-on-year growth. , indicating that the company’s platform users have achieved spontaneous growth and there is room for further improvement in the future.

In the third quarter, the company’s overall gross profit margin was 79.12%, an increase of 9.61 percentage points year on year. According to the conference call, the main reason for the increase in gross profit margin is due to the continued decline in the percentage of the company’s goods sales with a lower gross profit margin. However, as of the third quarter, the company’s merchandise sales revenue was 56.4 million yuan, a decline of 31% year on year, accounting for only 0.1% of the company’s revenue.

Sustained earnings growth makes the company’s cash flow more and more abundant. At the end of the third quarter, the company’s book cash was 25.6 billion yuan, and the cash balance at the end of the period was 74.4 billion yuan. the company’s profits in book cash, supporting the further development of the company’s new businesses.


Launch of a new cross-border e-commerce business

Temu, a cross-border e-commerce platform under Pinduoduo, was officially launched on September 1 this year, with the US market as its initial target. According to Diandian data, as of November 8, 2022, Temu ranks first in the Apple channel purchase free list in the US market, third in the app free list, and third in the general list free list. According to the latest media disclosure, Temu’s average daily GMV has surpassed $1.5 million and is expected to reach $500 million by the end of the year.

At present, Temu adopts a self-contained model of vendor supply and platform sales. The merchant is only responsible for the supply, while the pricing, sales and after-sales links are all the responsibility of the Temu platform. In terms of product distribution, Temu adopts the distribution mode of domestic unified warehouse distribution and overseas cross-border direct mail, and has reached in-depth cooperation with Jitu in the first-stop transport link.

At present, Temu’s main categories are clothing and everyday products. Price-wise, Temu requires a lower price than similar products on 1688 wholesale website or other e-commerce platforms to ensure that its products are more affordable than the Amazon and Shein platforms.

This model is somewhat similar to the role of Pinduoduo’s autonomous sales project: through platform management, it provides better control of product and service quality, accumulates user reputation, opens up the market, and accumulates initial traffic. Therefore, in the early stage of fashion development, its expected development path is similar to that of Pinduoduo in the early stage. Therefore, in the first two years of Temu’s development, profit sharing and marketing expenses for users will become the bulk of the company’s expenses.


New business investment will continue to rise

According to the calculation of China Merchants Securities, assuming the annual GMV is 4 billion US dollars and the number of users is 7 million, it is estimated that Temu will bring the company a loss of more than 6.7 billion yuan next year . Judging by the company’s current GMV progress, this value will only increase and is expected to impact the company’s performance in the fourth quarter. This is also why the company continued to vaccinate this quarter, because the company’s books are likely to usher in a “performance shift” in subsequent quarters.

In this quarter’s conference call, the company characterized Temu as “an industry still in the early stage of exploration”, and there are many places for optimization in the services it provides. The current international business is still in an early stage and the financial impact The data is less interested. However, as the company’s long-term new industry, Temu’s business model will never stop there. With the increase in traffic accumulation, it is inevitable to adjust the model to improve profitability. Transition, the model of platform with higher profitability may be the most important development direction.

This process should not have an obvious explosive point in the short term. In fact, Temu’s order volume has not yet shown the characteristics of explosive patterns. The reason why traders established on the Temu platform accept low prices is mainly based on success of Pinduoduo’s domestic activity. , during which there are features such as customer’s low unit price and raw material low profit margin. Fortunately, the company currently has sufficient funds, sufficient to support the company to increase investment in new projects and open up the market. As Temu gains a strong foothold in overseas markets, its costs should be further adjusted.

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Original title: “Accidental” profit exceeded 10 billion, Pinduoduo opened a new battlefield for cross-border e-commerce in the third quarter

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