Chinese e-commerce services company Pinduoduo reported worse-than-expected performance for its third quarter on Wednesday, sending its shares on the NASDAQ in the United States down by as much as 13 percent. The Chinese firm's earnings were pulled down by its higher-than-expected losses for the quarter due to its increased operating expenses.
For its third-quarter ending on September 30, Pinduoduo reported a net loss of 2.3 billion yuan. This was a significant jump from the 1.1 billion it reported over the same period last year. The losses were mostly attributed to the company's operating expenses, which more than doubled to 8.5 billion yuan for the quarter.
Sales and marketing costs, which are placed under the company's operating expenses, surged by more than 114 percent for the quarter.
Pinduoduo founder, chairman, and chief executive officer, Colin Huang Zheng, mentioned in a statement after the company's earnings were released that the increased spending was mostly due to investments geared towards its long-term growth. Zheng explained that the company had taken its marketing and sales efforts up a notch for the second half of September in anticipation of the increased spending this month.
According to reported citing sources close to the company's operations, Pinduoduo has been internally blaming its larger-than-expected losses due to the so-called "choose one from two" practice. The practice reportedly forced the company to launch an aggressive marketing campaign, including offering customers big discounts if they bought mostly generic products in groups.
Chinese regulators have recently taken action to prevent e-commerce platforms from using these strategies to gain an advantage over competitors. Earlier in the month, regulators warned major e-commerce platforms such as Alibaba, JD.com, and Pinduoduo to stop the practice of requiring merchants to sign exclusivity contracts that restricted them from selling their products on rival platforms.
Pinduoduo claims that it was forced to ramp up its marketing and sales efforts to gain an upper ground against other e-commerce platforms that were forcing merchants to exclusively sell their products on their websites. The company mentioned in a statement that forced exclusivity has had a material impact on its bottom lines.
The company stated that in the past 12 months leading up to the recently held double 11 shopping festival, the practice of forced exclusivity has intensified. Thousands of brands and products on its stores have been affected and more than 10,000 merchants have reportedly been forced to choose between platforms.
Pinduoduo, which was established just four years ago, has grown to become a formidable competitor in China's massive e-commerce space. The company has established itself as a popular platform for the country's rural consumers. It has also been touted as a welcomed disruptor by analysts, shifting the dominance of companies such as Alibaba and JD.com.
