Pinduoduo (Part 2): Business Performance, Financial Snapshot, and Key Marketing Investments

In this second instalment of our Pinduoduo series, we examine Pinduoduo's overall business performance and financials, describe some of the company's well-known (and occasionally criticised) marketing strategies, and evaluate whether or not Pinduoduo's costly sales and marketing investments will pay off in the long run.


We recommend reading our first article (here) before continuing to gain familiarity with the company's history, evolution, and business model.


The future of Pinduoduo is discussed in Part 3 and Part 4.

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Business Performance

In this section, we provide a snapshot of Pinduoduo's overall business performance starting in 2017. We note again that Pinduoduo does not provide business performance data for its first two years of founding, although we argue that 2015 and 2016 data are not so significant in evaluating the company since Pinduoduo only completed the transition to its current business marketplace model in 2017.


#1: The Number of Active Buyers and Active Merchants on Pinduoduo's Platform Proliferated Over the Past 4 Years


The number of active buyers on the Pinduoduo platform has more than tripled over the past four years, from 244.8 million active buyers in 2017 to 788.4 million in 2020 and 823.8 million in the first quarter of 2021.



Pinduoduo Number of Active Buyers
Data Sources: Pinduoduo Prospectus, Annual Reports, Quarterly Reports

Note: Pinduoduo defines the number of active buyers in a given period as the number of user accounts that placed one or more orders on the Pinduoduo mobile application or through social networks and other Pinduoduo access points (e.g. mini programs and weblinks) during the period.


The number of active merchants on the Pinduoduo platform grew 42-fold from 207,000 in the year ended June 2017 to 8.6 million in the year ended December 2020.


Pinduoduo Number of Active Merchants
Data Sources: Pinduoduo Prospectus, Annual Reports, Quarterly Reports

Note: Pinduoduo defines the number of active merchants in a given period as the the number of merchant accounts that had one or more orders shipped to a buyer on the Pinduoduo mobile platform during that period.



#2: Pinduoduo's Users Have Become Increasingly Engaged with the Platform


Pinduoduo's number of monthly active users (MAUs) has grown in tandem with the platform's rapid growth in active buyers. The graph below shows Pinduoduo's quarterly average number of monthly active users during the Q1 2017 to Q1 2021 period. Pinduoduo experienced extremely rapid growth in monthly active users, from 15 million MAUs in the first quarter of 2017 to 724.6 million MAUs four years later.


Pinduoduo Monthly Active Users
Data Sources: Pinduoduo Prospectus, Annual Reports, Quarterly Reports

Note: Pinduoduo defines the number of monthly active users as the number of user accounts that visited the Pinduoduo mobile application during a given month, excluding those who accessed the Pinduoduo platform through social networks and other access points (e.g. mini programs and weblinks) during the period.



To get a sense of whether the increase in number of monthly active users was purely driven by the overall increase in number of active buyers on the platform, or if a greater proportion of active buyers were actually shopping on the Pinduoduo platform monthly, we calculate the proportion of active buyers in each year that were also monthly active users. Since Pinduoduo reports the number of monthly active users on a quarterly basis but the number of active buyers is reported on an annual basis, we approximate the proportion of monthly active users each year by dividing the Q4 average of monthly active users by the same year's number of annual active buyers.


The reasons for choosing this approximation are:

(1) The number of active buyers counts the total number of buyers who placed at least one order during the year. Since the number of active buyers on the platform doesn't stay constant but rather increases over the year, we want an MAU figure that is as close as possible to year end to be comparable.

(2) The fourth quarter is when Chinese consumers are most active, with the October golden week holiday, 11.11 shopping event, as well as year-end and new year sales. Indeed, Pinduoduo mentions in their prospectus that the platform's sales volume is generally higher during the fourth quarter of each year. If a consumer were to be active on an e-commerce platform, we think that they would, at the very least, be active during the peak shopping period.


The graph below shows the percentage of each year's active buyers that were also monthly active users, which we refer to as the "MAU proportion". Pinduoduo's MAU proportion increased from 57.6% in 2017 to 91.31% in 2020, indicating that the platform not only attracted a significant number of new users during the past four years, but also effectively increased its users' engagement with the platform.




Note: according to Pinduoduo's earnings call reports, more than 90% and 88% of the platform's annual active buyers were MAUs in Q4 2020 and Q1 2020 respectively. Based on these figures, we think our MAU proportion approximations above should be reasonably accurate.


#3: The Pinduoduo Platform Witnessed Substantial Growth in Terms of Both GMV and the Total Number of Orders Placed


The total gross merchandise value (GMV) sold on Pinduoduo's platform grew at a CAGR of 85% during the 2017 to 2020 period, from RMB141.2 billion in 2017 to RMB1.67 trillion in 2020.


Pinduoduo Gross Merchandise Value
Data Sources: Pinduoduo Prospectus, Annual Reports, Quarterly Reports


At the same time, the number of orders placed on Pinduoduo's platform grew almost 9 times, from 4.3 billion orders in 2017 to 38.3 billion orders in 2020.


Pinduoduo mentions that part of the large increase in number of orders from 2019 to 2020 is due to the launch of its next-day grocery initiative (Duo Duo Grocery) described in Part 1.


Pinduoduo Number of Orders Placed
Data Sources: Pinduoduo Prospectus, Annual Reports, Quarterly Reports


#4: The Average Pinduoduo User Ordered More Frequently From the Platform Over the Past Four Years, But Did Not Upgrade Their Purchases


The average Pinduoduo user spent 3.67 times more money on the platform in 2020 than they did in 2017, from an average spending per active buye