NetEase Technology News August 26, according to foreign media reports, as a rising star in China’s e-commerce field, Pinduoduo is still looking for business that is closely related to China’s nearly 500 million users, and is in no rush to expand its unique business model to foreign markets.

Here are the translations:

Most U.S. investors may not have heard of Chinese e-commerce company Pinduoduo, but in just four years the company has become China's second-largest e-commerce platform by annual active users, behind giant Alibaba but ahead of JD.com.

After releasing better-than-expected quarterly results last week, Pinduoduo’s vice president of strategy, David Liu, said in an interview that while the company plans to eventually expand its group-buying model to other parts of the world, it is not in a hurry right now.

He said: "At some point, we want to go global, and we are still trying to think about how to achieve this goal. But at the moment, 100% of our energy is focused on the domestic market, because there is still huge potential here in the future. Taking the time to focus on the Chinese market will bring very high returns to shareholders."

The "shopping is a game" model shows its power

The latest financial report data supports Jiuding's view that there is a lot of business to do in China. Pinduoduo’s revenue increased 169% year-on-year to approximately US$1 billion, far exceeding expectations of US$870 million.

However, Pinduoduo continues to build its brand in China at an extremely fast pace, with sales and marketing expenses of US$889 million in the last quarter, doubling from the same period last year. In the past 12 months as of June this year, the company's GMV (website transaction value) increased 171% year-on-year to nearly $100 billion.

Better-than-expected results pushed Pinduoduo’s American depositary shares up 18% to $30.59 per share. The stock has risen 36% this year. The gains appear impressive given that the stock had lagged the market all year leading up to the earnings release.

Pinduoduo’s challenge is not only to stay ahead of Alibaba and JD.com’s efforts to support their unique consumption style, but also not to lose its unique “shopping as a game” model. Many e-commerce companies start out with a cool gimmick or novel buying and selling technique, but over time they lose that edge and end up becoming mediocre mass retailers.

If anything, Pinduoduo’s platform appears to be gaining momentum. Pinduoduo’s monthly active users exceeded 366 million last quarter, and in the past 12 months, annual active users reached 483 million, an increase of 88% and 41% respectively. By comparison, Alibaba and JD.com reported 674 million and 321 million annual active users respectively, according to their most recent quarterly results.

In addition, Pinduoduo can also reach consumer groups that Alibaba may not be able to reach. Pinduoduo’s target users are not only shoppers who have the Alibaba app on their phones, but also consumers who don’t use Alipay and prefer WeChat. Jiuding said: “These people are also a huge source of new users.”

Pinduoduo actually “gamifies” the shopping experience. Users of the company's smartphone app will see a constant list of products, much like a social media app. They see the normal price for the item, but if they can convince one or more people to buy the item at the same time, they see a lower price.

The company’s founder and former Google engineer Huang Zheng likened the experience to"Costco meets Disneyland," which means great deals but also entertainment value.

Integrating gaming into supply and demand dynamics

The obvious risk with this strategy is that many e-commerce companies have tried one strategy or another over the years and ultimately failed.

One aspect where Pinduoduo may benefit from this is that it is working to integrate gaming factors into China's supply and demand dynamics. By enabling buyers to form partnerships, the company is able to help suppliers, which has 3.6 million users on its platform, better plan not only their deliveries but also their entire production systems based on forecasted demand.

Jiuding said: "Because we have access to a large amount of consumer behavior, and we have the ability to integrate demand, to some extent, we can predict where demand will appear. We have a sense of manufacturers' production plans, and we can influence or help optimize production." This involves not only the vast factory network of "Made in China", but also farmers.

Pinduoduo actually provides advice to farmers on the platform, telling them what crops they should plant and when to harvest. Jiuding pointed out: "We will spend time working with farmers to tell them what fruits should be planted and when to pick them. Today, all of these have to go through layers of distributors, which means that products must be selected early before they can reach consumers. This obviously increases the risk of unripe or rotten products on the market. We can shorten the supply chain or even eliminate the entire fine distribution chain. In other words, Pinduoduo wants to solve the logistics problem, but it does not do so by building more warehouses, but by changing the production and consumption model to promote timely delivery of goods. But the company is still working to change its reputation as a purveyor of cheap, low-quality goods, including efforts to crack down on fakes. Pinduoduo said the measures include confiscating suppliers' deposits of up to 10 times the value of the fraudulent goods sold.

Confident in achieving profitability

Pinduoduo is still working hard to reshape its image and become a catering retailer that only caters to small and medium-sized cities in China. The company has repeatedly emphasized this quarter that 48% of its GMV comes from China's largest "first- and second-tier cities," up from 37% in January.

When asked whether it was able to track trends among its shoppers and whether they stick with the platform, Jiuding responded: "We don't disclose the data, but obviously, we see the data."

He said the average consumer who has used Pinduoduo for a year spends "much more than a new user a year ago." However, in the past 12 months, the average spending of "active buyers" was only 1,487 yuan ($209), which is far lower than JD users' 4,000 yuan ($564) and Alibaba's around 8,000 yuan ($1,127). Jiuding also said: "The reason we have increased our spending is that buyers have greater confidence in us and they are trading goods of increasingly higher value."

One thing that is not Pinduoduo's current priority is profit. The company had revenue of $1 billion in the quarter and an operating loss of $217 million. When asked when he would consider profits, Jiuding replied: "We will continue to invest in attracting users, creating huge GMV, and getting huge returns in terms of revenue. Our cost structure is simple, and profitability is only a matter of time. But for now, this is not our top priority." (Xiaoxiao)