| To: Julius Wong who wrote (743) | 3/21/2021 2:50:23 PM | | From: Glenn Petersen | | | | How Pinduoduo Beat Alibaba to Become China’s Top Shopping Site
Five-year-old company is first challenger to loosen Alibaba and JD.com’s stranglehold over online consumption in the country
By Trefor Moss
Wall Street Journal
March 20, 2021 5:30 am ET
Pinduoduo had 788.4 million users at the end of 2020, the company said, ahead of Alibaba’s 779 million. PHOTO: ORIENTAL IMAGE/CONNE
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SHANGHAI—A five-year-old e-commerce app that turned discount shopping into an online game has overtaken Alibaba Group Holding Ltd. BABA 1.42% as China’s most popular internet shopping site.
Pinduoduo Inc. PDD -0.01% had 788.4 million users at the end of 2020, the company said Wednesday in its quarterly earnings report, ahead of Alibaba’s 779 million, as measured by the number of people who made purchases over the past 12 months.
Though Pinduoduo’s annual revenue of $9.1 billion remains a fraction of Alibaba’s $72 billion from its last fiscal year, it almost doubled relative to 2019, cementing the Shanghai-based company’s status as the first challenger to loosen Alibaba and JD.com Inc.’s JD 1.30% stranglehold over Chinese online consumption.
“Together we’ve produced a minor miracle,” said Colin Huang, Pinduoduo’s founder and an ex-Google engineer, in a speech to staff, which was later published, at the company’s fifth birthday celebration at its headquarters in October. “We’ve changed Chinese e-commerce and even the structure of the Chinese internet.”
Pitching itself as an online blend of Costco and Disney, or a combination of value-based shopping and light entertainment, Pinduoduo has spearheaded China’s adoption of social e-commerce, a new incarnation of online consumption that combines shopping with social media and effectively turns shopping into a game.
On a platform designed to offer the digital equivalent of a stroll through a mall, users typically browse without having a particular purchase in mind.
The app—whose name roughly translates as “bringing lots of people together”—allows friends and strangers to band together and win deals for goods bought either individually or in bulk for a discount. With socializing foremost and shopping almost an afterthought, friends congregate on Pinduoduo to watch live streams, share deals and make purchases together, while playing the app’s built-in games.
One hit is “Duoduo Orchard,” where players nurture virtual fruit trees to earn shopping vouchers, tangible prizes such as boxes of mangoes and kudos from friends. The game sparks fierce rivalry among players, said Li Wenjun, a 19-year-old from Pingdingshan in central China who obsessively tends to her digital orchard.
“It’s so much fun when you do something together with your friends,” Ms. Li said. “You just have to commit time to it.”
Pinduoduo’s approach reflects the gamification trend in the tech sector, with stock-trading recently garnering attention. For Pinduoduo, keeping people on the platform is the games’ purpose: They help build user habits and serve as gateways into the site’s shopping areas.
Unlike older rivals born in the PC age, Pinduoduo is a native smartphone app without a desktop version or a shopping-basket function.
“Pinduoduo did one thing very well: We grasped the shift from searching to browsing” as a social activity, said Chen Lei, who took over as chief executive from Mr. Huang last year after serving as chief technology officer.
Pinduoduo founder Colin Huang, here in 2017, stepped down as chairman on Wednesday.PHOTO: QILAI SHEN/BLOOMBERG NEWS
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Mr. Huang also passed the role of chairman to Mr. Chen on Wednesday, stepping down to focus on research projects in life sciences, the company said. He remains Pinduoduo’s controlling shareholder. Shares dropped as much as around 11% in morning trade after the news of Mr. Huang’s departure.
Pinduoduo is on the rise as Alibaba contends with various challenges including an antitrust inquiry and increased government scrutiny. Alibaba has said it is cooperating with regulators on the probe and that it would reassess and improve its business practices.
