Pinduoduo founder Colin Huang (Photo by Qilai Shen/Bloomberg)
© 2017 Bloomberg Finance LP
E-commerce giants JD.com and Pinduoduo are on the cusp of a new price war, with the former pledging more than $1 billion in fresh subsidies to win over budget shoppers. But concerns over stepped-up competition and thinning margins has prompted many investors to dump shares across the board, causing Pinduoduo’s founder Colin Zheng Huang to lose more than $3 billion in just one day.
The staggering loss makes Huang one of the five biggest losers on the World’s Real-Time Billionaires ranking on Wednesday, as shares of the Nasdaq-listed Pinduoduo plunged 9.5% overnight. The discount shopping platform had been a rare winner amid China’s wider economic slump, attracting hundreds of millions of consumers with cheaper goods that range from electronics to groceries.
Yet with the economy now on a recovery footing following the lifting of its Covid restrictions, and its e-commerce rivals seeking to expand after a bruising year of regulatory crackdown, investors are concerned Pinduoduo may have to drastically increase spending to defend itself. Billionaire Richard Liu’s JD.com was the first to throw the gauntlet down to Huang. The latter is reportedly planning to launch a subsidy campaign next month that would set aside 10 billion yuan ($1.5 billion) to make sure a large swathe of its product offerings are cheaper than those offered by Pinduoduo.
The 48-year-old Liu, according to local media reports, has also made lowering product prices a centerpiece of JD.com’s strategy for the remainder of 2023. A company representative said she had no further comment when contacted by Forbes, but investors were also selling down JD.com’s shares as the specter of a new price war looms on the horizon. The company’s stock plunged 11% in the U.S. after reports of the subsidy program came out, erasing $1.2 billion from Liu’s net worth. In Hong Kong, where it has a secondary listing, shares fell as much as 3.6% Wednesday morning.
“The fresh subsidies are a reflection that the competition is heating up within the industry,” says Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities. “In the short term, the market is quite worried about the pressure on gross margins.”
And Pinduoduo, which managed to eke out a profit of $1.5 billion in the third quarter of 2022, already said some factors behind its recent growth weren’t sustainable. Executives pointed out back then that some projects slated for the quarter were delayed, leading to a reduction in expenses and a subsequent surge in profits. JD.com, for its part, swung into the black and made $800 million in net profit on revenues of $34.2 billion during the same period, helped by what executives described as a “relentless focus” on cost, efficiency and user experience.