Pinduoduo Could Pull Back When Lockup Expires

The 180-day lockup period for Pinduoduo Inc. (PDD) ends on January 22, 2019. When the lock up ends, the company’s pre-IPO shareholders and company insiders will be able to sell large blocks of currently-restricted shares in the secondary market for the first time. With just 14.5% of shares outstanding trading pursuant to the IPO, the potential for an increase in volume in the secondary market following the lockup expiration is significant. Any significant sales of currently-restricted shares could cause a sharp, short-term downturn in share price.

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Trading in PDD has been a veritable roller coaster during this six-month period. Shares closed on the first day of trading at $26.70, which is an increase of 40.5% from its IPO price of $19. The stock has bounced around significantly. Currently, shares trade in the $24 to $26 range.

Business Overview: Provider of eCommerce Platform in China

Pinduoduo operates its eCommerce platform in China as well as a mobile platform that markets a wide array of merchandise for sale.

In its SEC filings, Pinduoduo notes that its platform model is an innovation over other platforms, which offers consumers a fun, interactive shopping experience while providing value-for-money merchandise. The difference is the leverage of social networks for customer engagement and acquisition.

(Source: S-1/A)

Pinduoduo created its “team purchase” model, which enables consumers to make team purchases through social networks like QQ and Weixin. The platform encourages consumers to share their experiences on these social networks or create teams by inviting friends and families to join a group. This serves to increase low-cost organic traffic and a growing user base. In 2017, Pinduoduo had 245 million active consumers, and for the first six months of 2018, the platform had 344 million active consumers.

This has attracted over 1.7 million active merchants to the platform. Pinduoduo markets their platform as a virtual bazaar that enables users to shop and interact with each other. The embedded social networks spur higher engagement. For the second quarter of 2018, average monthly active users on the mobile app reached 195 million.

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Disclosure: I am/we are short PDD.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any ...

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