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Why Pinduoduo Stock Crashed by 10% This Morning

By Rich Smith - Mar 17, 2021 at 11:57AM

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Sales surged last quarter, but there were no profits to be found.

What happened

Shares of Chinese "mobile only" e-commerce site Pinduoduo (PDD 3.65%) were down by 10.8% as of 11:53 a.m. EDT Wednesday after the retailer reported its fourth-quarter earnings results.

Expected to earn $0.01 per American Depositary Share (ADS), pro forma, on sales of nearly $3 billion for the quarter, Pinduoduo instead lost money -- $0.02 per ADS -- despite doing nearly $4.1 billion in sales.  

Man examines a stock chart superimposed on a Chinese flag

Image source: Getty Images.

So what

So long story short, this was an "earnings miss" and a "sales beat." Is that bad news or good news?

Well, Pinduoduo noted that its gross merchandise volume (the total value of stuff sold through its site) grew by 66% year over year, and total revenues surged 146%. Average monthly active users of the service grew 50% year over year. CEO Lei Chen noted that Pinduoduo is already "the largest agriculture platform [i.e. e-commerce merchant for buying groceries] in China, and we hope that Pinduoduo can one day become the largest grocer in the world."  

Now what

There's not much to dislike about that. On the other hand, though, Pinduoduo's bottom line was a pro forma loss, and its loss was even bigger when calculated according to generally accepted accounting principles (GAAP) -- $0.17 per ADS. Similarly, for the year, Pinduoduo roughly doubled its sales to $9.1 billion, but lost $0.38 per ADS (pro forma) and $0.92 (GAAP).

If investors find those losses discouraging, I can't say as I blame them. On the other hand, though, analysts believe 2021 could be the year Pinduoduo turns the corner on profitability. As sales continue to surge (analysts forecast $12.5 billion in revenue in 2021), pro forma earnings are forecast to rise to $0.24 per share.  

Fingers crossed.

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