Shanghai-based Facebook-Groupon mashup Pinduoduo (PDD), under the name of Walnut Street Group Holding Limited, recently updated a previously submitted prospectus with the US Securities and Exchange Commission (SEC) revealing plans to issue 85.6 million American Depository Receipts (ADRs) ranging in price from $16 to $19 on the Nasdaq.
Its core backers, Tencent Holdings, and Sequoia Capital, which maintain stakes of 18.5% and 7.4% in the fund, will also be looking to increase their holdings in the firm by a capital infusion of $250 million each.
Following this IPO, Colin Huang, founder and chairman of PDD, will continue to be the largest shareholder, with 46.8% of the shares and an 89.8% voting rights; Tencent will own 17% of the shares, with 3.3% voting rights; while Sequoia Capital will own 6.8% with 1.3% voting rights. PDD’s market capitalization is expected to be between $20 to $24 billion.
According to public data, the company has completed up to four financing rounds since inception, with its last financing round in March 2018 valuing it at $12.5 billion. Established in 2015, this Tencent-backed e-commerce platform integrates social media with online shopping to offer discounts as consumers invite friends to buy in bulk – making purchases cheaper as opposed to the higher-priced Taobao. Leveraging on WeChat, it makes it convenient for consumers to invite friends for the group bulk purchase.
PDD targets consumers in the country’s vast lower-tiered cities, an approach that has yielded robust growth; details in its filing indicates its platform is host to 300 million active buyers and 1 million merchants. In 2017, it posted a gross merchandise value (GMV) of RMB 141.2b, which has grown to RMB 262.1 billion as at 30 June 2018.
The number of active buyers has also hit 344 million with the average consumption increasing from RMB 674 to RMB 763. In terms of daily active users, PDD has surpassed China’s e-commerce giant JD.com, registering up to 55.9 million as of June 2018, according to Jiguang, a Chinese research firm.
Despite the tremendous expansion and the growing opportunities in lower-tier cities in China, it’s pertinent to mention that Pinduoduo, like the other Chinese tech unicorns such as Xiaomi & Meituan-Dianping, will float on public markets as pre-profit tech stocks.
Strong support from financial backers like Tencent and Sequoia Capital and prominent advisors like Goldman Sachs and China Renaissance, coupled with the likelihood that it will be buoyed by the growing purchasing power of rural China could make for compelling factors drawing investor attention in the US.
The rapid growth of PDD highlights the increasing competition that Alibaba Group’s Taobao, a comparable e-commerce platform, is facing. In addition, it highlights the inroads that Tencent is making into the e-commerce space.