Combine E-Commerce and Social Networking With Pinduoduo

Can a combination of social networking and online shopping yield strong profits? Pinduoduo (NASDAQ:PDD) seeks to answer that question, and the owners of PDD stock hope to capitalize on  modern consumers’ preference for a complete shopping experience.

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The onset of the novel coronavirus brought e-commerce, along with the connective power of social networking, into the limelight . These two megatrends could conceivably be combined, creating a unique synergy. Yet moving from concept to execution could prove to be problematic for the wrong company.

Is Pinduoduo the right company to take on this challenging task? The owners of PDD stock certainly seem to think so, but informed investors must investigate Pinduoduo’s potential and decide for themselves whether this particular company can effectively combine social networking and e-commerce.

A Closer Look at Pinduoduo

Unlike many other stocks traded on Wall Street, PDD stock didn’t suffer much technical damage during the coronavirus crisis. Sure, it dipped briefly in late April and early May.

That weakness proved to be an opportunity to accumulate the shares at a more favorable price. From the beginning of May to mid-June, the stock shot up from roughly $45 to more than $85 per share.

So the buyers are clearly in control of the stock’s price action. It’s amazing now to consider that PDD stock was trading at just $20 a year ago. Those days are behind us, so we have to focus on the available data and determine whether Pinduoduo, based on its own merits, is worthy of our investment capital.

A Major E-Commerce Competitor

Pinduoduo might be new to many American traders, but it’s certainly not a brand new or obscure company. In reality, it’s been around since 2015 and has grown into an e-commerce juggernaut with an astonishing 628.1 million active buyers as of March 2020.

In the 12 months that ended in March, its active buyer count soared  42% year-over-year. Indeed, there’s no shortage of impressive statistics associated with this company. Among its impressive numbers are:

  • 65 million average daily orders
  • 1.2 trillion RMB in gross merchandise value, indicating 108% YOY growth
  • 487.4 million monthly active users, representing 68% YOY growth
  • 30.1 billion RMB of revenue, signifying YOY growth of 130%
  • 5,828 employees, over 60% of whom are engineers

As you can see, Pinduoduo is an e-commerce giant that could easily be compared to Amazon (NASDAQ:AMZN). And indeed, many of the items that are sold on Pinduoduo could also be offered by Amazon.

Perhaps it shouldn’t be too shocking, then, that research firm Bernstein assigned PDD stock a rating of “outperform” along with a favorable price target of $89. If Pinduoduo has the potential to expand like Amazon has done, there’s no telling how far the Chinese company’s shares can go.

E-Shopping, But With a Difference

But let’s not assume that Pinduoduo is simply the Chinese version of Amazon. It’s more complicated and interesting than that.

At a time when social distancing is breaking down personal connections, Pinduoduo strives to rebuild those connections. The company does that through its “team purchase” e-shopping model.

Promoting interactions among users is a novel idea and differentiates the company amid the competitive e-commerce landscape. Using social networks like WeChat and QQ, Pinduoduo allows “consumers {to} easily share product information and shopping experiences with family and friends,” according to the company.

As a result, shoppers can “participate jointly in a team purchase” wherein “both [team shoppers] get to enjoy a lower price than if they had bought it individually. This naturally incentivizes users to share and invite their contacts to engage with them on our platform.”

I wonder if this “team shopping” concept  could catch on in the United States. Until that  is tested, investors can cash in on Pinduoduo’s highly profitable implementation of an e-shopping paradigm whose moment has arrived (in China, at least).

The Bottom Line on PDD Stock

Clearly, there’s more to Pinduoduo than the standard e-shopping experience. The company brings people together and allows shopping to be interactive, collaborative, and a lot of fun.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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