Sunday, 2024 June 16

Pinduoduo’s first quarterly profit comes amid push to modernize agriculture in China

Social e-commerce platform Pinduoduo generated RMB 23 billion (USD 3.6 billion) in Q2 2021, up 89% year-on-year but lagging behind expectations of RMB 26 billion (USD 4 billion), according to the company’s latest financial results released on Monday.

Pinduoduo recorded its first-ever quarterly profit in the June quarter, as the company reported a net income of RMB 2.4 billion (USD 370 million), compared to a net loss of RMB 899 million (USD 139 million) in the same period of 2020. Despite the surprise profit, Pinduoduo’s vice president of finance, Tony Ma, expects it to be a one-off. “We do not expect profitability to continue. We do not think this quarter’s profitability should be an indicator or reference for our future investment in user mindshare and agri-focused infrastructure,” he told investors on the earnings call.

The company frequently mentioned Pinduoduo’s attempts to broaden its brand footprint on the call with investors, as user growth will inevitably slow while the platform matures, Ma said. In fact, 738.5 million, or 87% of Pinduoduo’s annual active buyers, are monthly active users, pointing to healthy growth in user engagement, the company said.

Pinduoduo has been actively increasing its presence in China’s fragmented agricultural industry and has connected more than 16 million farmers with the 849.9 million active buyers on its platform as of the end of Q2 2021. DuoDuo Grocery, Pinduoduo’s community group-buying business, was a major driver of the company’s transaction revenue growth during the quarter, Ma explained.

The firm also unveiled its “10 Billion Agriculture Initiative” and commitment of RMB 10 billion (USD 1.55 billion) to support rural farmers by improving food security, food safety, and agri-food technologies. “All profits from Q2 and any potential profits in future quarters will first be allocated towards this initiative until the total RMB 10 billion commitment is fulfilled,” said chairman and CEO Chen Lei, who acknowledged the short-term pressure that the program puts on Pinduoduo’s finances.

Tech companies and their leadership have engaged in major philanthropic outlays in an unfavorable regulatory environment. Firms like Tencent, ByteDance, Meituan, and Xiaomi have made significant contributions to charity in recent months.

“Agriculture touches the daily lives of everyone and has a relatively low digitalization rate. With many of our team being engineers by training, we hope to apply technology to agriculture, so as to make a large positive impact on society and contribute to the national effort to modernize agriculture and vitalize rural communities,” Chen said. The strong quarterly results buoyed investor confidence as Pinduoduo’s share price soared by 22.25% to USD 99.12 in Tuesday trading following the earnings announcement.

Read this: How to stay honest (or not) as an e-commerce merchant in China


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