On the evening of November 21st, Pinduoduo Group (PDD.US) released its financial report for the third quarter of 2024.

During the earnings call that night, Pinduoduo's co-CEO Zhao Jiazhen stated, "Constrained by the natural trajectory of business development, the growth rate of the business will not be a linear extrapolation in the long term. Under such circumstances, a slowdown in revenue growth is inevitable."

The news quickly sparked heated discussions in the market.

At the same time, Zhao Jiazhen indicated that the company will continue to invest patiently in the platform's ecosystem, focusing on strategies such as "new quality supply" and "e-commerce expansion to the West" in the coming quarters, aiming to bring more long-term returns for users, merchants, and the industry.

This also sends an important signal that Pinduoduo's development has entered the "Next Level," focusing on the platform and industry ecosystem to achieve high-quality development.

I. Squatting down is for jumping higher

In the third quarter, Pinduoduo achieved total operating revenue of 99.354 billion yuan (same below), a year-on-year increase of 44%; net profit was 24.981 billion yuan, a year-on-year increase of 61%.

Looking at the financial data, this is still a quarter where Pinduoduo's growth rate "outperforms" the overall e-commerce industry. Against the backdrop of a relatively sluggish global economy, the company's revenue and profits still maintained double-digit year-on-year growth. However, compared to the past, its revenue growth has slowed, and net profit has also declined to some extent.

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Specifically, transactional revenue was 50 billion yuan, a year-on-year increase of 71%. This figure is significantly lower than the Bloomberg consensus estimate of about 53 billion yuan, and compared to the previous quarter, the year-on-year growth rate shows a clear slowdown, which is also the main reason why Pinduoduo's performance did not meet market expectations this time.

Deep down, this is inseparable from Pinduoduo's initiative to "slow down and improve quality".

The logic behind this is not hard to understand. The overall scale of the platform has reached a considerable size, and the platform needs to gradually shift from "attracting new increments" to "solidifying existing stock," entering a period of deep cultivation.

Pinduoduo has a strong sense of crisis and has long been aware of this issue. In recent quarters' earnings calls, Pinduoduo's management has also been actively lowering external expectations for Pinduoduo's performance growth rate.

Various signals indicate that for this company, which has maintained an ultra-high growth rate in the past two years, something more important than "making money" has emerged. Today's Pinduoduo is more focused on creating a healthy platform ecosystem and exerting efforts on the supply side, accumulating strength for long-term development through measures such as real gold and silver reductions, support, and investment.

II. E-commerce track requires long-term

Before this, Pinduoduo's rise brought a huge domestic market and promoted the rapid expansion of the scale of multiple industrial belts. As the development of industrial belts tends to mature and entry barriers are reduced, merchants on the industrial belts inevitably face the serious problem of homogenized competition.

Many merchants, in order to increase sales and compete for market share, on the one hand, use price reductions to enhance the attractiveness of their products, and on the other hand, they reduce product quality to lower costs. Although this can bring short-term growth, it also leads to some industrial belts being trapped in the "bad money drives out good money" dilemma in the long term, which has a great impact on the real economy, especially the manufacturing industry.

Promoting the industrial belt to shift to higher threshold deep processing links or to develop more complex products has become the key solution to this problem.

Against this backdrop, Pinduoduo timely perceived the need for industry transformation and upgrading and began to try an unconventional path.

Similar to Zeng Guofan's wisdom of "building strong camps and fighting stubborn battles," Pinduoduo today does not sacrifice the interests of any party but is committed to building a bridge between consumers and merchants with the power of the platform, pursuing a long-term cooperative relationship, constructing a virtuous positive cycle commercial ecosystem, and thus forming its unique competitive barrier.

Specifically, in mid-August, Pinduoduo intensively implemented a package of "billion yuan reductions," including measures such as reducing the service fee for pay later services, merchant store guarantees, and introducing basic technical service fees, promotion fees, and return rights. For example, for refunds and return refunds, without the need for merchants to initiate, the platform automatically fully returns the collected basic technical service fees and other expenses, effectively helping merchants reduce operating costs.

At the same time, Pinduoduo also launched the "New Quality Merchant Support Plan," investing 10 billion yuan in resource packages to select and establish special teams to go deep into 100 agricultural production areas and industrial belts to support new quality merchants and new quality brands with product and technological innovation capabilities. The platform upgraded the merchant after-sales service system, fully supporting merchants to appeal against abnormal orders, and after the merchant's appeal is successful, the platform will compensate for the related orders. For transaction orders of new quality merchants and other high-quality merchants, the platform will no longer intervene in refunds.

In addition, Pinduoduo continues to heavily invest in the construction of the "e-commerce expansion to the west" ecosystem. In September this year, Pinduoduo announced the exemption of logistics transit fees in remote areas such as Xinjiang, Tibet, Gansu, Ningxia, and Inner Mongolia, once again leading the pace of e-commerce industry expansion to the west. Data from the National Post Bureau shows that since this year, the growth rate of express business volume in the central and western regions has exceeded the national average level, with provinces such as Gansu and Shaanxi achieving a year-on-year growth rate of more than 40%.

