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China tech

Pinduoduo smashes estimates, infiltrating Alibaba's urban hold

Revenue nearly triples as active users surpass bigger JD.com

Pinduoduo rose to prominence by capturing consumers in rural areas and smaller cities in China. Now it wants to shed this image.   © Getty Images

NEW YORK -- Nasdaq-listed Chinese e-commerce company Pinduoduo on Wednesday surprised Wall Street with strong quarterly results, with its foray into to urban areas paying off as sales rose.

The four-year-old company grew to its current scale in the shadow of Alibaba Group Holding and JD.com by serving shoppers in rural areas and smaller cities -- then a relatively untapped consumer base for e-commerce. Now, it is making a move upmarket.

April-June revenue at the Shanghai-based company surged 169% year on year to 7.29 billion yuan ($1.07 billion), surpassing the average analyst estimate of $879 million.

Pinduoduo narrowed its net loss 93% to 0.88 yuan a share, or 12 cents per American depositary receipt, beating the analyst consensus of a 19-cent loss. The shares surged over 13% in morning trading in New York.

"Some competitors try to frame us as a platform that will only attract price-sensitive users, and that our products are cheap because they are low quality, or even knockoffs," Pinduoduo CEO Colin Huang Zheng, an ex-Google engineer, said on Wednesday's earnings call. "Today, our results have firmly demonstrated otherwise."

Pinduoduo's strong quarterly results came a year after its initial public offering in New York. JD.com and Alibaba also posted better-than-expected revenue last week, suggesting that China's online consumer spending continued to accelerate despite trade war pressures.

As of the June quarter, Pinduoduo's annual active buyers reached 483 million, more than JD.com's 321 million and closing in on Alibaba's 674 million. Average annualized spending per user also nearly doubled to 1,467.5 yuan, or about $214, from a year earlier. Pinduoduo primarily generates revenue from online marketing services it provides to merchants on the platform.

Alibaba, having taken note of Pinduoduo's rise, recently revealed a new focus on consumers beyond China's big cities. Last week, Alibaba CEO Daniel Zhang named "successful penetration into less-developed areas" as the group's top achievement in the second quarter of 2019, attributing over 70% of the increase in its annual active consumers to these places.

But Pinduoduo has been trying to shed its image as a platform for rural shoppers. The company said 48% of merchandise sold on the platform went to so-called first- and second-tier cities in June, compared with 37% in January. These groupings include major metropolises Beijing and Shanghai as well as smaller cities such as Harbin and Changchun.

Known for promoting low-priced goods, the platform has begun selling higher-end products such as the iPhone XR to attract urban consumers.

Alibaba's charge into less-developed regions of China, coupled with Pinduoduo's expansion into cities, means their users increasingly overlap. Over 70% of Pinduoduo's users are also customers of Alibaba's online marketplace Taobao, according to an April report by Beijing-based data provider Analysys.

When asked by an analyst to address the competitive landscape, Huang said the company remains "laser focused" on users rather than competitors.

"The e-commerce market in China is still not a zero-sum game yet," Huang asserted. "It is still sort of the early to middle kind of stage."

Pinduoduo's sales and marketing expenses continued to surge in the latest quarter, reaching $889 million -- about 84% of total revenue.

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