Pinduoduo’s Nasdaq-listed shares have surged in value over the past year, and its market capitalization has surpassed rival JD.com’s, peaking around $250 billion in February. That increase propelled the 41-year-old Mr. Huang’s personal fortune to $69 billion, according to Shanghai-based research firm Hurun Report, making him China’s third-richest man, ahead of Alibaba founder Jack Ma.
Yet 2021 has also been Pinduoduo’s toughest year. The deaths of two young employees around the turn of the year exposed the company’s working culture to criticism.
“We are doing everything we can to support their families and loved ones,” Mr. Chen said. Pinduoduo has been providing counseling services to employees, he added.
And this month Chinese regulators fined Pinduoduo, alongside several other e-commerce companies, alleging harmful practices, as Beijing moves to rein in the country’s big tech companies.
In response to the fine, Pinduoduo said it attaches great importance to the government’s intervention and promised to address the issues.
The company lost $1.1 billion in 2020, though in its favor, China’s e-commerce market is still growing strongly. Online retail in the country could expand from $354 billion last year to $549 billion in 2025, according to research company eMarketer.
Pinduoduo’s marriage of e-commerce and social media took some refining.
In the summer of 2015, Mr. Huang and his team—then operating a forerunner to Pinduoduo that specialized in selling cut-price fruit—filled their sole warehouse near Shanghai with lychees, Mr. Chen said. They advertised them on WeChat, a popular Chinese messaging and social-media app, in one of their first big campaigns.
Swamped with orders, the company’s systems broke down, and it struggled to make most deliveries. The lychees turned rancid in the summer heat, forcing the company to refund thousands of angry customers.
“We were really humbled by this failure,” said Mr. Chen, who met Mr. Huang at the University of Wisconsin-Madison, where they both studied computer science two decades ago.
The managers held an inquest in the warehouse surrounded by the debris, he recalled, resulting in a decision to upend the business model. The company would no longer buy its own stock, but would become a third-party platform connecting merchants and consumers, much like Alibaba, while plowing investment into software, logistics and infrastructure to avoid a repeat of the debacle.
The episode did, however, validate Mr. Huang’s hunch that social media and e-commerce could be powerfully combined. Most people who bought lychees were told about the deal by their WeChat friends, who encouraged people in their circle to team up to buy large quantities at a discount.
Making its money from advertising, the company has spent nearly $13 billion subsidizing products, effectively paying merchants to lower their prices and offer eye-catching bargains.
To succeed long term, Pinduoduo—which, like JD.com, is backed by Alibaba’s rival, Tencent Holdings Ltd.—must figure out how to turn off the subsidies without losing an audience attracted in large part by bargains.
Pinduoduo’s plan was to keep plowing revenue back into subsidies until it supplants Alibaba as the default shopping platform for perhaps a billion Chinese consumers, according to Mr. Chen.
The company could then in theory throttle back the subsidies while attracting more advertising money from merchants to become consistently profitable.
But after a recent rebuke for its use of subsidies—a practice regulators attacked as distorting the market and damaging consumers’ interests—the company might have to adjust more quickly than it would have liked.
Another drawback of Pinduoduo’s game-led approach is that most consumers don’t spend much. Ms. Li, for example, uses it chiefly to buy cheap snacks and packets of tissues. The average Pinduoduo user spent $324 in 2020. That number has been increasing but is still less than a quarter of Alibaba’s average user spend.
To close the gap, the company is doubling down on fresh foods—which contribute 15% of its revenue—after raising over $6 billion last year to fund an ambitious agriculture program. Relatively untapped by e-commerce players, the fresh-food segment is one Pinduoduo wants to dominate because users potentially place orders every day.
Pinduoduo has shaken up Chinese e-commerce for the better as rivals vie to offer consumers bargains, said Cathy Shen, a Pinduoduo user from Anqing in eastern China. “It’s now become all-out warfare between the tech companies,” she said.
—Raffaele Huang contributed to this article.
