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Why Shares of Pinduoduo Sank Today

By Timothy Green - Nov 20, 2019 at 1:17PM

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Strong revenue growth wasn't enough to keep the stock afloat.

What happened

Shares of Pinduoduo ( PDD -8.16% ) tumbled on Wednesday after the Chinese e-commerce company reported its third-quarter results. Pinduoduo missed analyst estimates across the board, sending the stock down 21.8% by 12:35 p.m. EST.

So what

Pinduoduo reported third-quarter revenue of $1.05 billion, up 123% year over year but $30 million below the average analyst estimate. Gross merchandise value for the trailing-12-month period was $117.5 billion, up 144% year over year.

A declining chart.

Image source: Getty Images.

"We celebrated our fourth anniversary in early October with an annual active buyer base exceeding half a billion for the twelve-month period ended September 30, 2019," said Pinduoduo CEO Zheng Huang.

Non-GAAP (adjusted) earnings per American depositary share came in at a loss of $0.20, missing analyst estimates by $0.13. Heavy spending beat down the bottom line, with sales and marketing expense eating up 92% of total revenue.

Now what

While Pinduoduo is growing sales at a brisk pace, the company is paying a high price for that growth. With both revenue and earnings coming in below expectations, a sizable chunk of the stock's recent rally was erased on Wednesday.

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.

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