After the formal announcement of the establishment of the “10 billion agricultural research project” in late August, Pinduoduo (PDD.US) recently handed over its first financial report since the company adjusted its development strategy.
Throughout the entire financial report, Pinduoduo’s Q3 operating income was 21.506 billion yuan (RMB, the same unit below), an increase of 51% year-on-year, which was less than market expectations of 26.5 billion yuan; operating profit according to US GAAP was 2.139 billion yuan, The net profit attributable to shareholders was 1.64 billion yuan. In terms of active users, the average monthly active users of Pinduoduo during the period were 741.5 million, a year-on-year increase of 15%.
From the data point of view, Pinduoduo’s scale is still expanding while maintaining the momentum of profitability. Only in terms of the speed of development, Pinduoduo seems to be a little slower than the outside world expected. Although the capital market was not satisfied with Pinduoduo’s Q3 results in terms of the stock price trend on the day after the financial report was disclosed, from the statements made by Pinduoduo’s executives at the earnings call, they have been sufficiently clear about the company’s future development direction. Knowing that Pinduoduo will be more determined to do the right thing next.
In the book “The Most Important Thing of Investment”, which is regarded as a classic investment book by the stock god Warren Buffett, the author Howard Marx believes that in order to become an outstanding investor, you must have more in-depth thinking than the consensus of the group.
Zhitong Finance APP believes that what Howard Marx emphasized here is that investors need to have independent and in-depth thinking ability before making investment decisions in order to obtain excess returns in their investment career. As for the specific target, taking Pinduoduo as an example, it is time to re-understand Pinduoduo. At this time, try to think more from the perspective of the company, and it may be more helpful to judge the mid-to-long-term investment value of Pinduoduo.
Subtract in marketing and add in R&D
According to the financial report, Q3 Pinduoduo’s revenue is mainly composed of three parts: platform online marketing technical services, transaction services, and product sales. Among them, the first two businesses are the main source of the company’s income, and the total income during the period accounted for more than 99%.
Data shows that Pinduoduo’s platform online marketing technology service revenue was 17.946 billion yuan, a year-on-year increase of 43.7%; transaction services were 3.477 billion yuan, a year-on-year increase of 161%. It can be seen that the revenue growth of the two businesses remained strong during the period.
However, Pinduoduo’s self-operated business performed poorly, with revenue of less than 100 million yuan during the period, a year-on-year decrease of 79%. According to the statement of Pinduoduo’s management at the conference call, 1P (self-operated) business “is only temporarily providing consumers with products that are not sold by merchants”, and “not the focus of Pinduoduo.” As the products sold by merchants on the Pinduoduo platform become more diversified, the company’s 1P may gradually withdraw in the future.
In terms of the number of users, Q3 Pinduoduo had 741.5 million monthly active users, a year-on-year increase of 15%; as of the end of September, Pinduoduo had 867.3 million annual active buyers. The Zhitong Finance APP believes that the slowdown in the growth of Pinduoduo’s monthly active users is within expectations. After all, after continuous leap-forward growth, Pinduoduo’s user scale has approached the ceiling of user growth, and it will maintain a super high number in the future. The growth is not realistic.
Compared with revenue and the number of users, Pinduoduo’s investment in marketing and R&D has changed more and more worthy of investors. In terms of marketing, Pinduoduo began to take the initiative to “subtract.” Under the US GAAP, Q3 Pinduoduo’s marketing expenses were 10.050.6 billion yuan, a decrease of 3% from the previous quarter. This is the third consecutive quarter that the data has shown a downward trend.
According to the introduction of the company’s management at the earnings conference call, Pinduoduo will continue to “strict and disciplined arrangements for marketing investment” in the future. It is conceivable that under the new marketing strategy, Pinduoduo has already bid farewell to the past “burning money” model, and the company’s investment in marketing will be more restrained in the future.
Contrasting with the continued decline in marketing expenses, Pinduoduo continues to “addition” to research and development. During the period, the company’s R&D expenses were RMB 2.4224 billion, a year-on-year increase of 34%, and R&D investment reached a new high again. In addition, according to the information disclosed by the company’s executives at the earnings call, increasing R&D investment will continue to be a key area for the company’s future investment.
Pinduoduo continues to increase R&D investment, what is the real intention behind it?
Do the right thing firmly
It is understood that the “Fortune” magazine “Company that changes the world” list selects companies that have a positive impact on society, and these impacts stem from their core business strategies. At present, the list has been selected globally for 7 consecutive years, and this year’s selection criteria focus on the social responsibility of enterprises in the new crown epidemic.
The reason for Pinduoduo’s selection is that Fortune magazine believes that as a leading company in agricultural product sales, it has made special contributions in the fields of agricultural scientific research and public welfare assistance to agriculture.
From the perspective of Zhitong Finance APP, Pinduoduo deserves its name. Looking back at the company’s development history, since its establishment in 2015, Pinduoduo has created value by introducing agriculture into the digital economy. In the past 6 years, Pinduoduo has been focusing on agriculture. In the process of promoting the upward trend of agricultural products, it has successively cultivated more than 100,000 new farmers and directly connected 16 million farmers to contribute to the “science and technology to the countryside” and “agricultural products to the city”. Made a positive contribution.
Especially after the announcement of the formal establishment of the “10 billion agricultural research project” in late August this year, Pinduoduo’s emphasis on the agricultural sector has become more and more praised by the outside world. It is reported that Pinduoduo’s “10 billion agricultural research project” aims to meet the major needs of agriculture and rural areas. It does not aim at commercial value and profit. It is committed to promoting the advancement of agricultural science and technology and inclusive of science and technology. Going further with motivation and sense of gain.
The establishment of the “Ten Billion Agricultural Research Special Project” reveals Pinduoduo’s new and robust strategy of multi-investment in agricultural science and technology. It is also worth mentioning that while releasing the Q3 financial report, Pinduoduo also announced that after the second quarter of this year, the company will invest all Q3 profits in the “10 billion agricultural research project”, which also means that the company will continue to All in agriculture will be profitable for each quarter.
In fact, from the perspective of the big social background, agriculture has occupied an irreplaceable important position in our country since ancient times. Even today, when industry and commerce are highly developed, the work of “agriculture, rural areas and farmers” is still the top priority of my country’s comprehensive construction of a modern socialist country, and agriculture is still valued by the country. At the State Council executive meeting in early November, the meeting called for improving agricultural quality and efficiency, focusing on agricultural scientific and technological innovation, and fostering and expanding new agricultural business entities.
Looking back at the current corporate strategy of Pinduoduo’s multi-investment in agricultural technology, the firm’s focus on agriculture and the mentality of helping farmers have become one of the company’s new endeavors, and these coincide with the directions encouraged by the state. For example, in the field of agricultural scientific research, Pinduoduo has held the “Duoduo Agricultural Research Contest” for two consecutive years. At present, in Yunnan’s “Duo Duo Agricultural Research Base” and the 4 AI finalists of the “Second Duoduo Agricultural Research Competition”, they are carefully cultivating tomato seedlings remotely and applying cutting-edge technology to the fields.
It is true that for most companies, profitability is the first pursuit. But for Pinduoduo, immediate profitability is not the company’s ultimate goal. Winning the trust of users and creating value for society is the core strategy of Pinduoduo as an enterprise. From reducing marketing, re-researching, and re-investing in agriculture, taking agriculture as a long-term choice, we can see that Pinduoduo today has chosen a more stable path with longer-term development prospects. And from the perspective of investors, choosing to stand with Pinduoduo at this moment is also expected to achieve substantial investment returns in the future.