(Bloomberg) — Pinduoduo Inc. posted its first-ever quarterly net profit as a public company, pledging Tuesday to donate those and future earnings toward the development of agriculture till it’s given away a total of 10 billion yuan ($1.5 billion).
China’s largest online retailer by consumers reported sales jumped a less-than-expected 89% to 23 billion yuan in the June quarter, compared with the 26.7 billion yuan average of analyst estimates. Net income was 2.4 billion yuan, compared with net loss of 899 million yuan a year earlier. The company said the philanthropic initiative — already approved by the board of directors — will be used to address critical needs in the agricultural and rural areas. Pinduoduo’s American Depositary Receipts surged as much as 19% in New York.
“This is an important and challenging task, which we will invest in patiently,” Chief Executive Officer Chen Lei said in a statement. “All profits from the second quarter and any potential profits in future quarters will first be allocated towards this initiative until the total 10 billion yuan commitment is fulfilled.”
Pinduoduo’s performance comes after rivals like Alibaba Group Holding Ltd. and JD.com Inc. reported slowing growth in the face of regulatory curbs. Since kicking off a crackdown on the internet industry 10 months ago, Xi Jinping’s government has rolled out new rules to eradicate monopolistic practices and unfair competition while stepping up oversight of areas from data security to online content. In response, online retailers have embarked on a spending spree to seek new avenues for growth — though most of the initiatives have yet to pay dividends.
At Pinduoduo, the company has been splashing out on areas such as community group buying — a crowded field that also includes Alibaba and Meituan — as well as in agriculture and infrastructure.
What Bloomberg Intelligence Says:
Rising popularity of Pinduoduo’s community group-buying services via Duo Duo Grocery could have helped lift revenue contribution — excluding direct merchandise sales — from transaction fees received from merchants in 2Q vs. the same period a year earlier.
Pinduoduo may have narrowed its 2Q operating cost ratio vs. the same quarter a year earlier via economies of scale from an enlarged revenue base. This would have tamed operating losses from a higher cost of revenue from direct merchandise sales in April-June.
— Catherine Lim and Tiffany Tam, analysts
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Active buyers climbed to 849.9 million in the 12 months to June, Pinduoduo said Tuesday. That compares with the 828 million active consumers at rival Alibaba’s China retail marketplaces. Both Alibaba and JD.com have in recent years pushed new businesses to capture less-affluent users in lower-tier cities and villages, areas that have traditionally been strongholds for Pinduoduo.
“While user growth trend likely to moderate given the large base, we believe user purchase frequency and engagement on the platform remain solid which could translate to reasonable GMV growth,” Citigroup analyst Alicia Yap wrote in a note earlier this month. “That said, with Taobao Deals continuing to ramp up and in light of a supportive operating environment for smaller merchants, it is possible improvement of the monetization rate could be moderating.
Pinduoduo’s initiative is among the more radical in a slew of philanthropic endeavors unveiled this year by China’s embattled tech firms. From Tencent Holdings Ltd. to ByteDance Ltd.’s Zhang Yiming and Pinduoduo’s own co-founder Colin Huang, Chinese entrepreneurs have in recent months announced charitable efforts in quick succession, heeding Xi Jinping’s call to give back and share the wealth. The country last week offered an outline for “common prosperity” that includes income regulation and redistribution, a sign that scrutiny of the tech sector is likely now expanding into the inordinate wealth created for founders like Tencent’s Pony Ma.
(Updates shares in second paragraph. A previous version of this story corrected the spelling of the company’s name in second paragraph.)
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