Before the market opened on the 28th, Pinduoduo released its financial report for the third quarter of 2022 ending September 30. The company achieved revenue of 35.5 billion yuan in the third quarter, a year-on-year increase of 65.1% and a month-on-month increase of 12%. In terms of profit, the company achieved a GAAP net profit of 10.589 billion yuan, a year-on-year increase of 545.66%, and a Non-GAAP net profit of 12.447 billion yuan, a year-on-year increase of 295.13%, exceeding the market Expected to achieve a leap in profit level.
The benefit of exceeding expectations is reflected in the stock price. As of the close of US stocks on November 28, Pinduoduo closed at US$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, the company’s executives repeatedly emphasized that the profits obtained this time were “affected by accidental factors.” So what is Pinduoduo’s performance in the third quarter?
01
Cost-side expenditure ratio declines
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 book profit in the third quarter was mainly affected by sporadic factors such as the delay of various projects, which could not fully reflect the actual production situation of the company. In the future, with the gradual restart of projects and the reset of investment, Book profits will not be sustainable.
The company attributed the main reason for the profit increase to the reduction of project expenditure, which is reasonable from the perspective of the company’s cost and expense. In the third quarter, the company’s comprehensive 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 splitting, the company’s sales/management/R&D expense ratios were 39.57%, 2.55%, and 7.60%, respectively, with year-on-year changes of -7.17%, +1.00%, and -3.66%, respectively.
In terms of actual values, the company’s sales, management, and R&D expenses in the third quarter were 14.048 billion, 906 million, and 2.698 billion yuan, respectively, an increase of 40%, 171%, and 11% over the same period last year. The company has not slowed down its investment at the expense 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.
In fact, the above situation was reflected in the second quarter of 2022. According to the 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 normal business activities and investment activities, travel restrictions , Telecommuting and other factors caused project delays. The management of the company believes that the reduction of the expense ratio is not conducive to long-term development, and the company will continue to increase investment in the future.
02
Significant increase in revenue and gross profit
Leaving aside the level of payment, the company’s revenue scale and improvement in gross profit margin are real. The company’s revenue is mainly composed of platform revenue and marketing service revenue. In the third quarter, revenue from corporate marketing services reached 28.426 billion yuan, a year-on-year increase of 58.4%. According to CEO Chen Lei’s speech on the conference call, the profit growth is mainly concentrated on the increase of cooperative brand owners, including agricultural products, 3C, home appliances, beauty cosmetics and other categories have received good feedback.
This quarter’s platform revenue was 7.022 billion yuan, a year-on-year increase of 102%, and a 12% increase from the second quarter. The company did not announce the specific GMV data in the third quarter, but it can be seen that in the third quarter when the sales expense ratio has been lowered, the company’s platform revenue still maintained a three-digit year-on-year growth, indicating that the company’s platform users have achieved spontaneous growth. growth, and there is room for further improvement in the future.
In the third quarter, the company’s comprehensive 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 continuous decline in the proportion of the company’s sales of goods with a lower gross profit margin. However, as of the third quarter, the company’s merchandise sales revenue was 56.4 million yuan, a year-on-year decrease of 31%, accounting for only 0.1% of the company’s revenue.
Sustained profit growth makes the company’s cash flow increasingly abundant. As of 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 growth in the two quarters and the slowdown in investment have turned the company’s profits into book cash, supporting the company’s further development of new businesses.
03
New cross-border e-commerce business launched
On September 1 this year, Temu, a cross-border e-commerce platform under Pinduoduo, was officially launched, with the US market as its initial target. According to Diandian data, as of November 8, 2022, Temu ranks first in the free list of Apple channel shopping in the US market, third in the free list of apps, and third in the free list of the general list. According to the latest media disclosure, Temu’s average daily GMV has exceeded US$1.5 million and is expected to reach US$500 million by the end of the year.
At present, Temu adopts a self-operated model of seller supply and platform sales. The merchant is only responsible for the supply, while the pricing, sales, and after-sales links are all in charge 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 an in-depth cooperation with Jitu in the first-leg transportation link.
At present, Temu’s core categories are clothing and daily-use products. From the price point of view, Temu requires a lower price than similar products on the 1688 wholesale website or other e-commerce platforms to ensure that its products are more cost-effective than Amazon and Shein platforms.
This model is somewhat similar to the role of Pinduoduo’s self-operated sales project. Through platform management, it provides better product and service quality control, accumulates user reputation, opens up the market and accumulates early traffic. Therefore, in the initial 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, the profit sharing and marketing expenditures for users will become the bulk of the company’s expenditures.
04
New business investment will continue to increase
According to the calculation of China Merchants Securities, assuming that the annual GMV is 4 billion U.S. 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 from the company’s current GMV progress, this value will only increase, and it is expected to have an impact on the company’s performance in the fourth quarter. This is also the reason why the company continued to vaccinate in this quarter, because in the following quarters, the company’s books are likely to usher in a “performance change”.
In this quarter’s conference call, the company defined 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 Data is less affected. However, as a long-term new industry of the company, Temu’s business model will never stop here. With the increase in traffic accumulation, it is inevitable to adjust the model to improve profitability. Transition, the platform model with stronger profitability may be the more important development direction.
This process is not expected to have an obvious explosive point in the short term. In fact, the order volume of Temu has not yet shown the characteristics of explosive models. The reason why merchants settled on the Temu platform agree to low prices is mainly based on the success of Pinduoduo’s domestic business. , during which there are characteristics such as low customer unit price and low commodity profit margin. Fortunately, the company currently has sufficient funds, which is enough to support the company to increase investment in new projects and open up the market. As Temu gains a firm foothold in overseas markets, its costs are expected to be adjusted further.
－ End －
Original title: Profit “accidental” exceeded 10 billion, Pinduoduo opened up a new battlefield for cross-border e-commerce in Q3