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Pinduoduo aiming to become world’s biggest grocer

China’s fastest-growing e-commerce player Pinduoduo’s shares were hit by its chairman’s resignation, even as the company zooms in on agriculture-focused logistics.

  • Pinduoduo Inc (Nasdaq: PDD) share price falls to US$141.80 per share
  • Founder and chairman Colin Huang stepped down last week
  • Revenue more than doubled in 4Q20, exceeding analysts’ expectations
  • The firm plans to invest in agriculture-focused logistics capabilities
  • Trade Pinduoduo stocks with an IG account

Pinduoduo shares shed 11.9% in three days

Shares of Chinese e-commerce platform Pinduoduo, which matches farmers to consumers, slipped 0.01% day-on-day to finish at US$141.80 last Friday (19 March 2021) in New York.

The stock had slumped 11.9% across three days last week, partly dragged by news of Pinduoduo’s billionaire co-founder Colin Huang Zheng having resigned last Wednesday.

As of Sunday, 38 analysts recommended ‘buy’ on Pinduoduo, seven rated ‘hold’ and four said to ‘sell’. Their average target price was US$177.65 per share, Bloomberg data showed.

Pinduoduo co-founder quits

Pinduoduo’s chairman and co-founder Huang has stepped down from the board and relinquished special voting rights that gave him control. Huang will focus on longer-term initiatives, including research in food and life sciences.

Co-founder Chen Lei assumed the role of chairman, and continues to serve as CEO.

Huang’s departure leaves a shortage of top talent for a young company as rising costs bite, Reuters wrote.

Bernstein analysts noted that Huang’s board exit ‘had an air of inevitability’ after he resigned as CEO in July 2020. However, the timing of the departure still came as a surprise, they said.

Revenue surges 146% in fourth quarter of 2020

Last Wednesday morning, Pinduoduo reported that its net loss narrowed to RMB1.38 billion for October-December 2020, from RMB1.75 billion a year ago.

Revenue climbed 146% year-on-year to RM26.5 billion, beating the consensus forecast by 38%, CMB International analysts noted. The robust top-line was driven by growing demand for groceries and the increasing number of people in less-developed cities turning to online shopping.

Pinduoduo also overtook Alibaba Group Holding to become China’s biggest e-commerce platform by users in December 2020.

That being said, the rise in e-commerce volumes - about 57% quarterly growth in gross merchandise value last year - lagged expectations, Citi analysts said.

What are Pinduoduo’s next steps?

In 2021, Pinduoduo is prioritising agricultural products, supply chain, and offline fulfillment, CMB International noted, as it trimmed its target price to US$175 and maintained a ‘buy’ call.

While there might be short-term pressure on Pinduoduo’s shares, CMB International is positive on long-term top-line growth, fuelled by stronger user engagement, agricultural products potential, and initiatives under the Duo Duo Maicai platform, which sells fresh produce.

The company aims to become the world’s biggest grocer, and thus will invest in an agriculture-focused logistics infrastructure platform in the next few years. Plans include improving its infrastructure network to reduce wastage, and working with third-party providers to achieve a 24-hour turnaround for perishable goods.

Bloomberg Intelligence analysts wrote that Pinduoduo’s rapidly expanding sales could help narrow operating losses in the medium term.

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