What happened

Shares of Pinduoduo (NASDAQ:PDD) were surging in August, climbing 45%, according to data from S&P Global Market Intelligence, after a stellar earnings report. The Chinese social e-commerce site blew past analyst expectations on another round of blockbuster revenue growth and also saw a slimmer loss than expected.  

As the chart below shows, the stock posted modest gains early in the month and then popped when its second-quarter report came out on Aug. 21.

PDD Chart

PDD data by YCharts.

So what 

The e-commerce company relies on a Groupon-like model of offering shoppers discounts as they encourage more of their friends and social media contacts to shop the site and join on a deal.  

Chinese and American paper money with a glass globe on top.

Image source: Getty Images.

That model continued to deliver outstanding growth as revenue nearly tripled in the second quarter, rising 169% to $1.06 billion and crushing the analyst consensus for $867.4 million. Importantly, that growth did not seem to be driven by a short-term tactic like an increase in fees but by rising gross merchandise volume -- GMV was up 171% over the last 12 months, to $103.3 billion, showing that concerns about a trade war or slowing economic growth in China haven't affected it. The company did not report GMV for the second quarter. 

Other metrics showed strong growth in the user base as active monthly average users were up 88% in the quarter, to 366 million. On the bottom line, the company slowed down growth in marketing expenses to improve its margins and post an adjusted loss of $0.04, better than estimates of -$0.19.

As CEO Zheng Huang explained, "Putting users' interests first, we worked with our merchants to provide our users with a targeted, compelling value proposition on their most coveted items. This unwavering focus on our users contributed to the significant increase in our annual active buyer base and annual spending per active buyer, which together led to the 171% increase in our last-twelve-month GMV to RMB709.1 billion."

Now what  

Pinduoduo did not offer guidance in the report, but the recent numbers make clear that the company and its innovative model are not going away despite some legitimate questions about its true potential. With more than $100 billion in GMV over the last year, the company is quickly becoming a significant competitor to Chinese e-commerce leaders like Alibaba and JD.com. The market is massive and growing quickly, and Pinduoduo should continue to benefit. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.