---
title: "Pinduoduo Finally Profitable: How Far Is It from Surpassing Taobao?"
description: "Pinduoduo reported its first profitable quarter in Q3 2020, with a net profit of 466.4 million yuan under non-GAAP, driven mainly by online marketing services. Despite trailing Alibaba in GMV and revenue, its rapid user growth suggests it may soon overtake Taobao in annual active buyers."
author: "我是风清"
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published: "2020-11-18"
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# Pinduoduo Finally Profitable: How Far Is It from Surpassing Taobao?

> Pinduoduo reported its first profitable quarter in Q3 2020, with a net profit of 466.4 million yuan under non-GAAP, driven mainly by online marketing services. Despite trailing Alibaba in GMV and revenue, its rapid user growth suggests it may soon overtake Taobao in annual active buyers.

****Click "Read Original" for details****
**-0****1-**
**Pinduoduo Finally Profitable!**
On November 12, just after the Singles' Day shopping festival concluded, while JD.com and Tmall were battling over transaction volumes, the independent Pinduoduo quietly released another report card—its Q3 2020 financial results.
To everyone's surprise, the report showed that Pinduoduo finally achieved profitability.
Under non-GAAP, Pinduoduo's net profit attributable to ordinary shareholders in Q3 was 466.4 million yuan, marking its first turnaround from losses.
In contrast, the same period last year saw a net loss of 1.6604 billion yuan; this year's Q1 net loss was as high as 3.1694 billion yuan. Pinduoduo's Q3 growth figures are quite impressive.
After the earnings release, Pinduoduo's stock surged over 17% in pre-market trading, hitting an all-time high.
As is well known, internet companies, especially e-commerce companies, burn through cash and must endure a long loss-making period before becoming profitable.
**An interesting statistic: JD.com took 12 years to go from losses to profitability, Taobao took 6 years, and Pinduoduo took exactly 5 years.**
**-02****-**
**How Does Pinduoduo Make Money?**
Whether it's Meituan, Ele.me, JD.com, Tmall, or Pinduoduo, any internet platform that relies on merchants typically has three ways to make money.
**First, charging merchants a platform usage fee, similar to rent for offline stores.**
According to Fengqing's understanding, excluding special categories, Tmall currently charges around 20,000-30,000 yuan per year, while JD.com charges 1,000 yuan per month.
In its early days, Pinduoduo waived platform usage fees to attract more merchants.
**Second, directly charging merchants commissions.**
According to Fengqing's analysis, excluding some special categories, Tmall's commission rates are roughly 0.5%-5%, while JD.com's range from 2% to 10%.
Pinduoduo, on the other hand, initially did not charge commissions. Starting from July 20 this year, Pinduoduo began charging merchants a uniform 0.6% basic technology service fee.
Clearly, compared to JD.com and Tmall, Pinduoduo currently does not rely on commissions for profit.
**Third, platforms charge merchants online marketing service fees, i.e., advertising fees.**
According to the financial report, this is Pinduoduo's main revenue source.
In Q3 2020, Pinduoduo's total revenue exceeded 14.2 billion yuan, of which online marketing service revenue was 12.888 billion yuan, accounting for over 90%.
In other words, from July to September this year, Pinduoduo earned 12.8 billion yuan just from selling ads, averaging 140 million yuan per day.
For comparison, Focus Media, a giant in offline building advertising, had total revenue of 7.8 billion yuan from January to September this year, averaging 28 million yuan per day—only one-fifth of Pinduoduo's daily ad revenue.
Clearly, as the platform expands and sellers' advertising demand rises, Pinduoduo can expect even more substantial returns in the future.
At the same time, as the platform matures, increasing merchant commission rates will provide greater growth space for Pinduoduo's transaction service revenue.
**-03****-**
**When Will Pinduoduo Surpass Taobao?**
In front of 22-year-old JD.com and 17-year-old Taobao, 5-year-old Pinduoduo is a dark horse charging ahead.
In terms of market value and user scale, Pinduoduo has left JD.com behind:
**As of November 12, Pinduoduo's market value was $160.7 billion, nearly 20% higher than JD.com's $134.7 billion.**
As of the end of September this year, Pinduoduo's annual active buyers reached 731.3 million, 75% more than JD.com's 417.4 million.
