E41 – The Impulso Podcast – [Commentary]: lessons and implications of Pinduoduo and Meituan Q3 results

On November 28th, 2023, two Chinese tech giants, Pinduoduo and Meituan, released their Q3 reports. What are the results, and, most importantly, what are the implications?

Despite the cautious outlook on the economy, which has certainly affected investors’ sentiment, one of the players managed to exceed all expectations.

How did Alibaba’s management react to PDD’s market capitalization climbing up to that of Alibaba (featuring Jack Ma’s comment)?

With TikTok Shop growing in the US, SHEIN attempting to go beyond fashion, and Alibaba pushing the consignment model, how is PDD holding its ground?

Recently, Meituan has been exploring a potential deal with Foodpanda. Now that the quarterly results are out, how would the deal work out for them?

Tune in to the latest episode of the Impulso Podcast to find answers!

Featured materials:

PDD’s Q3 results -> PDD Holdings Announces Third Quarter 2023 Unaudited Financial Results

Meituan’s Q3 results -> 202311281711141778683369_en.pdf (todayir.com)

[AI-generated transcript]

Hey, this is Jianggan from Momentum Works. I’m recording this quick commentary from Bangkok on the 29th of November, Wednesday. My commentary is specifically focused on what happened to 2 Chinese tech giants, which released their quarterly earnings for Q3 2023. Yesterday, the 28th of November, the stock market gave both companies opposite, and both very drastic reactions, Meituan’s share price dropped more than 12%. While Pinduoduo’s share price rose more than 18%. What happened? Of course, I’m not going to bore you with the details of their earnings. And you can find all these numbers and comparisons on the Investor Relations website respectively. I’m also going to attach this to the show notes so that we can make an easy reference. But what I’m going to talk about is, what are the potential implications? I took a detailed look at the Meituan’s earnings is not fantastic. It’s within expectations. Well, there’s nothing exciting about it. I think people have generally been pessimistic about the macroeconomy, as well as consumption in China. So that has impacted the investor sentiment quite a bit. So I do think that there was a bit of overselling today about Meituan share shares. But that also highlights the issue that Meituan needs something to excite its investors, as well as its employee base, because I mean, nobody wants to see their stock options going down in value, right. So, so in that regard, and potential acquisition Foodpanda in Southeast Asia, can be quite timely. We know that Meituan has been debating about whether they should go international or expand it to other markets for long time. Or this year, you took a cautious expansion step into Hong Kong by building his own app called Keeta. And now it has a team about I think 200 In Hong Kong, and is doing things in a very slow and steady way. But that’s not going to excite investors and employees per se. So having a beachfront in Southeast Asia by acquiring Foodpanda, will be a different story, we can argue how much Foodpanda is actually worth, or whether it’s worth making an effort to, to acquire, integrate, and do all the hard work afterwards, whom it was sent to manage this business, etc, etc. But let’s think about what options they have. Right? I mean, if they want to expand overseas, thinking about two options, first you build yourself and secondly, acquire buildings obviously have everything control, but it’s going to take time. And, and it’s hugely uncertain. This high chance of failure and, and just where to start and how much resources to allocate. Acquisition however, is a different story, you are forced to take over and manage the business. And, and you do not have the options. And so sometimes it’s it’s actually easier when you have anchor a look at this business, and know exactly where it is, and exactly what to fix. And doing that will not be easy, but but the persons that have it at hand as well, I have to do it, I have to send people so that might might make their determination to expand overseas a bit faster. So let’s see how that goes. But of course, as we have highlighted in the book, “Seeing the Unseen: Behind Chinese Tech Giants”, global venturing, this kind of undertaking can be hugely challenging. I’ve spoken with, with some people who were in the Alibaba acquisition will asada and the subsequent management of the company, they highlight to me how challenging it has been integrating different kinds of cultures, and also sort of setting expectations and harmonizing the, the organization’s etc. So that might be a high risk, but it’s probably much easier compared to compare to that you have competitors, compared to the other option that we have to build everything from scratch in a market, which you’re not familiar with, you don’t know who to send, you don’t how to build an organization, you have to find the three sides of the platform writers, merchants and consumers at the same time, so might be a so so the current set of results might actually force me time to, to more quickly consider the option of acquisition. And that will probably change that change the dynamics of this whole discussion. The second I want to talk about is period. All right, and of course, again, back to the point that people have been pessimistic about economy. And here you have a company which still managed to find opportunities. Sure, when the economy’s doing well, and everybody is like, you know, optimistic about the future. And still more expensive stuff as what Alibaba and Temu has had I’ve been doing between 2016 and in the last year, but when economy’s going down, when consumers feel pinched, they’re looking for other options because they still need to leave, they still need to enjoy themselves, they still need to find satisfaction in consumption.