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| From: Glenn Petersen | 3/25/2021 6:26:22 AM | | | | | | SEC Starts Implementing Law That Risks Chinese Stock Delistings
By Benjamin Bain
Bloomberg
March 24, 2021, 11:12 AM CDT
-- Regulator takes initial step on requiring audit inspections
-- Alibaba, Baidu among firms under pressure from Washington
The threat of Chinese stocks being kicked off U.S. exchanges is gaining traction, with the Securities and Exchange Commission starting to implement a tough law passed at the end of the Trump administration.
In a Wednesday statement, the SEC said it’s taking initial steps to force accounting firms to let U.S. regulators review the financial audits of overseas companies. The penalty for non-compliance, as stipulated by the law Congress approved in December, is ejection from the New York Stock Exchange or Nasdaq for any business that doesn’t allow their audit to be inspected for three years.
China has long refused to let the U.S. Public Company Accounting Oversight Board examine audits of firms whose shares trade in America, citing national security concerns. U.S. lawmakers counter that such resistance risks exposing investors to frauds, while complaining that it makes little sense that Chinese companies have been permitted to raise money in the U.S. without complying with American rules.
The requirement that all public companies submit to PCAOB inspections of their audits was included in the 2002 Sarbanes-Oxley Act in the wake of the Enron Corp. accounting scandal. Alibaba Group Holding Ltd. and Baidu Inc. are among Chinese companies listed in the U.S. whose audit firms aren’t complying with the demand.
While the SEC was expected to start implementing the new law, Wednesday’s announcement signals that Biden-era financial regulators will continue their predecessors’ tough stance on China. The ongoing tension over audits comes as the world’s two-biggest economies continue to wrangle over issues ranging from security to trade.
In addition to requiring companies to allow U.S. inspectors to review their financial audits, the law requires firms to disclose whether they are under government control. The SEC’s announcement kick-starts that process by seeking public comment on the type of disclosures and documentation that firms will have to share.
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| To: Glenn Petersen who wrote (750) | 3/26/2021 7:29:24 AM | | From: Glenn Petersen | | | | China’s dual-listed tech giants lost $60 billion in market value over three days as delisting threats loom
PUBLISHED FRI, MAR 26 20215:43 AM EDT
Eustance Huang @EUSTANCEHUANG
CNBC.com
KEY POINTS
-- As of their Friday close, the market value of Alibaba, JD.com, Baidu and Netease has fallen about $60 billion in just three days, based on CNBC calculations using data from Refinitiv Eikon.
-- The losses came as fears of potential delistings from U.S. stock exchanges resurfaced.
-- To exacerbate matters, China’s tech firms are also facing potential challenges domestically as Beijing seeks to regulate the sector and establish new rules in industries ranging from financial technology to e-commerce.
China’s dual-listed tech giants — Alibaba, Baidu, JD.com, and Netease — have collectively lost billions in market value in just days.
The losses come amid the threat of potential de-listings from U.S. stock exchanges.
As of Friday’s close in Hong Kong, the market capitalization of the four dual-listed tech stocks have fallen 468.64 billion Hong Kong dollars (about $60.31 billion) in three days, according to CNBC calculations of data accessed through Refinitiv Eikon.
Here’s a list showing how much each of the companies, which are also listed in the U.S., lost in terms of market capitalization.
Between Tuesday’s close to Friday’s close in Hong Kong:
Alibaba: Lost 303.1 billion Hong Kong dollars ($39 billion)
Baidu : Lost 107.54 billion Hong Kong dollars JD.com: Lost 30.674 billion Hong Kong dollars
Netease: Lost 27.334 billion Hong Kong dollars
Notable among them is Baidu, China’s largest search engine, which made a lackluster debut in its Hong Kong secondary listing on Tuesday. The shares ended flat on the first day of trading.
