2 Risks to Know Before Investing in Pinduoduo
Pinduoduo (NASDAQ: PDD), a leading e-commerce company in China, is one of the most successful IPOs in recent years. Since its market debut in 2018, its share price has more than quadrupled, thanks to the strong underlying business performance as well as the favorable investor sentiment for fast-growing technology companies. Still, Pinduoduo is facing numerous risks that may impact its long-term growth trajectory.
Founded in 2015 as a mobile-first social e-commerce platform, Pinduoduo grew its revenue at an impressive pace, hitting $4.3 billion in 2019 as gross merchandise value (GMV) -- the total value of products and services sold through the platform -- surged to $144.6 billion.
Many factors contributed to its success. Its mobile-first and social focus positioned the company well to serve Chinese consumers in the smartphone era. Moreover, its bulk-purchase model allows customers to form groups to buy their products at discounted prices while at the same time creating good value for sellers as they fulfill bigger customer orders. Also worth mentioning is the company's decision to incorporate online games to its platform to bring fun to the shopping experience. For example, customers can cultivate virtual farms to receive real fruits.
Source Fool.com
