China’s Third Richest Person Cedes Control of E-Commerce Phenom

(Bloomberg) — Pinduoduo Inc.’s billionaire chairman has stepped down from the board, relinquishing control of China’s fastest-growing e-commerce company the same day it announced its user base had surpassed Alibaba Group Holding Ltd.’s.

Founder Colin Huang will be replaced by Lei Chen, who keeps his chief executive officer title, the company said in a statement Wednesday. The move cements Huang’s retreat from the corporation that has helped him become China’s third-richest man, after he handed over the role of CEO last year.

Huang is saddling his co-founder Chen with the task with sustaining an extraordinary pace of growth. Sales in the December quarter climbed 146% to 26.5 billion yuan ($4.1 billion), beating the average 19.3 billion yuan forecast. That’s several-fold the pace of e-commerce rivals Alibaba and Inc., fueled by surging demand for groceries and as more shoppers in less-developed cities venture online.

“The departure had an air of inevitability about it in light of Huang’s resignation as CEO last July,” Robin Zhu, a Bernstein analyst, wrote in a research note. “But the timing came as a surprise, and skeptics will note that the China internet sector is 0-for-1 when iconic founders leave the building.”

The stock slid more than 7% in New York, giving up a fraction of its 370% gain over the past year, after Citigroup analysts pointed out growth in e-commerce volumes lagged expectations. Gross Merchandise Value climbed 66% in 2020, suggesting quarterly growth of 57%, Citi’s Alicia Yap wrote.

Read more: His Wealth Surged by $25 Billion. Then Jack Ma’s Rival Quit

Pinduoduo is aiming to become the world’s largest grocer, Chen said. To achieve that target, the company intends to invest in an agriculture-focused logistics infrastructure platform over the next few years.

After stepping down from the role of chairman, Huang will give up the 1:10 super voting rights attached to his shares in Pinduoduo. He’s also pledged to extend the lock-up period for his shares by another three years, according to a statement by the company.

His departure caps a rise meteoric even by Chinese internet industry standards, creating a $57 billion personal fortune and a $180 billion U.S.-listed company in a span of about six years with the help of heavy advertising. Pinduoduo’s stock rose more than fourfold last year and reached a record on Feb. 17, though the shares have since retraced after a wider technology selloff and China’s scrutiny of its internet companies.

Huang, a former Google engineer, will focus more on longer-term initiatives, including research in food and life sciences, the company said. In 2017, the billionaire said he was unlikely to spend the rest of his life at PDD, saying in a letter to employees he wanted to delegate more responsibility to younger colleagues to keep its entrepreneurial spirit alive.

“I hope that my stepping down as the Chairman of the Board will aid this young person into independent adulthood,” Huang said in a letter to shareholders, referring to PDD. “Though I can no longer become a true scientist myself, I would feel very lucky and blessed if I have the chance to become a research assistant to a future, possibly great, scientist.”

Pinduduo’s annual active consumers climbed to 788 million in December, surpassing the 779 million users at Alibaba’s online marketplaces. During the recent Spring Festival holiday, daily users at Pinduoduo briefly surpassed those on the Taobao mobile app, according to researcher QuestMobile, underlining how the company has narrowed the gap with its larger rival.

Net loss attributable to shareholders in the December quarter narrowed to 1.38 billion yuan from 1.75 billion a year earlier, Pinduoduo said in a statement on Wednesday before the U.S. market open. Gross merchandise value in the 12 months ended December rose 66% to 1.67 trillion yuan.

What Bloomberg Intelligence Says

Pinduoduo’s sales growth may stay robust as it ramps up monetization of its sizable customer and merchant base. Rapidly expanding sales could help narrow operating losses in the medium term. The company’s expanding shopping ecosystem may become increasingly appealing for merchants looking to advertise. Despite heavy marketing expenses, Pinduoduo’s marketplace model can sustain high gross margin, and could deliver a profit as revenue achieves greater scale.

— Vey-Sern Ling and Tiffany Tam, analysts

Click here for the report

That growth has come with a price, however. The company faced an online backlash earlier this year after an employee in her early 20s died after walking home at 1:30 a.m. and another committed suicide. The deaths renewed criticism of the long hours commonly worked at China’s tech giants — a 996 office schedule of 9 a.m. to 9 p.m., six days a week, plus overtime — and prompted authorities to open an investigation into working conditions at Pinduoduo.

Read more: Pinduoduo Worker’s Death Spurs Investigation, Online Furore

Its online groceries business has also come under scrutiny from antitrust regulators. Earlier this month, Pinduoduo’s community group-purchase business was fined alongside four other operators for excessive subsidies in the second half of 2020, a move that had disrupted market order, according to the State Administration for Market Regulation.

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