On Wednesday, the U.S. Securities and Exchange Commission (SEC) adopted a law that threatens to remove companies from the U.S. stock exchanges unless they comply with American auditing standards.
Known as the Holding Foreign Companies Accountable Act, the law was passed by the administration of former President Donald Trump.
Firms identified by the SEC will require auditing by a U.S. watchdog and need to show that they are not owned or controlled by a government entity in a foreign jurisdiction. Companies will also have to name any board members who are Chinese Communist Party officials, the SEC said in a Wednesday statement.
In addition to those regulatory uncertainties, China’s tech firms are also facing potential challenges domestically as Beijing tightens its grip on the fast-expanding sector and establishes anti-monopoly laws in financial technology and e-commerce.
Reuters reported earlier this week that Chinese tech conglomerate Tencent’s founder met with Chinese antitrust officials this month to discuss compliance at his group.
In a high-profile crackdown last year, the IPO of Ant Group — which was touted to be the biggest in the world — was abruptly suspended just days before its debut. The billionaire founder of Alibaba Jack Ma is the controller of Ant Group.
Beyond those concerns, the tech sector as a whole globally has also come under pressure as bond yields have risen. Rising yields hurt growth stocks, which many in the tech sector are part of, as they reduce the relative value of future earnings.
Furthermore, as optimism rises over a potential global economic recovery from the pandemic, investors may look to rotate their portfolios away from tech, and into other areas such as stocks that gain as the economy recovers.
— CNBC’s Arjun Kharpal contributed to this report.
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| From: Glenn Petersen | 4/10/2021 6:28:55 AM | | | | | | China slaps Alibaba with $2.8 billion fine in anti-monopoly probe
PUBLISHED FRI, APR 9 20219:53 PM EDT
UPDATED FRI, APR 9 202111:55 PM EDT
Christine Wang @CHRISTIIINEEEE
CNBC.com
KEY POINTS
-- Chinese regulators hit Alibaba with a 18.23 billion yuan ($2.8 billion) fine in its anti-monopoly investigation of the tech giant, saying it abused its market dominance.
-- The probe’s main focus was a practice that forces merchants to choose one of two platforms, rather than being able to work with both.
--The company said in a statement it accepted the penalty and will comply with the regulator’s determination.
Chinese regulators hit Alibaba with a 18.23 billion yuan ($2.8 billion) fine in its anti-monopoly investigation of the tech giant, saying it abused its market dominance.
Regulators opened a probe into the company’s monopolistic practices in December. The investigation’s main focus was a practice that forces merchants to choose one of two platforms, rather than being able to work with both.
In a Saturday statement, China’s State Administration for Market Regulation (SAMR) said this policy stifles competition in China’s online retail market and “infringes on the businesses of merchants on the platforms and the legitimate rights and interests of consumers,” according to a CNBC translation of a Chinese-language statement.
The government said that “choose one” policy and others allowed Alibaba to bolster its position in the market and gain unfair competitive advantages.
In addition to the fine, which amounts to about 4% of the company’s 2019 revenue, regulators said Alibaba will have to file self-examination and compliance reports to the SAMR for three years.
The company said in a statement it accepted the penalty and will comply with the SAMR’s determination. Alibaba said it fully cooperated with the investigation, conducted a self-assessment and already implemented improvements to its internal systems.
“Alibaba would not have achieved our growth without sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies have been crucial to our development,” the company said.
The company added it will hold a conference call on Monday at 8 a.m. Hong Kong time to discuss the fine.
The announcement is the latest development in China’s crackdown on its technology companies. Regulators have been increasingly concerned about the power of China’s tech giants, particularly those who operate in the financial sector.
Much of that heightened scrutiny has sharpened around the business empire of billionaire Jack Ma, who founded both Alibaba and Ant Group.
Ant’s highly anticipated initial public offering was abruptly suspended in November shortly after Chinese regulators published new draft rules on online micro-lending, a key part of the company’s business. The China Securities Regulatory Commission also summoned Ma and other Ant execs ahead of that announcement.
