The fall in Pinduoduo shares adds to a $ 100 billion drop since February

Shares in China’s fastest-growing e-commerce company Pinduoduo fell again on Wednesday, adding to a rally that has plummeted $ 100 billion from its market value since February.

The company reported first-quarter revenue of Rmb22.2 billion ($ 3.47 billion), up 239 percent year-over-year and above analysts ’expectations, but it also reserved a net loss of Rmb2.9 billion ($ 454 million). The $ 160 billion shopping app hasn’t made a profit since its 2018 list.

Pinduoduo’s Nasuq shares fell as much as 7.1 percent, widening a sale that began in February, along with other Chinese technology stocks. The stock ended the session up 5.5 percent.

Shares continued to fall after the unexpected departure of founder Colin Huang, who abandoned in March to “focus on his passion for the life sciences.”

Macquarie analysts have downplayed the company’s outlook after Huang’s departure. “Our downgrade is focused on sudden changes to management and their possible implications, as well as uncertainties in changing business model,” they wrote.

China’s technology sector has also been under the control of the authorities, and a government-affiliated consumer group in Shanghai criticized Pinduoduo’s business practices earlier this month.

Pinduoduo wanted brands to mark his positive impact on society. Chen Lei, executive director, said it has “catalyzed the creation of millions of jobs” through its business providing products. David Liu, vice president of strategy, said Pinduoduo “created a lot of social benefits.”

Robin Zhu, of Bernstein, said Pinduoduo had exceeded analysts ’expectations both at the top and bottom line. “They lose less money than people expected,” he said.

The company’s push into online direct sales – meaning that the site now contains inventory and earns revenue on the sale of goods to buyers – has puzzled some analysts. Since the listing in 2018, the company has mainly brought in revenue from the sale of advertising slots to its market traders who are fighting for the attention of buyers.

Direct sales accounted for 23 per cent of Pinduoduo’s revenue in the first quarter, up from 20 per cent in the fourth quarter.

The company has 8.6 million merchants on its platform, but said it would intervene to buy and sell goods to “temporarily respond to the demand of our users. [for] products that our traders can’t afford. ”Pinduoduo said it sells a“ diverse ”range of products, but told investors little else about the initial deals that lost about Rmb1.4bn last year. .

“The principle of direct selling seems strange,” Mark Webb told GMT Research. “I don’t understand the basis – what products were third-party traders unable to provide that PDD could?”

Pinduoduo’s rapid growth was fueled by economic offers and its sales and marketing expenses increased to Rmb13bn in the quarter, or 92 per cent of its revenues from advertising sales. Pinduoduo said weaker seasonal sales in the first quarter are one of the reasons for increased expenses proportionally from previous quarters.

Pinduoduo raised $ 8 billion in debt and equity financing last year when it leveraged its rising stock price to launch a plan to transport agricultural goods directly to buyers ’doors.

While it was an expensive undertaking, Zhu said the food business will increase the “frequency of use and engagement” of customers and will eventually earn profits.

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