Pinduoduo (PDD), a Shanghai-based Facebook-Groupon mashup app, is looking to up its opening share price by 20 per cent to $22.8 apiece, from the initial target range of $16-$19 per share – increasing its equivalent market value to approximately $28.8b, at 37 times its expected profit for 2019, according to a report by our parent 36kr.
This followed its pre-IPO sock sale being subscribed more than 13 times over, with the development following an update to the PDD prospectus, which it filed with the SEC under the name of Walnut Street Group Holding Limited.
This update saw it exercise its over-allotment option to raise up to $2.24b and suggests a positive response amongst US investors. This sees PDD on track to issue 85.6 million Amercian Depository Receipts (ADRs), or approximately 32.4 m of China’s Class A shares on the Nasdaq.
Tencent, the second-largest backer of PDD – it holds 18.5 per cent of PDD’s shares – is set to benefit from this. Previous media highlighted PDD as one of Tencent’s attempts to establish itself in the e-commerce space through leveraging its social media roots.
Its competitor, the NYSE-listed e-commerce major, the Alibaba Group, is rumoured to be increasing its stake in Douyin, a short-video platform.
Incepted in 2015, PDD has leveraged the cheaper daily necessities gap left by e-commerce players like Alibaba & JD.com and built up a base of 344 million active buyers, as well as posting gross merchandise value (GMV) of RMB 262.1b, as of the end of June 2018.
The firm chose to adopt a novel product positioning and focus on lower-tier Chinese cities, rather than competing for market share and consumers in China’s major metropolitan areas. However, this focus on retailing daily necessities, while offering opportunities for growth, can also generate difficulties with quality control and product provenance.
In June the company encountered some troubles, with penalized store owners protesting against the company. However,Huang Zheng, PDD’s founder & CEO, said in a media statement: ” Counterfeit products are a profoundly rooted problem in China. It’s necessary to impose strict standards because Pinduoduo has to raise the cost of selling counterfeit products. Otherwise, bad money drives out good.”
These problems were further highlighted with the PDD being sued in New York over alleged counterfeit listings by the US diaper maker Daddy’s choice prior to its IPO.