A CRASH COURSE ON

PINDUODUO (PDD)

Note: GGV is not an investor in PDD. This deck is for informational purposes only.
 W H AT I S P D D ?
A fast-growing mobile shopping platform in China that uses a “team purchase”
model and leverages social sharing (WeChat) for its viral growth

$21B annual GMV1 300+ million active buyers in

$278M annual revenue less than 3 years
4.3B annual orders2

$15B last round valuation 60% of users live in

(April 2018) third-tier Chinese cities
or below
1. PDD charges a low commission rate of 0.6%.
2. All figures for 2017 Source: PDD’s IPO filing

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 C O L I N Z H E N G H U A N G, 3 8
2002
Obtains Bachelor’s degree from Zhejiang University
2004
Obtains Master’s degree from University of Wisconsin-
Madison; Joins Google in Silicon Valley
2006
Returns to China to help start Google China
2007
PDD’s investors Leaves Google to start an e-commerce startup and a gaming startup
2015
Launches Pinhaohuo, a social commerce platform for fruits;
The gaming startup incubates Pinduoduo
2016
Pinhaohuo merges with Pinduoduo
2017
Pinduoduo’s annual GMV surpasses RMB 100B ($15B)
2018
Pinduoduo raises over $1B at reported valuation of $15B in April
Pinduoduo files for IPO in the US in June

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P D D ’ S R I S E A S O N E O F C H I N A’ S T O P E - C O M M E RC E
P L AY E R S

Daily Active Users of Taobao, JD, and PDD

Taobao Taobao
JD
PDD

JD
PDD

Note: A substantial share of PDD’s traffic comes from WeChat (owned by Tencent),
instead of its own app.

Source: Jiguang Data, Bloomberg News

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P D D R E L I E S H E AV I LY O N W E C H AT F O R T R A F F I C
• Tencent is PDD’s largest institutional shareholder, with a 18.5% ownership
• A significant amount of PDD’s traffic comes from WeChat, which is the
primary means of forming “shopping teams” on PDD

Monthly Active Users of Chinese E-commerce Platforms

(in millions)

App WeChat Mini-program

529

229 233

144
86 70 53
0

Taobao
手机淘宝 JD.com
京东 PDD
拼多多 Vipshop
唯品会
Mobile
Source: Jiguang Data & CMS
(China Merchants Securities)

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HOW DOES PDD WORK?
Watch this video for a detailed product walkthrough:
https://www.youtube.com/watch?v=Zbskb0KMBUU&feature=youtu.be

pīn

V. To piece together, to
aggregate.

For consumers: form a

shopping team with friends to
win discounts

For merchants: aggregate

demand for long-tail goods

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H O W D O E S P D D D I F F E R F RO M G RO U P O N ?

PDD Groupon

Mostly coupons for

Categories All kinds of goods restaurants and offline
services

Synchronous social Asynchronous social

Simultaneity
shopping shopping

Social distance Team up with friends Team up with strangers

Product design Gamified Limited gamification

Value proposition Cheap and fun Cheap

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MAKING SHOPPING FUN
• PDD was incubated from a gaming startup
• According to its IPO filing, PDD wants to be “a combination of Costco and
Disneyland”

Limited-time offers Enter lucky draws

Daily check-ins to Pay for a friend

win cash rewards to win discounts

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MAKING SHOPPING FUN

Limited-time offers Invite friends to pay Red packets with offers

and win discount

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P D D H A S M U C H L O W E R P R I C E S T H A N TAO B AO,
EVEN FOR THE SAME SKUS
PDD PDD

Taobao Taobao

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 WHO ARE PDD’S USERS?
Married, middle-aged women living in lower-tier Chinese cities

60% of users are in third-tier cities or below

70% are women
57% are between 25-35 years old
￥40 ($6) average order value

✓ Value shoppers Cheap goods

✓ Has a lot of free time to play Encourages browsing and
with apps and compare goods gamified experiences
✓ Likes to share with friends Relies on social sharing to win
discounts
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 P D D H A S M U C H H I G H E R % O F C U S T O M E R S F RO M
L O W E R - T I E R C I T I E S T H A N TAO B AO & J D. C O M
Users by City Tiers Average Order Value (in USD)
8% 5th tier
11% 11%
& below $60
17%
21% 23% 4th tier
19%
21%
22% 3rd tier $30

40%
37% 33%
2nd tier
$6
17%
10% 10% 1st tier
JD.com Taobao PDD JD.com Taobao PDD
Mobile and Tmall
Source: Jiguang Data & CMS
(China Merchants Securities) Source: Companies’ filings

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LOWER-TIER CITIES ARE A SIZEABLE MARKET

Number of People in Chinese Cities in 2016 (millions)

168M

93M
85M
64M

1st一线
tier 新一线 st
Emerging 1 tier 二线
2nd tier 三四线 th
3rd and 4 tier
Source: CMS (China Merchants Securities),
National Bureau of Statistics of China

