Pinduoduo gains 40% on debut after $1.63b US IPO

The company sold 85.6 million American Depository Shares (ADS) for $19.00 apiece, the top end of the indicative range, according to a filing. Its shares opened at $26.50 on July 26 and closed at $26.70. Tencent and Sequoia both subscribed to shares in the IPO, contributing $300 million between them.

Founded in 2015 by Colin Huang, a serial entrepreneur and former Google engineer, Pinduoduo combines social networking and e-commerce, offering discounts for group purchases that result from users sharing product information with their friends. In this way, users directly influence which products are available for sale. Purchases can be made through the Pinduoduo platform or through social networking services, including Tencent-owned WeChat and QQ.

Huang has described his vision for the future of the company as a hybrid of Costco and Disneyland – value for money and entertainment – underpinned by an artificial intelligence-enabled network that drives interaction between users.

There were 245 million active buyers on the platform for the 12 months ended December 2017, while average monthly active users of the mobile app came to 65 million. Gross merchandise value for the period reached RMB141.2 billion ($21.3 billion). The company switched from an online direct sales model to a marketplace model in 2017.

Revenue increased from RMB504.9 million in 2016 to RMB1.74 billion in 2017, while the net loss widened from RMB292 million to RMB525.1 million, largely due to an eight-fold increase in sales and marketing expenditure.

The first institutional investors in Pinduoduo were Gaorong Capital, IDG Capital, and mFund – a mobile internet-focused vehicle established by IDG and NetDragon WebSoft. The Series A round came to $8 million. The next round was structured across four tranches in 2015 and 2016, with around $110 million committed in total. The existing investors all re-upped and were joined by Lightspeed China Partners, Tencent, Sun Vantage Investment, and Cathay Capital Private Equity, among others.

Sequoia Capital China came into the first installment of the Series C in early 2017 with Gaorong, Sun Vantage, Tencent, and Cathay Capital. They invested $93.7 million and then Tencent committed a further $100 million a few months later. The $1.37 billion Series D, which closed in March, featured Gaorong, Sequoia, and Tencent, with the latter’s individual contribution of $988.8 million comprising cash and strategic cooperation. Sequoia participated through its global growth fund.

Huang holds a 46.8% stake in Pinduoduo but holds 89.8% of the voting power thanks to the dual-class share structure. Tencent, Gaorong, and Sequoia own 17.8%, 9.3%, and 7.5%, respectively.

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• Topics
• Greater China
• IPO
• Technology
• TMT
• China
• Venture
• Sequoia Capital
• Banyan Capital
• Tencent
• IDG Capital Partners