As of the close of December 7th Eastern Time, Alibaba's market value was $184.09 billion, and Pinduoduo's market value was $186.387 billion. In the past week, Pinduoduo has steadily surpassed Alibaba, ranking first in e-commerce market value and also first in Chinese concept stock market value.
On the surface, it seems that the performance of this year's third quarter revenue and net profit exceeding expectations has led to a sustained surge in Pinduoduo's stock price, thereby driving its market value to its peak; But Alibaba and JD.com are already tired and in a hurry.
But in essence, Pinduoduo accurately caters to the current consumption trend.
Whether it is the scar effect of the epidemic or the heavy snow on the long slope of economic recovery, income concerns will lead to a contraction in consumption. The significant or even abnormal growth of household deposits, coupled with the weak desire for social retail consumption, is a sign of individual market contraction under uncertainty.
The decline in consumption is not a phenomenon that only exists today. In the past, it mainly referred to the sinking of urban energy levels, such as going to fourth - and fifth tier cities to seize market share; Today, a large portion of consumer groups in first and second tier cities are also approaching the level of third and fourth tier cities in terms of consumption habits. Consumer classification has become an uncertain matter.
The biggest impact this has had on e-commerce is that "low price is the key", which is the keyword for this year's Double Eleven and is expected to continue for a considerable period of time.
No matter how elegant the vocabulary may be, it must be acknowledged that low price has always been Pinduoduo's core competitiveness. The consumer group attracted by low prices is now larger than ever before. This means that Pinduoduo's customer base is expanding at an astonishing speed.
Based on the continuous expansion of consumer groups, the revenue growth of Pinduoduo is self-evident; The integration of the supply chain has brought about an increase in profits. To borrow a theory, this is the dividend of the era of low prices.
Compared to Alibaba's diversification, Pinduoduo is truly focused on vertical development: vertically deepening the end-to-end e-commerce and deepening the agricultural product industry chain. Focusing on only one thing, the customer base is large enough, and the chain is clean enough to eat.
Pinduoduo has also replicated this mature strategy to the cross-border e-commerce field, which is the Temu it incubates.
If Pinduoduo has been the fastest-growing Chinese concept stock since its establishment, listing, and peak market value, then Temu's growth rate may be even crazier. Since its launch in September last year, it has been dominating multiple regional markets around the world with a dark horse like attitude. This year, it will easily exceed the GMV (Gross Merchandise Volume) target of $15 billion.
There are two main factors that support Temu's running: first, pursuing low prices is a global passport, and Temu's potential customer base worldwide may exceed Pinduoduo's. Secondly, Pinduoduo's robust supply chain management system, with slight modifications tailored to local conditions, can be ported to Temu. In this regard, Chen Lei is indispensable.
We have reviewed that Alibaba is the earliest cross-border e-commerce company with strong infrastructure and supply chain. However, unfortunately, the multiple cross-border brands incubated by Alibaba cannot even compare to one Temu.
Another cross-border e-commerce company, SHEIN, created by Chinese people, recently secretly submitted a form to go public in the United States, reportedly valued at over 90 billion US dollars. Industry insiders predict that Temu's GMV may reach $30 billion next year, which is equivalent to SHEIN's trading volume this year. Based on this, it is speculated that Temu's potential valuation may catch up with SHEIN and reach $60 billion next year.
Returning to the topic of Pinduoduo's market value, the current market value given by investors to Pinduoduo is $190 billion. If the $60 to $90 billion of this is attributed to expectations for Temu, then Pinduoduo's overall valuation will no longer be so abrupt, and even appear much more reasonable.
The market value of Chinese concept stocks ranks first, which is undoubtedly a big news for investors of Pinduoduo. At least their book wealth has increased; But for us non investors who stand outside, it doesn't matter who has the highest market value, just like who is the richest person in the world or China.
So what do we care more about?
E-commerce platforms are a type of matchmaking business, which connects merchants and consumers to conduct transactions. They serve as infrastructure providers and charge intermediary commissions and other service fees. This is a networked business of a large market, but the market has physical boundaries and e-commerce platforms are far and wide.
Matching transactions without physical boundaries means that the more merchants and consumers come, the larger the scale, and the better the platform's business. So, the business model of e-commerce platforms is essentially an economy of scale. Doing marketing to attract attention and engaging in price wars are all aimed at attracting everyone to the platform. Therefore, it is also a traffic economy.
The vitality of traffic economy relies on traffic dividends. The traffic dividend of Chinese e-commerce platforms has flourished for more than 10 years thanks to the popularity of 3G networks and smartphones. At a certain stage, we will encounter bottlenecks, the market is basically stable, and growth is still in single digits. Even if there are opportunities, they will be structural and short-lived.
People originally thought that the two giants Alibaba and JD.com, along with a few younger brothers, would divide their market share equally, and it wouldn't be much fun for others to come in. Unexpectedly, a Pinduoduo came in and quickly swallowed up the territory of the two giants.
Regardless of whether Pinduoduo, as some analysts claim, has occupied the lower tier markets abandoned by Alibaba and others, the results show that low-priced products always have a market and a large base; In recent years, with the trend of downward consumption, the economies of scale formed by low price dividends are expanding. In this sense, Pinduoduo and Temu are the beneficiaries of the era of low price dividends.
If the economies of scale of e-commerce platforms have already encountered a growth ceiling, will there also be a growth ceiling for low price dividends? Of course there is. However, as long as the downward trend of consumption characterized by practicality continues, Pinduoduo still has dividends to eat; The space for Temu and SHEIN has just been opened.
However, it must be noted that the phenomena of roughness, inferior quality, counterfeiting, and imitation that accompany low-priced goods have been strongly reflected by consumers for a long time. These issues have not diminished due to the convergence effect of low prices under the expectation of unstable consumer income today. In this regard, the platform itself and external forces should strengthen the use of artificial intelligence technology for supervision.
At the same time, it must also be noted that the profit model of e-commerce platforms based on economies of scale cannot be considered an advanced and innovative business model. Valuation or market value based on economies of scale is more of a quantitative significance. Even if one day Temu goes public and gains a market value of $150 billion, it will only add another Pinduoduo.
After more than 40 years of reform and opening up, with the growth of economic output and per capita income, China has developed a rare consumer market in the world. In such a unified and massive market, any industry, including vertical sub sectors, as long as it achieves first and second place, will achieve very considerable revenue.
But this business model that wins by scale and traffic will form path dependence. Basically, it is a large-scale financing, subsidy opening, price war, gaining market share, and then seeking profits from merchants and consumers. Online ride hailing is like this, group buying is like this, express delivery is like this, coffee and tea are like this, and e-commerce is also like this.
This business model, which grows based on economies of scale, inherently adheres to a belief in scale. But common sense tells us that the larger the company, the more respected it is, and that the higher the market value of a company, the better it is. For example, where have the companies ranked 230th and 361st in the 2018 Fortune Global 500 gone now?
Fortunately, many businesses are clear headed, and many consumers are also clear headed.