Pinduoduo’s Founder Loses $5 Billion Overnight as Earnings Miss Estimates

(Bloomberg) -- An epic stock rally for China’s e-commerce upstart just faltered, clipping the fortune of its founder.

Pinduoduo Inc. Chairman and Chief Executive Officer Colin Huang lost almost a quarter of his fortune as the company’s stock plummeted 23% on Wednesday, according to the Bloomberg Billionaires Index. His net worth tumbled to $16.3 billion, down $4.8 billion from a day earlier.

PDD’s stock drop was the biggest since it held an initial public offering in July last year, reducing this year’s gain through Wednesday to a still-respectable 40%. The sell-off was triggered by the company’s worse-than-expected quarterly results. Sales more than doubled to 7.51 billion yuan ($1.1 billion) for the three months ended September, but fell short of the average analyst projection of 7.65 billion yuan. Net loss widened to 2.3 billion yuan from 1.1 billion yuan a year earlier.

The disappointing results came after arch-rivals Alibaba Group Holding Ltd. and JD.com Inc. chipped away at the Chinese e-commerce upstart’s dominant position in smaller cities.

Founded by Huang in 2015, PDD has carved a niche with social commerce that encourages making purchases with others. But the Shanghai-based startup is now working to shake off its reputation for hawking cheap products, just as Alibaba and JD delve deeper into PDD’s base of smaller cities. In September, JD rolled out a group-buying app which, like PDD, entices purchases with generous discounts.

What Bloomberg Intelligence says:

Despite heavy marketing expenses, the company’s marketplace model can sustain high gross margin and should lead to profit as revenue scales up.

Vey-Sern Ling and Tiffany Tam, analysts

Click here for the research.

PDD said in a statement that many brands and small merchants must “choose one of two” platforms to be listed, without naming rivals. “Forced exclusivity has a material impact on Pinduoduo, we had to row upstream against the pressure,” it said.

Sales and marketing expenses surged 114% to 6.9 billion yuan, helping China’s No. 3 shopping app to add 64 million new active users during the quarter. Its founder signaled that the company can afford to buy growth.

“When there is opportunity, we should spend our money aggressively. We shouldn’t put our money into the piggy bank,” Huang told analysts on a conference call.

To contact the reporters on this story: Venus Feng in Hong Kong at vfeng7@bloomberg.net;Zheping Huang in Hong Kong at zhuang245@bloomberg.net

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Colum Murphy, David Scheer

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