After maintaining high growth for several quarters, Pinduoduo's growth rate has begun to slow down.

Previously, Pinduoduo released its third-quarter financial results, showing that the company achieved revenue of RMB 99.35 billion in the third quarter, a year-on-year increase of 44.33%, and net profit of RMB 24.98 billion, a year-on-year increase of 60.78%.

Notably, in the previous quarter, Pinduoduo's revenue and net profit growth rates reached 85.65% and 144.2%, respectively.

After the earnings release, Pinduoduo's share price plummeted. On the day of the financial report release, Pinduoduo's share price closed at $104.09 per share, down 10.64%, resulting in a market value reduction of over RMB 120 billion. If calculated from the beginning of October, Pinduoduo's share price has fallen by more than 28%, with a market value evaporation of over $62.5 billion, equivalent to approximately RMB 453.8 billion.

Once, when e-commerce giants like JD.com, Alibaba, and VIPShop struggled with growth, Pinduoduo consistently surprised everyone with its overachieving performance. However, it appears that with the "looming" ceiling, Pinduoduo's high growth may not continue indefinitely. Admittedly, as an e-commerce giant with nearly RMB 100 billion in revenue, slowing growth is inevitable. However, it is worth considering whether Pinduoduo's low-price model will still be effective behind this slowdown.

'Low Price' Is Not Necessarily King

Analyzing the financial report, the slowdown in Pinduoduo's third-quarter revenue growth is mainly attributed to the "commission income."

As an e-commerce platform, Pinduoduo's revenue primarily comes from two main areas: advertising and commissions.

In the third quarter, Pinduoduo's advertising revenue was RMB 49.4 billion, and commission revenue was RMB 50 billion. The commission revenue fell short of expectations (previously, institutions generally expected RMB 53 billion, a difference of RMB 3 billion). Affected by the decline in commission revenue, Pinduoduo's gross margin fell from 65.28% in the previous quarter to 60.03% in this quarter.

Certainly, the main reason for the decline in commission revenue in the third quarter was Pinduoduo's increased subsidies to merchants during this period.

According to reports, in the third quarter, Pinduoduo increased its investment in ecological construction and launched multiple initiatives such as the "RMB 10 Billion Subsidy Reduction," "E-commerce Westward Expansion," "New Quality Merchant Support Plan," and "Logistics Support Plan."

Regarding the "New Quality Merchant Support Plan," during the Mid-Autumn Festival period, Pinduoduo invested RMB 1 billion in subsidies and RMB 2 billion in traffic resources to support high-quality agricultural product merchants, helping seasonal agricultural products enter urban markets and increasing production and income in agricultural areas. Regarding the "Logistics Support Plan," Pinduoduo voluntarily bore all logistics transfer fees for orders in remote western regions, significantly reducing express delivery costs by up to 70% for agricultural products, fresh produce, daily necessities, and other categories, encouraging merchants to expand into the western market and promoting the construction of e-commerce logistics infrastructure in western regions.

It is worth noting that Pinduoduo's "low-price" strategy has begun to backfire.

Previously, Pinduoduo's success was primarily attributed to its group-buying model of "cut a price" and the "RMB 10 Billion Subsidy" low-price model. However, this model is based on continuously squeezing merchant profits. After all, in a homogeneous competitive environment, the lower the merchant's profits are squeezed, the lower the product prices will be, and Pinduoduo's competitiveness on the platform will increase.

However, this business model relying on squeezing merchant profits is doomed not to last long.

In the past two years, conflicts between merchants and Pinduoduo have continued. For example, in March last year, when Pinduoduo launched its self-operated store "Duoduo Welfare Society," it was subjected to malicious ordering "attacks" by a large number of small and medium-sized Pinduoduo merchants. After placing large orders, merchants applied for "refund only" and then scolded Pinduoduo's customer service. This series of high-frequency operations directly led to the rapid withdrawal of the Welfare Society after four hours. In May this year, many merchants were continuously deducted and fined due to TEMU's new "high price declaration rate" rules, further intensifying conflicts.

For Pinduoduo, both advertising and commission revenue come from merchants. While low prices can attract users, stabilizing merchants is equally important.

The Challenge Has Just Begun

In the third quarter, Pinduoduo's revenue was RMB 99.35 billion, just shy of the "RMB 100 billion" mark.

As an e-commerce giant, Pinduoduo's size has rapidly expanded, so it is normal to optimize its previously simple and brutal low-price model.

In a previous earnings call, Pinduoduo's management made it clear that they would adopt a combined approach of "support and governance" to improve ecological construction and prepare for long-term investment.

However, in addition to increasing subsidies to merchants, it is worth noting that Pinduoduo's expenses are also increasing significantly. According to the financial report, Pinduoduo's total cost of revenue in the third quarter was RMB 39.7092 billion, a year-on-year increase of 48% and a quarter-on-quarter increase of 17.84%. Total operating expenses increased by 39% year-on-year to RMB 35.3527 billion, a quarter-on-quarter increase of 14.79%. Among them, selling and marketing expenses increased by 40% year-on-year to RMB 30.4838 billion.

From a more intuitive perspective of personnel costs, Pinduoduo's personnel costs have increased significantly this year. In the second quarter, they increased by 208% year-on-year, and in the third quarter, they increased by 138% year-on-year to RMB 1.8056 billion. For Pinduoduo, the surge in expenses is not good news. After all, its revenue growth slowdown is an irreversible trend. If expenses continue to increase, they will further squeeze Pinduoduo's profits.

In addition to its own slowing growth and surging expenses, Pinduoduo also faces the challenge of intensifying industry competition. In recent years, due to Pinduoduo's outstanding performance, it has become a model for other platforms to imitate.

For example, JD.com launched the "RMB 10 Billion Subsidy" campaign early on, also focusing on a low-price strategy. Taobao has also recently increased its investment in price-sensitive products, especially in the beauty, daily necessities, and food categories. Through the "Super Subsidy" campaign, Taobao often offers discounts lower than those of Pinduoduo, aiming to regain price-sensitive users who have shifted to Pinduoduo. Additionally, facing Pinduoduo's overseas version, Temu, the global e-commerce giant Amazon has launched a dedicated platform for selling low-priced white-label products made in China, targeting popular products on the Temu platform.

It can be seen that Pinduoduo is in a situation of being comprehensively "besieged."

Overall, whether from the perspective of its own operating conditions or the increasingly fierce competition in the e-commerce industry, it is indeed necessary for Pinduoduo to sacrifice short-term profits to support merchants. However, although actively slowing down growth and investing resources in future development is to prepare for long-term investment, it also means that for a long time in the future, Pinduoduo's performance will continue to be under pressure, and slowing growth will become the norm.