Ma appeared to come under fire for comments that were critical of China’s financial regulator, saying the country’s financial system was “the legacy of the Industrial Age.”
After the Ant IPO was suspended, Ma dropped out of the spotlight, fueling speculation over his whereabouts. In January, the eccentric billionaire briefly reappeared in a video as part of one of his charity foundation’s initiatives.
Ant has since committed to listing and said it would help employees monetize shares.
— CNBC’s Arjun Kharpal, Evelyn Cheng and Eunice Yoon contributed to this report.
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| To: Glenn Petersen who wrote (752) | 4/10/2021 11:21:56 AM | | From: Sr K | | | | WSJ coverage is similar
Alibaba Hit With Record $2.8 Billion Antitrust Fine in China
Penalty comes amid regulatory scrutiny on business empire of Alibaba founder Jack Ma
Alibaba Group is being fined a record amount following an antitrust investigation by Chinese authorities.PHOTO: THOMAS PETER/REUTERS
By
Keith Zhai
Updated April 10, 2021 1:22 am ET
China’s antitrust regulator imposed a fine equivalent to $2.8 billion against Alibaba Group Holding Ltd. for abusing its dominant position over rivals and merchants on its e-commerce platforms, a record penalty in the country that comes amid a wave of scrutiny on the business empire of company founder Jack Ma.
China’s State Administration for Market Regulation said Saturday in Beijing that Alibaba punished certain merchants who sold goods both on Alibaba and on rival platforms, a practice that it dubbed “er xuan yi”—literally, “choose one out of two.”
As part of the penalty, regulators will require that Alibaba carry out a comprehensive revamp of its operations and submit a “self-examination compliance report” within the next three years, they said. The 18.2 billion yuan fine is equivalent to 4% of the company’s domestic annual sales, the regulator added. Under Chinese rules, antitrust fines are capped at 10% of a company’s annual sales.
Alibaba’s business practices limited competition, affected innovation, infringed on the rights of merchants and harmed the interests of consumers, the regulator said.
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| To: Sr K who wrote (753) | 4/12/2021 6:15:59 AM | | From: Glenn Petersen | | | | Alibaba shares rise 6% in U.S. premarket trading after $2.8 billion anti-monopoly fine
PUBLISHED SUN, APR 11 20219:52 PM EDT
UPDATED MON, APR 12 20214:32 AM EDT
Arjun Kharpal @ARJUNKHARPAL
CNBC.com
KEY POINTS
-- Alibaba was fined 18.23 billion yuan ($2.8 billion) by Chinese regulators as a result of an anti-monopoly investigation.
-- Alibaba shares rose 6% in premarket trading in the U.S. following a 6.5% rally in Hong Kong.
-- Alibaba CEO Daniel Zhang said he does not expect a material impact on the company from the change of this exclusivity arrangement.
GUANGZHOU, China — Alibaba shares rose 6% in premarket trading in the U.S. after the company was fined 18.23 billion yuan ($2.8 billion) by Chinese regulators as a result of an anti-monopoly investigation.
Alibaba’s Hong Kong-listed shares closed 6.5% higher on Monday.
“Despite the record fine amount, we think this should lift a major overhang on BABA and shift the market’s focus back to fundamentals,” Morgan Stanley wrote in a note on Sunday, a day after the fine was issued.
Chinese regulators opened an anti-monopoly probe into Alibaba in December. The main focus was around a practice that forces merchants to list their products on one of two e-commerce platforms, rather than choosing both.
China’s State Administration for Market Regulation (SAMR) said on a Saturday that this practice stifles competition in China’s online retail market and “infringes on the businesses of merchants on the platforms and the legitimate rights and interests of consumers.”
Alibaba CEO Daniel Zhang said he does not expect a material impact on the company from the change of this exclusivity arrangement.
