Despite vaulting growth in 2018, Pinduoduo books $1.5b net loss

Running up the bill with ad blitzes and sponsorships.

China’s e-commerce site Pinduoduo recorded an RMB 10.3 billion (US$1.5 billion) net loss in fiscal year 2018 despite its revenue reaching RMB 13.1 billion (US$1.9 billion), up by 6.5 times compared to the previous year, according to the company’s financial statements.

Behind this huge loss was rapid increase in sales and marketing expenses, which hit RMB 13.4 billion (US$1.96 billion), a ninefold increase from 2017 due to online and offline advertising campaigns and promotions.

Those efforts brought about a 71% increase in Pinduoduo’s active buyers in 2018, reaching 418.5 million.

On average, each active buyer spent RMB 1,126.90 (US$163.90) in 2018, a 95% bump compared to the previous year. During an earnings call, founder and chairman Huang Zheng said that he saw this as an indication of users’ growing recognition of the platform.

“We can also see that our users are visiting more frequently and are spending more on our platform. This is a healthy indication that they are more pleased with what we offer. To increase our hedge, we will continue to invest strategically in R&D and in sales and marketing to enhance our user experience and build our brand,” Huang added.

“While we continue to be opportunistic with all these investments in sales and marketing, we will keep an eye on how high we spend,” Xu Tian, Pinduoduo’s vice president of finance, said when asked during the call to provide a framework for the company’s budgets for sales and marketing expenses in 2019 and 2020.

Xu explained that the company aims to attract potential buyers who exist in the gap between Pinduoduo’s current active customers and China’s 900 million online payment users.

Aside from expenditure related to sales and marketing, Pinduoduo’s R&D projects used up RMB 1.1 billion (US$162.3 million), an increase of 764% year-on-year.

Non-operational factors, such as share-based compensation, also contributed to the company’s losses, as general and administrative expenses amounted to RMB 6.45 billion (US$939.1 million), a significant increase from RMB 133.2 million in 2017.

Pinduoduo’s share price closed at US$25.12 in New York on Wednesday, down by 17.45%.