“Cheap” and “Undervalued” are 2 different things. This is a lesson I learnt over time and keep reminding myself not to fall into the trap of getting excited over “undervalued” things, when it’s just “cheap”.

With this in mind, let’s start the financial analysis of Pinduoduo (PDD).

PDD after IPO

In 2018, Colin Huang chose to IPO PDD on Nasdaq, instead of the China or Hong Kong stock market. When Colin Huang was asked why IPO in the US, he answered:

“We think the e-commerce business is closely tied with social impacts and responsibilities … with public scrutiny and regulatory supervision, we may grow better and stronger. On the other hand, we wish to gain more credibility globally by being a public company.”

At that time (TTM pre-IPO), PDD was generating:

• Revenue: CNY$3 bil (~US$493 mil)

• Operating loss: -CNY$633 mil (~US$101 mil)

• Net loss: -CNY$518 mil (~US$83 mil)

Although PDD was making losses based on accounting standards, the company was actually generating free cash flow of CNY$546 mil (~US$87 mil). This positive cashflow generation continued until today.

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