Short seller accuses Pinduoduo of overstating sales

Citing discrepancies, Blue Orca claims Tencent-backed Pinduoduo reported inflated sales and GMV numbers. Judging by its response so far, though, the market seems unconvinced.

Pinduoduo overstated its sales in filings to the US regulator, according to activist investment fund Blue Orca Capital, but the market so far appears unconvinced by the short seller's claims as it buckles in for a formal response from the Chinese e-commerce site operator.

Pinduoduo has told FinanceAsia via email that Blue Orca's report is based on inaccurate suppositions and that it will address the issue in its quarterly results statement on November 20.

In a report on Wednesday, Blue Orca said Nasdaq-listed Pinduoduo had overstated its gross merchandise volume (GMV) and also understated its employee numbers to reduce the true cost of human resources.

It rated Pinduoduo's shares at $7.1 compared with their Tuesday closing price of $17.15.

Pinduoduo’s share price subsequently dropped to as low as $16.53 on Wednesday and then surged to as high as $19.39, closing 11% higher at $19.15. In early US trade on Thursday, it was trading at around $18.75.

Blue Orca said Pinduoduo’s sales figures didn’t match what it had said in filings to the Chinese State Administration for Industry & Commerce (SAIC). 

In its US Securities and Exchange Commission filing, Pinduoduo said two subsidiary Variable Interest Entities (VIEs) -- investment vehicles popular in some Chinese sectors that have controlling interests without having a majority of voting rights -- contributed all of its 2017 consolidated revenue. And yet in its SAIC filings, these two subsidiaries reported about Rmb1.2 billion ($173 million) total revenue, less than the $278 million indicated in the SEC filings. 

Another discrepancy, Blue Orca said, is that Pinduoduo lists only 1,159 employees in its SEC filings, far fewer than the 5,000 it reveals on its website. So its employee costs should be Rmb489 million higher than the Rmb227 million reported, it said.

In addition, Blue Orca said Pinduoduo had overstated its GMV to attract more investors. 

GMV is generally the most important sales figure for e-commerce retail platforms as it shows how much is sold through a certain site over a particular time frame. The short seller said Pinduoduo had included unpaid orders in its GMV, which therefore inflated the figure.

As a result, Blue Orca said Pinduoduo’s actual GMV is 43% lower than reported.

Pinduoduo reported a GMV of Rmb207 billion for the 15 months to March-end 2018 and said the payment fee it collected was Rmb705 million. But based on the 0.6% payment fee rule that Pinduoduo has, the GMV for this period should have been Rmb117 billion, Blue Orca said.

Pinduoduo’s business is, therefore, worth “considerably less” than it claims, it concluded.


Pinduoduo’s share price has fluctuated wildly since its initial public offering in July; having been issued at $19 per share, and jumped to $26.7 on its first trading day, it dropped to $17.7 half a month later.

The stock then surged again in September to as high as $29.96 as trade talks resumed between the US and China, but then dropped to as low $17.15 before the Blue Orca report was published.

Analysts have so far maintained their recommendations on the stock, with about 60% of them still rating Pinduoduo a “buy” and another 25% rating it as an “outperform”, suggesting a degree of scepticism in the short seller's reasoning.  

There was also continued backing for the stock with money as well as words. In a filing also released on Wednesday, Beijing-based Hillhouse Capital said it sold 90% of its remaining stake in Alibaba and added Pinduoduo to its portfolio.

“Pinduoduo’s actual sales may be slightly lower than its reported sales, but 43% lower is too much,” a Shenzhen-based analyst at Chinese research firm Gelonghui said. 

“Pinduoduo only started to charge the 0.6% payment fee in the second quarter of 2017 and the fee is only collected when the customer withdraws money from their account, so I think the short-seller report's credibility is a bit low,” he said.

Five other analysts FinanceAsia contacted said investors still had faith in Pinduoduo's business model because it met the specific needs of the market in third and fourth-tier Chinese cities.

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