HONG KONG -- Pinduoduo's customers do not fit the image of the typical tech-savvy Chinese shopper. Instead, they are a group of bargain-hunting moms and pops, who might team up with friends and refresh a shopping website every few minutes to save less than a dollar on a package of fresh apples.
However, these humble shoppers -- many live in remote Chinese villages and lower-tier cities -- have lent solid support to the Chinese group-buying platform's business, spurring an upcoming initial public offering which could raise as much as $1.87 billion in the U.S. stock market.
Founded by former Google engineer and serial entrepreneur Colin Huang in 2015, Pinduoduo has grown to be China's third-largest e-commerce retailer by market share in just three years, after Alibaba and JD.com.
Pinduoduo is offering 85.6 million shares at a price range of $16 to $19 per share, according to its prospectus. This gives the three-year-old company a valuation $20 billion to $24 billion, the latest in a series of high-profile overseas listings of Chinese companies this year.
Huang owns 50.7% of the shares and enjoys 89.8% aggregate voting power through a dual-class share structure. China's internet giant Tencent and its affiliated entities already hold an 18.5% stake, and have pledged to buy shares worth up to $250 million in the IPO. Another existing shareholder, Sequoia Capital, owns 7.4% of the company and has agreed to invest the same amount through the offering.
In his letter to shareholders, Huang, a University of Wisconsin-Madison graduate, characterized the startup as a combination of Costco and Disney, emphasizing both the U.S retail chain's "value for money" features, and the entertainment giant's fun spirit.
Pinduoduo's revenue more than doubled to 1.74 billion yuan ($256 million) last year from a year ago, but it has not yet turned a profit. The company reported a loss of 525 million yuan last year, up from a 292 million yuan shortfall in 2016.
Dubbed China's Groupon, Pinduoduo offers low-priced items -- mostly staple goods and fresh food -- at steep discounts when enough people join the deal. It relies heavily on social media platforms and their users to recruit new customers, and gives customers better discounts if they lure more people to its platform. Customers are even able to get products for free -- if they persuade enough friends to bargain for them. Agricultural products often come at a discount of more than 50%.
Pinduoduo had 343.6 million active buyers as of June 30, who spent an average 762.8 yuan a year on the platform. Its total gross merchandise volume rose more than five-fold to 262.1 billion yuan in the 12 months ended in June, on a yearly basis.
The fast-growing start-up poses direct threats to Alibaba and JD.com, who have long dominated China's e-commerce market.
Pinduoduo had a 5.2% share of China's e-commerce market as of April, according to data compiled by eMarketer, ranked after Alibaba and JD.com, who had share of 58.2% and 16.3% respectively. But it had a bigger share than the following three platforms -- Suning, Vip.com and Gome -- combined.
However, the online discounter has a different customer mix to the other players.
More than 64% of Pinduoduo's users are from tier-three cities and beyond, against only 50.1% for JD.com, according to WalktheChat, a consultancy specializing in consumer behavior. Only 7.56% of its users are from tier-one cities, compared to 15.68% for JD.com.
About 90% of Pinduoduo's users are 30 and older, according to the consultancy, whilst other companies tend to have younger customers