(ATF) Colin Huang, the founder of online shopping app Pinduoduo, which has beaten Alibaba’s Taobao and Tmall in terms of user numbers within six years, has resigned as chairman to pursue research in in food and life sciences.
In a shock move, the Nasdaq-listed company announced on Wednesday that Huang will be handing over his role to Chen Lei, who replaced Huang as chief executive last July.
The fast-growing e-commerce company released a shining fourth quarter (Q4) revenue growth of 146% but saw its stock price on the Nasdaq plummeting 7.1% to $149.46 on Wednesday.
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Its non-GAAP net loss narrowed to 184.5 million yuan ($28.3 million) on revenue of RMB 26.5 billion ($4.1 billion) in Q4.
In a letter to shareholders, the 41-year-old self-made billionaire said he decided to “step out of the business” to “explore future growth drivers” for the company when competing through scale and efficiency has “inevitable limitations”.
His areas of interest include reliably and effectively controlling the harmful heavy metal content in potatoes, sweet potatoes and tomatoes, as well as promoting beneficial elements in such produce, Huang said in his letter.
Stepping down as chairman was part of a two-step leadership transition plan, and was moved forward by a few months, Huang added.
TECHNICAL POSITIONS
Chen is Huang’s alumnus from the University of Wisconsin-Madison and long-time business partner, having served key technical positions at several companies that Huang founded prior to Pinduoduo. Before stepping up as the Pinduodu’s CEO last year, he was the company’s chief technology officer.
Huang has entrusted the board to exercise his voting rights as a shareholder and pledged not to sell his shares for three years. Pinduoduo said the 1:10 voting rights attached to Huang’s shares have been removed.
While Huang still refers to himself as Pinduoduo’s “guardian”, market observers also expect Huang – who still owns 29.4% in Pinduoduo – to remain an actual controller of the company.
Xiao Yi, angel investor and founding partner of Australia All-in Ventures, compares Huang’s resignation from Pinduoduo to a similar move by Duan Yongping, Huang’s friend and life-long mentor who went to the same university as him and was a lead angel investor for Oukuu, the first company Huang founded in 2007.
LEADING BRANDS
In 2002, 40-year-old Duan retired from BBK Electronics Corporation, a company he founded, and handed over the company’s mobile phone businesses to his apprentices, Chen Mingyong and Shen Wei. BBK’s subsidiaries, OPPO and Vivo, later grew into leading Chinese smartphone brands that in the fourth quarter of last year accounted for 10 % and 9% of global market shares, respectively, according to data from Canalys.
“Huang’s stepping down as chairman does not mean he is completely exiting from the company. It appears he will spend more effort to create an even larger platform using the capital he has accumulated, and Pinduoduo may have a role to play there too,” Xiao said.
Industry professionals also compares Huang’s move to those of Jack Ma and Richard Liu. Ma stepped down as Alibaba Group’s chairman in 2019 and Liu turned over several key roles at JD.com in the same year, but neither of them has gone far from the companies.
On the same day as Huang’s resignation was announced, a philanthropic fund set up by Huang and Pinduoduo’s founding team signed a donation agreement with an education foundation at Huang’s Alma Mater, Zhejiang University.
FUNDAMENTAL RESEARCH
The fund would donate $100 million in the next three to five years to support fundamental research in the cross-disciplinary areas of biology, medical science, agriculture and food science, a statement on Zhejiang University Education Foundation’s website said.
In July of last year, Huang and the founding team of Pinduoduo decided to donate 2.37% of their shareholding in Pinduoduo to create the philanthropic fund.
Started off in 2015 by selling fresh produce online, Pinduoduo later expanded into other merchandise categories such as clothing, cosmetics, baby care products, and even cars.
In China’s already crowded e-commerce space, Pinduoduo quickly expanded through a “social shopping model” that encourages users to share links to items they purchase with friends and participate in group buying.
ECLIPSING TAOBAO
Within six years, Pinduoduo has gained more than 788 million users as of the end of 2020, beating the combined user numbers of Alibaba’s 18-year-old Taobao and 9-year-old Tmall, and leaving 20-year-old JD.com far behind.
Pinduoduo listed on the technology-focused Nasdaq stock exchange in New York in July 2018, just three years after it was founded. The company’s market cap has grown five times to $183 billion.
Pinduoduo’s overtime working culture has made headlines recently when a 23-year-old female employee died on the way home after working past midnight, and several industry sources told Chinese newspaper 21st Century Business Herald that employees at Pinduoduo’s technical positions work 12-hour shifts. Some people work from 7pm to 7am, a source said.
Alibaba’s “12 hours a day, 6 days a week” working hours are also well known in the industry.
DISCOUNT CONCERNS
However, while Alibaba’s Taobao has been nicknamed a marketplace for “anything under the sun” and JD.com touts “the best shipping service”, Pinduoduo’s strategy of attracting users by discounts has raised concerns about customer loyalty.
The company’s fourth-quarter financial report shows a 59% year-on-year increase in selling and marketing expenses – largely discounts – which accounted for 85% of total operating expenses.
So far, Pinduoduo has been most popular with the elderly citizens and price-sensitive residents in China’s small towns and rural regions.
In July of last year, Tesla refused to deliver a made-in-China Model 3 to a shopper who placed the order via a group-buy campaign on Pinduoduo, saying the campaign was “unauthorised”. A dealer on Pinduoduo offered 20,000 yuan ($3,076) of subsidy for each purchase of the Model 3, which together with Tesla’s regular subsidy of the same amount would have saved a buyer about one-seventh of the money spent on a Model 3.
AGRICULTURE PLATFORM
Pinduoduo now positions itself as “the largest agriculture platform in China” and aspires to be the world’s top grocer.
“We hope that in the next stage, Pinduoduo will become the world’s largest agriculture and grocery platform, and make groceries sourced around the world affordable and available to our users,” said Chen Lei, Chairman and CEO as the company released its Q4 results.
Agriculture orders on Pinduoduo more than doubled to 270 billion yuan ($42 billion) in 2020 and accounted for 16.2% of total revenues as Covid restrictions forced people to shop online.
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