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W H AT A R E T H E B E S T S E L L E R S O N P D D ?
Tissue paper ($2 for 10 boxes) Umbrella ($2.40) Summer sleeping mat ($5)
6.4M sold 4.8M sold 2.9M sold

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W H AT A R E T H E B E S T S E L L E R S O N P D D ?
Lemon tea ($2.30) Spicy instant noodles ($1.50) Laundry detergent ($1.50)
2.9M sold 2.2M sold 1.5M sold

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 HOW DOES PDD MAKE MONEY?
Breakdown of PDD’s Revenue in 2017

Online marketing
services, $200M Commission fees,
$84M
68% 30%
Merchants bid for PDD charges a 0.6%
search keywords and commission fee
advertising placements

2%
Pinhaohuo (direct sales),
$0.5M

From 2015 to Q1 2017, PDD operated a

business called “Pinhaohuo” (拼好货)
Source: PDD’s IPO filing which sold fruits directly to consumers

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 H O W D O E S P D D W O R K W I T H M E RC H A N T S ?
PDD has over 1 million active merchants on its platform

✓ Zero upfront cost

Bào Kuǎn
“Explosive SKUs”
Most of PDD’s sales
comes from specific
SKUs that go viral, even
though the brands
behind these SKUs
might be relatively
unknown
✓ Merchants set the prices
✓ Products are presented to consumers in the form of
SKUs not brands – factories can just focus on just
making 1-2 SKUs efficiently to lower cost
✓ No need to pay hefty advertising costs to acquire
customers since PDD’s users share products with
their friends
✓ Excessive manufacturing capacities in China and
insufficient demand for low-value-add export
have resulted in many factories struggling to find
demand; they turned to PDD as a result
✓ Small merchants on Taobao get minimal traffic
due to Taobao’s algorithms which favor bigger
brands; many migrated to PDD

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W H AT E X P L A I N S T H E R I S E O F P D D ?

External factors
✓ Increased smartphone penetration in lower-tier Chinese cities

✓ Explosion of WeChat Red Packets since Chinese New Year of 2014

made Chinese users accustomed to mobile payment

✓ Abundance of small merchants that struggled to win traffic on

Taobao

Internal factors
✓ Product design prioritizes gamification of commerce and

incentivizes social sharing via WeChat and thus lowers the CAC
(customer acquisition cost)
✓ Large engineering team that uses algorithms to predict users’

preferences and recommend goods accordingly

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CHALLENGES FOR PDD

o Reports of rampant fake goods

PDD had to pull down 10 million suspicious listings in 2017

o Listings with violent/pornographic content

PDD has stepped up its censorship and certain key words
have been banned from search results

o Overreliance on the Tencent ecosystem

“I don’t think Tencent has helped PDD. They have blocked
us many times. If PDD dies, Tencent will not die, because it A “Louis Vuitton” bag on PDD
has many other platforms it can support.”
– Colin Huang, founder of PDD

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R E C O M M E N D E D R E S O U RC E S O N P D D
English:
PDD’s F-1 (updated version in July): http://archive.fast-edgar.com//20180716/AKZFG22CZ222M2ZJ222C22ZZTBNNZDU7Z2A2/

Bloomberg’s Decrypted Podcast with Colin Huang: Son of Chinese Factory Workers Built This $1.5 Billion Startup
https://overcast.fm/+HWy7CWz34

Sky9 Capital’s interview with Colin Huang:

https://www.youtube.com/watch?v=BidaQ22vWvM

Article by WalkTheChat: Pinduoduo: a Close Look at the Fastest Growing App in China
https://walkthechat.com/pinduoduo-close-look-fastest-growing-app-china/

ChinaTechTalk Podcast: The E-commerce Platform Becoming A Threat to Alibaba with Thomas Graziani
https://overcast.fm/+I8dmHF4NU

Chinese:
Caijing’s interview with Colin Huang: 对话拼多多黄峥：后流量时代，只有错位竞争才能生存
https://news.caijingmobile.com/article/detail/357771

Yicai’s video Interview with Colin Huang in Oct 2017: 黄峥：探索社交电商的未来

https://www.yicai.com/video/5361116.html

Analysis by China Merchants Securities (CMS): 【招商零售|深度报告】拼多多：靠什么挑战阿里、京东的主导地位

https://mp.weixin.qq.com/s/bDztnHxyy0n7FzOQ_3eKBw

【招商零售|深度报告】消费升级or消费分级：拼多多、名创优品们的生存空间
https://mp.weixin.qq.com/s/IT7vkIGA7GdcUz9J2P8ngQ

How PDD works with factories：揭开拼多多“爆红”的秘密：探访“拼工厂”

http://finance.jrj.com.cn/2018/04/02110424337189.shtml

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THE 996 PODCAST & NEWSLETTER ON TECH IN
CHINA

PODCAST
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PODCAST APP

NEWSLETTER
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