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Can Pinduoduo Sustain Its Expensive Growth?

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Pinduoduo’s revenue has more than tripled

In the past three quarters, no major Chinese e-commerce company has been growing faster than Pinduoduo (PDD). Through its online shopping platform, shoppers can team up to make bulk purchases to enjoy lower prices. In the fourth quarter, Pinduoduo’s revenue grew 379% YoY (year-over-year), while Alibaba’s (BABA) and JD.com’s (JD) grew 41% and 22.4% YoY, respectively. Amazon’s (AMZN) and eBay’s (EBAY) revenue grew 20% and 6.0% YoY.

Pinduoduo’s expenses increase eightfold

However, Pinduoduo’s rapid growth comes at a high price. In the fourth quarter, the company’s operating expenses increased more than eightfold YoY to $1.0 billion, resulting in it turning to a loss of $352.5 million from a profit of $2.0 million a year earlier.

Perhaps inspired by deep-pocket rivals Alibaba and JD, which collected $550 million in funding from Google (GOOGL) last year, Pinduoduo has resorted to spending big on advertisements and promotional campaigns to attract shoppers to its platform. This spending explains the company’s soaring expenses.

$4.4 billion in cash

Pinduoduo exited last year with $4.4 billion in cash and it spent $3.1 billion on operating expenses during the year, suggesting it has enough fuel to maintain that spending this year. Pinduoduo, which went public last July, generated $822.3 million in revenue in the December quarter.

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