So, so what Pinduoduo has provided, is quite timely, and Pinduoduo has been able to execute that in a very efficient way. Like over the last few days, I’ve spoken with, with a few friends who are fairly established, who have high paying jobs or who have, you know, make them money from investments, and many of them actually using PDD. Because they are saying that, okay, when I’m uncertain about the future prospects of the economy, I look at whatever I’m buying, and if I can buy the same thing for 30% cheaper, of course, I will go for that. I mean, brand. I don’t need to have a brand. So. So I think I think the lesson we can take from this is that even though everyone’s pessimistic, pessimistic about the economy, you can still find opportunities. I do think that that both Alibaba and JD have realized that that’s why you see that both have been emphasizing on low prices on going back to talk about going back to the masses etc. But of course, steering a large organization towards a different direction can take time and it can be risky, so Pinduoduo is already at that direction. So so that allows them to actually respond very fast to this trend. On top of that, and of course, we have covered a lot in our in our blogs and reports about expansion Temu, overseas website, which, which now covers more than 40 countries. So so the company is actually ahead of others in terms of this overseas expansion. But the others are trying to catch up. Alibaba has been pushing quite hard on choices, it’s a consignment model on both Lazada and Aliexpress. So TikTok Shop is expanding aggressively in the US at the moment. SHEIN is also trying to, to grow from just just online retail brand in fashion, into a multi category marketplace. So we do see these activities going on. And I do think that the Chinese supply chain, having the excess capacity to produce so many different things, we need to find the way to to expand one way or another. So whoever who cashes this and operates this very efficiently, will probably be able to make lots of value or create a lot of value. It looks like a team was ahead of others. But I think the game is far from over.

So with with the 18% price increase of Pinduoduo shares, and it has reached a market cap of $183 billion, which is almost 95% of Alibaba US market cap. And the last night, a few friends of mine would like to in watching this price, very price change very closely. Because I mean, if Pinduoduo does overtake Alibaba in terms of market cap, even for a very brief moment, is historic and is significant to people cycle to people’s sentiment and psychology. So of course, so according to news reports in China, this morning, somebody wrote in Alibaba in internal bulletin board bulletin board saying that, okay, quote, I can’t sleep, I can’t imagine Pinduoduo’s market share is only $8 billion for ours. That surprises me. So this this company, which we used to look down upon, might surpass us and become the big brother themselves. I did not want to post this post, which doesn’t have any value. But I thought about it. I still live this post as a as a bookmark and encouragement to myself, I hope, myself as well as the brothers and sisters, the Alibaba Group can work together and, and reverse this trend, unquote. Actually, Jack Ma, who has not been actively seen in a group for for a long time. Actually reply to this post. Okay. I’m going to read his reply, quote, very good.

I hope people will give more constructive opinions and feedback, especially innovative ideas. I believe the Alibaba people today are looking at it or listening to it. Or hearing it. I firmly believe that Alibaba will change Alibaba will correct these mistakes. All the great companies are born in winter. The era of Ai e Commerce has just begun. It’s an opportunity for everyone. It’s also a challenge for everyone. We congratulate good we congratulate what Pinduoduo has been doing for In the last few few years, the execution, the decision making, and their hard work, everybody has been great before, but only those who are willing to revamp themselves to be greater to be greater tomorrow or the day after tomorrow and are willing to put the put the put put the heart effort and sacrifice on those people to be respected. We need to go back to our mission and vision, Alibaba people jail or sort of add oil unassign Jack Ma, on quote. So you can see that I mean, the foreigners are coming back and trying to rally the team to fight this battle against the Pinduoduo and, and how things will play out? I don’t know. But it’s certainly an interesting battle to watch. And it’s certainly that battle where you can find a lot of lessons to learn from, for any company who looks looks to create greatness, or to retain their greatness and all these companies are going to expand in global markets and those of us who are not in China would face them either as partners, as competitors, as potential employers, etc. So stay tuned and we will give you more insights about these companies what they are doing, how they are evolving. And you are welcome to leave in comment and and we can discuss all together and improve our understanding and look at opportunities and learn from them. Thank you.