a good idea. A three-year-old startup taking on Alibaba in China simply smashed its Wall Street debut.
Pinduoduo closed up 40% on the Nasdaq Thursday, valuing the business at $29.6 billion.
The business raised about $1.6 billion in its going public.
Pinduoduo is an online shopping platform on which people can buy goods for less expensive costs when they hire friends to purchase the very same item. There are likewise flash sales, along with free presents and vouchers for getting buddies to follow companies on social media. It resembles a mash up of Groupon ( GRPN), Gilt and Amazon ( AMZN).
In a letter to investors, founder Colin Huang said he sees Pinduoduo developing into “a combination of ‘Costco’ and ‘Disneyland.'” Pinduoduo’s hit IPO values Huang’s 46.8% stake at $13.8 billion, making him the 13th wealthiest individual in China, according to Forbes.
The home entertainment aspect of the app’s shopping experience has helped Pinduoduo draw more than 343 million active buyers and about a million merchants onto its platform.
“It was remarkable how rapidly they built their platform, so clearly they had the best formula,” said Mitchell Kim, an expert with Kim Eng Securities.
But sustaining and continuing to grow the service will be a various challenge, he included.
Pinduoduo, which is backed by Chinese tech giant Tencent ( TCEHY), relies heavily on merchants supporting their wares, supplying steep discount rates or perhaps product free gifts on the app.
A company design based upon extreme discounts and promotions “is not sustainable,” said Jason Ding, an analyst with speaking with company Bain & & Company.
Social network played a huge role in moving Pinduoduo’s meteoric development. The app is heavily promoted on Tencent’s popular messaging platform WeChat.
But that might likewise be the company’s downfall. If shoppers are unhappy with item quality and services, they can quickly “become detractors rather of promoters. That will injure brand-new user acquisition and existing user retention,” stated Ding.
Like many tech companies that go public, Pinduoduo has also yet to make a profit.
While revenue grew from 504.9 million yuan ($74 million) in 2016 to 1.74 billion yuan ($255 million) in 2015, net losses nearly doubled to 525.1 million yuan ($77 million) in 2017.
The company has already had a number of troublesome items listed on its platform, and was required to provide consumer refunds, according to Kim. Pinduoduo warned investors that it might be accountable for fake and illegal products being offered on its platform.
Undoubtedly, not long after declaring its IPO, Pinduoduo was hit with a trademark violation suit in the United States. Diaper maker Daddy’s Option submitted the complaint in a federal court in New york city, accusing Pinduoduo of allowing the sale of knockoff products bearing the business’s name.
Pinduoduo declined to comment on the matter.
Powerful rivals are another challenge that lies ahead for thecompany.
Throughout current profits calls, analysts have actually consistently asked market leaders Alibaba ( BABA) and JD (JD )about Pinduoduo. Alibaba controls e-commerce sales in China, representing more than 58% of the marketplace, according to research company Emarketer. JD is second with about 16% and Pinduoduo is third with about 5%.
If Alibaba and JD– with their broad client bases and significant delivery systems– choose to include some version of affordable group purchases to their platforms, Pinduoduo would be in huge trouble.
CNNMoney (Hong Kong) First published July 26, 2018: 10:40 PM ET