So how far is Pinduoduo from Taobao?
Let's compare from three dimensions.
**First, user numbers.**
Alibaba's Q3 annual active users were 757 million, while Pinduoduo had 731.3 million, a gap of only 25.7 million.
Notably, in Q3 this year, Alibaba added 15 million new users in a single quarter, while Pinduoduo added 48.1 million.
It's easy to predict that at this growth rate, Pinduoduo's annual active users will surpass Alibaba by the end of this year.
**Second, GMV.**
In the 12 months ending September 30 this year, Pinduoduo's platform transaction volume (GMV) reached 1.4576 trillion yuan, up 73% year-on-year.
Alibaba, in its latest financial report, did not directly disclose Taobao's GMV but instead released a year-on-year growth figure of over 10%.
Fengqing checked historical data: in fiscal year 2020 (April 2019-March 2020), Alibaba's China retail market (Taobao and Tmall) GMV was 6.589 trillion yuan.
**Third, revenue.**
In Q3 this year, Pinduoduo's total revenue exceeded 14.2 billion yuan, up 89% year-on-year.
During the same period, Alibaba's China retail commerce revenue was 95.4 billion yuan, up 26% year-on-year.
It's clear that in terms of business scale, Pinduoduo still cannot compete with Alibaba, but in terms of growth rate, the young Pinduoduo is quite strong.
It's worth noting that Pinduoduo's GMV is currently 22% of Taobao and Tmall's, but its revenue is only 15% of theirs.
In fact, Pinduoduo and Taobao/Tmall have no difference in profit models; both rely on advertising fees and commissions.
It's easy to predict that when Pinduoduo raises its commission rates in the future, its revenue performance will quickly improve, and the gap between the two will focus on GMV competition.
GMV, or gross merchandise volume, has a simple formula: GMV = traffic × conversion rate × average order value. With similar user scales, Pinduoduo's future challenge is how to get users to spend more on the platform.
The latest data shows that Pinduoduo's average annual spending per user increased 27% year-on-year to 1,993 yuan; Taobao's is 9,075 yuan, and JD.com's is 5,763 yuan.
**-04****-**
**Differentiated Development**
As is well known, to counter Pinduoduo, JD.com launched Jingxi, and Alibaba not only released Taobao Deals but also revived Juhuasuan and even pushed 1688 to the forefront.
JD.com and Alibaba are going deep into lower-tier markets, while Pinduoduo is also seizing first- and second-tier cities. From a user perspective, Pinduoduo and Alibaba will highly overlap in the future.
Their competition is extending in more directions.
**First, on the merchant side.**
Both are currently occupying industrial belts, trying to support quality manufacturers in various industries through C2M models and launch new domestic brands.
Alibaba launched the Xunxi Smart Factory this year, while Pinduoduo released its "New Brand Plan," aiming to support 1,000 quality manufacturers.
**Second, on the logistics front.**
In logistics, JD.com has a high moat, while Alibaba's Tongda system is currently being attacked by Pinduoduo-affiliated J&T Express.
The latest news is that J&T Express is poaching couriers from Tongda with better salaries, and the logistics world is stirring.
It's worth noting that to counter Pinduoduo, Taobao has also deployed two killer moves.
**First, Taobao Live.**
In the e-commerce live-streaming sector, Taobao Live is currently leading, forming a tripartite balance with Douyin and Kuaishou. The latest financial report shows that Taobao Live's GMV has reached 350 billion yuan.
In this area, Pinduoduo and JD.com have weaker presence.
**Second, information feeds.**
The so-called information feed means learning from ByteDance's approach, shifting from users actively searching for what to buy to the platform feeding users products they might like.
During the 2018 Singles' Day, Taobao discovered that traffic from personalized recommendations had already exceeded traffic from active user searches. In September this year, Taobao underwent a comprehensive revamp—more algorithmic recommendations and more information feeds.
Clearly, this move can significantly improve user conversion rates, encouraging consumers to spend more on Taobao.
Facing Alibaba's deep operational experience accumulated over 20 years in e-commerce, how will Pinduoduo respond next?
Source: E-commerce Headlines (ID: ecxinwen)


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