Pinduoduo R&D Spending Hits Record in 1Q in Innovation Push
Pinduoduo reported a slower pace of growth in the first quarter as the agricultural platform operator shifted its focus to research and development.
Annual active buyers rose 7% from a year earlier to 881.9 million for the 12 months ended March, according to a company statement announcing first-quarter results. The pace of customer acquisition has slowed sharply as the number of users approach the estimated 1 billion mobile internet users in China and the company moderated its spending on sales and marketing.
Sales and marketing expenses as a percentage of total revenue, a measure of how much a company spends to generate sales, stayed below 50% for a fourth consecutive quarter, compared with more than 100% during the firm’s early years when it was doing heavy promotions to attract users.
R&D spending, on the other hand, rose to a record as Pinduoduo hired senior engineers to bolster its technology team. The shift in priorities reflect the company’s bet that R&D and the right investments can create future growth opportunities by enabling innovation in areas such as agriculture, a transition that Pinduoduo Chairman and Chief Executive Officer Chen Lei said is the “right strategy at this stage of the company’s development.”
“We remain focused on making long-term investments in agriculture and abide by our philosophy of ‘Benefit All’, ‘People First’, and ‘More Open’,” said Chen, who took over as CEO in July 2020.
An example of the long-term initiatives that Pinduoduo is undertaking in agriculture is to connect academia and industry and provide a channel for technology to move from lab to field. The company’s annual Smart Agriculture Competition is increasingly seen as a launching pad and showcase for promising agri-tech solutions that are suited to the conditions of smallholder farmers.
Pinduoduo has said previously that the days of heady triple-digit growth in new users are over and that, now more than ever, the battle is to serve the rapidly changing needs of consumers in a competitive e-commerce industry.
Commenting on the state of competition, Chen said that the company needs to do better in meeting the needs of customers and can learn from others. The company has said that anticipating and adjusting to evolving consumer behavior will require continuous spending and potentially affect profitability, and investors should assess the company on the intrinsic long-term value that it creates for consumers.
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“At this current scale, it is inevitable for us to see slower growth,” said Liu Jun, VP of Finance at Pinduoduo. “We need to continue to invest in R&D to serve our users better.”