Pinduoduo’s losses widen as e-commerce player offers incentives to attract higher-quality merchants

  • Decision to offer higher quality merchants more traffic and discounted commission fees came after Pinduoduo was hit by a spate of criticism after IPO
PUBLISHED : Wednesday, 21 November, 2018, 10:27am
UPDATED : Wednesday, 21 November, 2018, 10:38pm

Chinese e-commerce firm Pinduoduo saw losses widen almost five-fold in the third quarter, as the company continues to spend on incentives aimed at attracting higher quality merchants to its platform to distance it from an association with inferior-quality goods.

Revenue for the three months ended September 30 jumped seven-fold to 3.4 billion yuan (US$490 million), although net losses for the company increased to 1.1 billion yuan, up about 496 per cent compared to the same time last year.

Sales and marketing costs increased about 7 times to 3.2 billion yuan, and the cost of online marketplace services jumped 4 times to 774.7 million yuan. Pinduoduo also incurred nearly 10 times more in research and development expenses as it sought to fight counterfeit products on its platform.

“Though our monetisation rate continued to improve, it was partially offset by the strategy we announced in the last quarter after rewarding higher quality merchants with more traffic,” said Colin Huang Zheng, chief executive and chairman of Pinduoduo.

“We hope to create a virtuous cycle whereby high quality merchants who will provide value for money products with good user experiences are rewarded, attracting more high quality merchants to our platform.”

Short-seller Blue Orca attacks Pinduoduo, betting on a 59pc plunge

The decision to offer higher quality merchants more traffic and discounted commission fees came after Pinduoduo was hit by a spate of criticism following its Nasdaq listing in July. The company was accused of offering counterfeit goods on its platform, with critics saying that it was not doing enough to combat the problem. Pinduoduo was later slapped with several class-action lawsuits in the US, for misleading investors into thinking that the company had a handle on infringement activities on its platform.

In the call, Pinduoduo’s vice-president of finance Xu Tian also addressed recent accusations that the company had inflated its gross merchandise volume – a measure of goods sold over the platform – as well as falsely trimming its losses.

“I would like to stress that we have always held ourselves to the highest standards and that the numbers in our consolidated financial statements are in compliance with the rules and regulations of the SEC,” said Xu, who added that the company’s filings are in accordance with US GAAP and have been audited by Ernst and Young.

Texas-based activist fund Blue Orca, which was shorting the stock, made the accusations in a report last week.

The company’s shares closed up 16.6 per cent at US$23.14 on Wednesday in the US, following the release of its earnings results.