Zhang also said Alibaba will introduce new measures to lower the entry barriers and costs for businesses and merchants on the platform. The company will also continue to expand to smaller Chinese cities and rural areas, the CEO added.
China’s technology companies have grown, largely unencumbered, into giants. But Beijing is becoming increasingly concerned by the power of these firms.
Regulatory scrutiny has focused on Alibaba founder Jack Ma’s empire after the billionaire made some comments in October that appeared critical of China’s financial regulator.
Not long after, regulators pulled the plug on what would have been a record-setting initial public offering of Ant Group, the financial technology giant Ma founded.
Joe Tsai, the executive vice chairman of Alibaba, said on Monday he is not aware of any more investigations regarding the anti-monopoly law.
“We are pleased that we are able to put this matter behind us,” Tsai said.
But Tsai said that Alibaba and its peers are subject to inquiries from regulators on mergers, acquisitions and strategic investments as part of a review process.
In addition to the fine, which amounts to about 4% of the company’s 2019 revenue, regulators said Alibaba will have to file self-examination and compliance reports to the SAMR for three years.
— CNBC’s Christine Wang contributed to this report.
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| From: Glenn Petersen | 4/12/2021 8:14:25 AM | | | | | | Jack Ma’s Ant Group to become financial holding company under a Beijing-enforced revamp
PUBLISHED MON, APR 12 20217:41 AM EDT
UPDATED MON, APR 12 20217:52 AM EDT
Reuters
KEY POINTS
-- Jack Ma’s Ant Group will restructure as a financial holding company, China’s central bank said on Monday.
--The fintech giant’s $37 billion IPO was derailed by risk-wary regulators days before it was due to list in November.
-- The overhaul comes two days after e-commerce giant Alibaba, of which Ant is an affiliate, was hit with a $2.75 billion antitrust penalty as China tightens controls on the “platform economy.”
China’s Ant Group, the fintech giant whose $37 billion initial public offering was derailed by risk-wary regulators days before it was due to list in November, will restructure as a financial holding company, the country’s central bank said on Monday.
The overhaul comes two days after e-commerce giant Alibaba, of which Ant is an affiliate, was hit with a $2.75 billion antitrust penalty as China tightens controls on the “platform economy.”
Under terms of the settlement, Ant will restructure as a financial holding company, a move that, along with other restrictions announced on Monday, is expected to curb its profitability and valuation.
“Ant Group attaches great importance to the seriousness of the rectification,” the company said in a statement, adding it planned to set up a personal credit reporting business and to fold its two flagship lending businesses into its consumer finance company.
The People’s Bank of China said that under a “comprehensive and feasible restructuring plan,” Ant would cut the “improper” linkage between payments service AliPay, virtual credit card business Jiebei and consumer loan unit Huabei.
The central bank also asked Ant to break its “monopoly on information and strictly comply with the requirements of credit information business regulation.”
The company, part of the sprawling business empire founded by billionaire Jack Ma, agreed to improve corporate governance and “rectify illegal financial activities in credit, insurance and wealth management,” the central bank said.
The central bank said it had also asked Ant to control its leverage and product risks, and control the liquidity risk of its flagship fund products and to “actively lower” the size of its massive Yu’eBao money market fund.
The measures “set an example” for financial regulation of the platform economy,” the state-backed Economic Daily newspaper said in a Monday commentary.
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| To: The Ox who wrote (756) | 4/12/2021 9:23:09 AM | | From: Glenn Petersen | | | | | Agreed. The dollar amount of the settlement was inconsequential. The fact that they settled was the important news. There will be no appeal, of course. Hard to imagine Alphabet, Facebook and Amazon going down without a fight. |
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| To: Glenn Petersen who wrote (757) | 4/12/2021 9:29:26 AM | | From: The Ox | | | | Forward PE under 20 makes this look extremely attractive. Especially in light of the expectations for over 30% growth in revenues the next couple of years.
We'll see.... |
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