It can be seen that Pinduoduo not only attaches great importance to the development of merchants, giving merchants more motivation and space to innovate and upgrade products and technology but also pays great attention to user needs, further improving its service quality and coverage while providing products with the best quality and price ratio.

There is a concept in economics called the "impossible triangle." In e-commerce platforms, there is a similar rule, that is, it is difficult to achieve a balance among cost control, efficiency improvement, and user experience enhancement. The balance between merchant interests and user interests is a classic problem that e-commerce platforms cannot avoid.

Through this financial report, it can be seen that Pinduoduo is gradually breaking the so-called "impossible triangle" in the traditional e-commerce industry and is striding towards a win-win situation for the platform, users, and merchants. Although this will slow down Pinduoduo's growth in the short term, through the benign ecosystem it has built, Pinduoduo has constructed its core competitive advantage, not only helping itself to achieve more long-term development but also providing a healthy and sustainable development idea for the entire e-commerce industry.

III. Focusing on "new quality," supporting the new value ecosystem of the platform

From the national perspective, at present, driven by various factors such as changes in the global economic situation and the evolution of domestic economic structure, the country is at a critical stage of economic transformation and upgrading.

As an important link connecting consumers and merchants, e-commerce platforms have greatly promoted the circulation of goods and services, injecting new vitality into economic growth. In the grand chessboard of national economic development, they play an indispensable role.

Among them, Pinduoduo, by continuously increasing investment in ecosystem construction, not only meets the dual needs of market competition and its development but also coincides with the national direction of promoting high-quality development, successfully setting a positive industry model.

Just as Pinduoduo has always insisted on supporting agriculture, what it ultimately seeks is not only to promote the rapid growth of the industry scale but also to promote the entire industry to transform and upgrade in the direction of high-added value.

In this regard, we can simply discuss from three perspectives how Pinduoduo focuses on "new quality" and builds a new value ecosystem for merchants, users, and the platform.

Firstly, Pinduoduo has rapidly promoted the scale expansion transformation, and upgrading of various industries.

For example, as early as when Pinduoduo emerged, industrial belts represented by Bozhou herbal tea, Donghai wearable armor, and Pingdu false eyelashes have already used the brand identity given by the Pinduoduo platform, shared channel resources, and achieved dual improvements in conversion rate and repurchase rate.

The time came to the last two years, and under the promotion of Pinduoduo's series of "reduction + support" measures, the enthusiasm of merchants seeking differentiated development paths has been fully mobilized.

For example, Bozhou has completed the "three-level jump" of the industry from traditional Chinese medicine transactions to herbal tea e-commerce, and then to solid beverage processing in just five years, achieving the transformation from traditional agriculture to modern, high-added-value industries, completing the journey that other industrial belts may need thirty years to complete. This not only brought significant economic achievements to Bozhou but also made it the fastest-growing city among the six cities in Northern Anhui, providing valuable experience and insights for the transformation and upgrading of industries in other regions of the country.

Secondly, Pinduoduo uses emerging technologies such as big data to empower, and integrate upstream and downstream resources, break through the limitations of traditional e-commerce models, and provide better services and help for consumers and merchants, while also promoting significant improvements in the economic benefits of industrial belts at a deeper level.

On the one hand, Pinduoduo empowers merchants through big data technology, helping merchants accurately grasp consumer needs and preferences, thereby achieving precise production, marketing, and inventory management, while also encouraging merchants to continuously innovate and stand out in fierce market competition.

On the other hand, Pinduoduo integrates upstream and downstream resources, successfully linking raw material supply, manufacturing, logistics and distribution, and other links to build an efficient and collaborative new quality supply ecosystem. The establishment of this ecosystem allows merchants to respond to market changes more quickly, adjust production strategies in time, and achieve cost reduction and efficiency improvement.

Thirdly, in the process of ecosystem construction, Pinduoduo has created tens of thousands of job opportunities and made social contributions such as promoting the balanced development of regional economic industries.

Public data shows that in the 2023 "National Employment Season" event, Pinduoduo created 12,000 direct jobs, supported 900,000 third-party couriers, more than 6.4 million merchant positions, and 200,000 third-party service jobs, totaling more than 7.5 million indirect jobs.

IV. Conclusion

Pinduoduo's Q3 initiative to slow down and improve quality, focusing on the construction of a benign ecosystem, and deeply cooperating with local industrial belts, has successfully led a new quality supply innovation trend, achieving a comprehensive win-win situation among the platform, merchants, and consumers.

This is not only a strategic adjustment in e-commerce competition but also a "catalyst" for national economic transformation. Against the backdrop of the current complex and changeable global economic situation, China's economy is facing a shift from high-speed growth to high-quality development. Pinduoduo, by promoting the upgrading and development of local industrial belts, has promoted the optimization and adjustment of the industrial structure, providing beneficial references and insights for the transformation and upgrading of the entire e-commerce industry and the national economy.

From the perspective of the capital market, against the background of continuous policy incentives for new quality productivity, Pinduoduo's profound accumulation in the field of ecosystem construction will further release potential in the new market environment, achieve performance growth, and its subsequent market performance is still worth looking forward to.