Pinduoduo is set to raise a total of US$6.1 billion from its offering of convertible notes and equity, the proceeds of which the interactive mobile commerce pioneer will use to power its next stage of growth.
The Nasdaq-listed e-commerce giant had offered US$1.75 billion in convertible senior notes due 2025, and priced its upsized offering of 28.7 million American Depositary Shares (“ADS”) at US$125 per ADS, according to a release. The company will sell an additional US$250 million in notes and 4.305 million ADS should a greenshoe option be exercised in full. The offer was oversubscribed.
Pinduoduo expects to use the funds to strengthen its balance sheet and to make strategic investments. Last week, the company reported its first quarterly profit since listing. The number of annual active buyers increased 36% to 731.3 million for the 12 months ended Sept. 30, while average monthly active users jumped 50% to 643.3 million. The company's management said on a conference call last week that the company will invest in developing agricultural logistics and transforming manufacturing to capture shifts in consumer behavior.
“We are seeing large-scale changes in consumer habits as a result of Covid-19, which are accelerating digital transformation across different sectors,” said Chen Lei, Chief Executive Officer of Pinduoduo.
“We are constantly evaluating how technology can be deployed to meet these changing preferences. We are prepared to invest capital and resources to improve our platform and build infrastructure to capture key opportunities.”
The company highlighted the online migration of grocery shopping as an area of opportunity, but noted the need to develop new infrastructure and technology solutions as the current logistics system was optimized to deliver sturdy manufactured goods rather than perishables like agricultural produce.
The company introduced Duo Duo Maicai, a next-day pick-up grocery service, in August in two cities, and has since expanded it to most provinces. The aim was to meet a growing demand from consumers for high-quality produce at attractive prices the following day.
Online grocery shopping has taken off in China after the Covid-19 lockdowns in the first quarter pushed many households to seek alternative ways to buy their daily necessities. By 2025, nearly half of China’s grocery shopping is expected to take place online, up from 20% currently, according to Goldman Sachs. The online grocery market is projected to reach US$1 trillion in five years, the bank said.
Another area of focus was on helping manufacturers build brands and connect directly to consumers.
Pinduoduo recently upgraded its “New Brand” initiative, first launched at the end of 2018 as part of its consumer-to-manufacturer (“C2M”) plan to facilitate more targeted and responsive manufacturing with the help of consumer insights. The company has expanded its C2M efforts, and will direct more resources to support brand development for manufacturers, incubate new sub-brands under well-known brands, support new emerging brands, and rejuvenate heritage brands.
Commenting on the fundraising, David Liu, Vice President of Strategy at Pinduoduo, said the "strong demand underscores investor confidence in our company fundamentals and vision to invest in growth."
“Pinduoduo has always been cashflow positive. We are confident of our prospects and focused on the next stage of growth,” Liu said.