The social e-commerce brand PinDuoDuo is planning to go for initial public offering in the United States as soon as next week.
According to a report from China Entrepreneur Magazine, several sources confirmed that the rising E-commerce platform will submit formal applications to the U.S Securities and Exchange Commission. Investment banking firms like Goldman Sachs and China International Capital Corporation are likely to handle the IPO case for PinDuoDuo.
However, Huang Zheng, CEO of PinDuoDuo, declined to comment on the matter. It is estimated that PinDuoDuo’s net worth is approximately USD 30 billion. Founded in 2015, PinDuoDuo claimed to have more than 300 million users and more than one million businesses on board in less than three years of operation.
With the help of its major investor Tencent, PinDuoDuo was able to utilize WeChat to expand its business. PinDuoDuo’s main competitor, TaoBao, was not able to enjoy such privilege due to Alibaba’s rivalry position with Tencent.
WeChat, the most popular application in China is believed to be the keys of its huge success in the previous three years. The E-commerce platform features on group-sales category, wherein, product price will be significantly lowered if users find other fellow buyers to purchase the products together.
“The more you group, the more you save.” PinDuoDuo’s 15-second commercial summarized the simple business nature that attracted its 300 million users. The ‘group and sell’ strategy helped the business surpassed JD.com to become the second largest E-commerce platform in China.
However, critics argue that PinDuoDuo’s product quality and service conducts are in question. In addition, the low-price products that the platform features make people doubt the company’s profitability.
“It makes no sense for businesses to cover shipping costs for products that worth only ¥1 or ¥2,” Said Zhang Yong, CEO of Alibaba, on PinDuoDuo’s business model.
Company drawn in to controversy
Earlier in June, PinDuoDuo was involved in a potential crisis. Chinese state media and authorities discovered that there were merchandisers selling inappropriate and illegal products on the platform. Despite the company committing to crack down illegal products, the E-commerce company is consistently suffering from negative comments over the poor product qualities and sales strategy it uses.
On June 13th, dozens of PinDuoDuo merchandisers gathered outside of the company’s headquarter in Shanghai and protested the platform over unfair punishments that the platform imposed on small merchandisers. Protesters believed that the Shanghai-based E-commerce platform is using the fines imposed as a potential source of income.
Pinduoduo, on the other hand, claimed the merchandisers involved in the protests were selling malfunctioning and fake products. The punishments and disciplinary measures the platform took were in line of the user agreement and platform policy, it claimed.
In a related interview, Huang Zheng, later said that the amount of fine that the platform collected are too small to be considered as a reliable source of income. “Fines the platform imposed will ultimately go to the consumers. PinDuoDuo is not involved in this,” Huang said.
Critics further question that PinDuoDuo lacks the proper validation procedures to audit merchandisers on the platform. Huang responded by arguing that the platform’s user agreement and merchandiser’s code of conduct is similar to its competitors.
“Our requirements on merchandisers joining the platform are no different from our competitors. We are always on the consumers’ side.” Huang reaffirmed the company’s position on the issue.
Huang acknowledged that he never thought the impact of his company could be this huge. “Now we are a company with more social responsibilities. We will make the company more transparent for everyone and take on more responsibilities as we can.” Huang sees his firm growing into a size that actually matters to the general public.
Despite the controversies, Huang and his PinDuoDuo remains to be an attractive opportunity. It is believed that PinDuoDuo received an additional USD 3 billion investment from Tencent and Sequoia Capital earlier in April.
Quantity over quality
According to Huang, PinDuoDuo’s major source of income is from advertisements. “Just like Taobao and T-Mall, PinDuoDuo has its own advertisement system. But our system is more like Facebook,” Huang said in an interview.
With 300 million users on board and approximately $17 billion US Dollars’ worth of gross merchandise volume, the revenues of PinDuoDuo’s advertising platform seem to be promising.
This “quantity over quality” strategy seems to play well for both the platform and the merchandisers involved.
Despite having a very low profit per item sold, merchandisers benefited from the quantity it can sell on PinDuoDuo. The platform, on the other hand, benefited from the massive users it attracted and the revenues they generated. With low-price items serve as the ultimate attraction, the ‘quantity over quality’ strategy seems to be long-lasting to Chinese consumers who are always price-sensitive and prefer low-price products.
However, inflation seems to be the ultimate threat against the low-price products on PinDuoDuo.
With consumer price index and producer price index continue to grow in China, it remains uncertain how long the low-price merchandisers will last in profiting under the status quo. Perhaps in the future, product quality issue and discontents from merchandisers can possibly create larger troubles for the rapidly growing PinDuoDuo.