From “Light” to “Heavy”: Pinduoduo’s Inevitable Transition

“Every gift fate bestows has long been secretly priced.” — Stefan Zweig

For nearly seven years, Pinduoduo has presented a narrative to the capital markets that making money is easier than drinking water. With gross margins significantly higher than its peers and genuine net profits, the company has demonstrated a new model of expansion and the vast potential of consumption downgrade markets.

However, all expansion stories eventually face challenges.

On May 27, Pinduoduo released its Q1 financial results: revenue reached RMB 95.67 billion, a 10% year-on-year increase, while net profit declined 47% to RMB 14.742 billion.

The cost of revenue was RMB 40.95 billion, resulting in a gross margin of 57.2% for the quarter.

This margin is down from 62.3% in the same period last year and significantly lower than approximately 75.5% in Q1 2023. The continued decline in gross margin has raised concerns about Pinduoduo’s growth prospects.

Consequently, Pinduoduo’s stock price dropped sharply—on the day of the earnings release, its U.S.-listed shares closed at USD 102.98, down 13.64%. Currently, the stock has fallen below USD 100.

Pinduoduo CEO Chen Lei attributed the reduced short-term profitability to investments in the ecosystem.

Unlike Alibaba and JD.com, Pinduoduo has long operated under a light-asset model.

This approach allowed Pinduoduo to avoid heavy supply chain investments, reallocating capital to subsidies and user acquisition. Increased traffic enhanced Pinduoduo’s bargaining power, enabling it, in founder Huang Zheng’s words, to “turn capitalism upside down.”

Nonetheless, while aggregation has fueled rapid growth, dispersion presents greater challenges.

During its rapid expansion, Pinduoduo overlooked several operational areas that high growth masked. As growth slows, these issues become apparent, exemplified by the recent aggressive promotion of Pinduoduo Yizhan, aimed at addressing previous shortcomings.

This shift signals that Pinduoduo’s previously effortless profitability will now require more careful management, with the company transitioning from a light-asset to a heavier operational model.

Pinduoduo has revitalized DuoDuo Maicai, its community group buying service, which had previously struggled.

On May 9, Pinduoduo announced renaming “DuoDuo Maicai Express Collection Service” to “Pinduoduo Yizhan,” introducing 24-hour self-service parcel pickup and home delivery.

In fact, Pinduoduo launched DuoDuo Yizhan at least by last year and expanded it through franchising.

Following a divergence with affiliate Jitu Express, Pinduoduo now confronts the “heavy asset” challenge, needing to independently manage last-mile logistics.

Operationally, Pinduoduo has moved quickly, adopting a “get on the bus before buying the ticket” approach. It was not until May 2024 that the operating entity qualifications for Yizhan were officially approved.