Pinduoduo's bid for calm has its limits


By Robyn Mak

(The author is a Breakingviews columnist.)

HONG KONG, Feb 12 ( Breakingviews) - Pinduoduo's search for calm will go on. Even by Chinese tech company standards, the $31 billion e-commerce outfit, which pushes group discounts on everything from fresh produce to clothes, has had a volatile start since it went public in July. A further $1 billion equity, raised on Friday, is a welcome step towards easing wild price swings. But ballooning losses, competition with Alibaba, and legal woes will continue to create a stir.

Yet the shares have ricocheted wildly since they started trading, dipping below the issue price on multiple occasions, as Pinduoduo has grappled with allegations of counterfeit products, an investigation from Chinese regulators, as well as a U.S. lawsuit from a disgruntled diaper maker. It's also caught the eye of short-sellers, with hedge fund Blue Orca accusing Pinduoduo of overstating revenue, among other things. The company said it had complied with the relevant U.S. rules. In January, hackers stole tens of millions of yuan worth of discount vouchers.

One thing in its favour, however, is timing. Pinduoduo managed to sell the additional new and existing shares at a 32 percent premium to their initial value marker, though at an 18 percent discount to the undisturbed price. Now the company's public float will significantly increase to over 13 percent, which should, in turn, help to reduce sharp impact of a few buyers and sellers.

Other headaches still need to be addressed. Even as Huang has promised to cooperate with regulators and vet the app's sellers and products, competition with Alibaba is pushing Pinduoduo further into the red: operating losses in the nine months to September soared more than tenfold from a year earlier, and are on track to hit $1.7 billion for the full year, according to the average analyst forecast on Refinitiv. Pinduoduo's moment of calm may be short-lived.

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- Chinese e-commerce group Pinduoduo raised $1.4 billion in a secondary offering, the company said on Feb. 8, six months after it went public in New York.

- The Nasdaq-listed company sold 40.2 million American depositary shares at $25 per share, representing an 18 percent discount to the undisturbed price on Feb. 5. Existing investors, including Banyan Partners and Lightspeed China Partners, sold an additional 14.7 million shares at the same price.

- In July, the company raised $1.6 billion in an initial public offering valuing the shares at $19 each.

Pinduoduopress release

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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