Pinduoduo founder Colin Huang steps down, is it unusual?

Today (17 March), Pinduoduo, the fast rising ecommerce platform in China, announced its Q4 and 2020 full year earnings. Here are the highlights:

• GMV in the twelve-month period ended December 31, 2020 was RMB1,667.6 billion (US$²255.6 billion), an increase of 66% from RMB1,006.6 billion in the twelve-month period ended December 31, 2019.
• Total revenues in the quarter were RMB26,547.7 million (US$4,068.6 million), an increase of 146% from RMB10,792.7 million in the same quarter of 2019.
• Average monthly active users in the quarter were 719.9 million, an increase of 50% from 481.5 million in the same quarter of 2019.
• Active buyers in the twelve-month period ended December 31, 2020 were 788.4 million, an increase of 35% from 585.2 million in the twelve-month period ended December 31, 2019.
• Annual spending per active buyer in the twelve-month period ended December 31, 2020 was RMB 2,115.2 (US$324.2), an increase of 23% from RMB 1,720.1 in the twelve-month period ended December 31, 2019.

Interesting part is the active buyers – the number (788.4 million), makes it nominally bigger than Alibaba. However, the definition of active buyers makes investors worry a bit:

“Active buyers” in a given period refers to the number of user accounts that placed one or more orders (i) on the Pinduoduo mobile app, and (ii) through social networks and access points in that period, regardless of whether the products and services are actually sold, delivered or returned.

In other words, pretty much if you click on a link that your friend shared on Wechat, you are counted as an active buyer.

With these numbers Pinduoduo also still has the tough job to prove to investors it can actually make money.

Why is Colin stepping down?

That said, perhaps the more (share price) damaging announcement that comes at the same time was that of Colin Huang stepping down as Chairman. He already left the post of CEO a few months ago.

He wrote this in the letter to shareholders:

“What will I be doing after stepping down? I want to work on research in the fields of food sciences and life sciences. Pinduoduo has its roots in agriculture. In the past years, Pinduoduo’s contribution in agriculture has been mainly in downstream distribution and improving midstream supply chain efficiency. We have created greater income for farmers and savings for consumers by streamlining the supply chain and matching supply and demand more efficiently. However, improved efficiency in distribution and sales still does not fundamentally add value to agricultural products, nor inherently improve our health significantly. What can we do if we were to take a step further and go beyond efficiency improvements?”

This is different from Jeff Bezos stepping down as CEO of Amazon a few weeks ago. Colin has been running Pinduoduo for less than six years – and the company still faces a lot of challenges moving forwards.

This is somewhat similar, but also different from Gojek’s Nadiem Makarim leaving to become Education Minister of Indonesia. Colin has much more resources at hand, and the company is still at a positive, though hugely loss making, trajectory.

Some friends who have met him in the past also felt that this does not seem to be usual. “Something must have happened,” says one investor.

However, on the other hand, if you think that Colin is following his mentor, Duan Yongping, this still seems to make sense.

Duan, who introduced Colin to Warren Buffett and invested in Pinduoduo as an angel,  retired from BBK, the electronics company he founded at the age of 40.

His lieutenants later on went to build a string of successful smartphone companies: Oppo, Vivo, OnePlus and Realme. Duan is an investor in all of them.

Maybe it is time for Colin to do greater things – since while Pinduoduo is still a tough game to bring forward, it is a game of execution, rather than vision, now.