Colin Huang's rise is one for the history books: in just six months, his fortune grew by $ 25 billion – one of the greatest gains among the richest people in the world.
His Pinduoduo Inc., a Groupon-like shopping app he founded in 2015, has become China's third largest e-commerce platform with a market value of over $ 100 billion. In the first quarter, when the coronavirus pandemic brought most of the country's economy to a standstill, active users of PDD rose 68% and sales increased 44%, the company said in May.
Now Huang, who oversaw the company as his US depositary receipts more than quadrupled in less than two years, has resigned as chief executive officer.
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At some point, his net worth rose to $ 45 billion, just behind China's richest people – Pony Ma from Tencent Holdings Ltd. and Jack Ma from Alibaba Group Holding Ltd. – on the Bloomberg Billionaires Index. This also applies if PDD continues to post losses, primarily because it uses generous subsidies to chase growth and is known to spend more on marketing than on sales.
"Pinduoduo was perfectly positioned for people who are stuck at home," said Tom Ronk, CEO of Century Pacific Investments in Newport, California.
Huang, who controlled 43.3% of PDD shares, has reduced its stake to 29.4%, according to an approval application filed on June 30. His fortune is now $ 30 billion.
Colin Huang announced this week that he will step down as Chief Executive Officer of Pinduoduo, a type of Facebook Groupon mashup that has won users of the pandemic through Getty Images. Qilai Shen / Bloomberg
This does not include a $ 2.4 billion nonprofit that he shares with the PDD founding team and $ 7.9 billion that went to Pinduoduo Partnership with Huang and newly appointed CEO Lei Chen belong. The partnership will help fund incentives for scientific research and management, according to a letter after Huang's resignation. The asset estimate also excludes $ 3.9 billion that people who are familiar with the matter have been transferred to an angel investor.
PDD declined to comment on Huang's holdings or net worth.
He will continue to chair and work on the company's long-term strategy and corporate structure to drive the future of the e-commerce giant, PDD said.
"PDD still faces major challenges in terms of product supply, brand relationship, logistics, and payments," said Shawn Yang, analyst at Blue Lotus Capital Advisors. "Colin may want to focus more on these issues."
The success of PDD depends on deals that are particularly popular with customers looking for bargains as the second largest economy in the world slows down. Most users come from smaller Chinese cities, and the app gives them additional discounts if they recommend a product through social networks and get friends to buy the same item.
Fen Liu, a housewife in Quanzhou, a provincial town in Fujian, said that she and her friends had collected enough vouchers to bring the price of a suitcase down to zero.
"I couldn't believe my eyes when I saw my suitcase arrived in the mail," she said. "It has made me a loyal Pinduoduo user ever since."
& # 39; Bargain Hunter & # 39;
According to Charlie Chen and Veronica Shen, analysts at China Renaissance Securities in Hong Kong, PDD's aggressive price-cutting strategies have helped attract lower-income people, but they could stifle the company's efforts to attract wealthier consumers.
"PDD users are mostly bargain hunters who are reluctant to buy items with large tickets," they wrote in a June 29 note, adding that the company's image remains a major obstacle to users who spend more. "We believe PDD is working to change its affordable brand image – but that could be costly."
This could require strong marketing and continue to weigh on margins, despite a strong user-based basis for future growth, the analysts said. The management of PDD has not provided a clear path to profitability.
Last year, the company's ongoing $ 10 billion RMB subsidy campaign saw sales and marketing costs increase $ 2 billion to $ 3.9 billion. These costs have amounted to 90% to 120% of sales in the past two quarters, China Renaissance said.
For the national shopping festival on June 18, PDD provided an unlimited subsidy program for different product categories in order to increase spending and attract more users. Other fast-growing Chinese startups – including rival Meituan Dianping, the DiDi Chuxing app, and Starbucks Corp.'s competitor Luckin Coffee Inc. – have also introduced subsidy strategies to maintain customer loyalty.
Huang, 40, grew up in the eastern city of Hangzhou, where Alibaba is headquartered. After graduating from Zhejiang University, he went to the University of Wisconsin to do a Masters in Computer Science. He started his career at Google in 2004 as a software engineer and returned to China in 2006 to help build his activities in the country.
Then he became a serial entrepreneur. In 2007, he founded his first company, an e-commerce website called Ouku.com, which he sold three years later after finding that it was too similar to thousands of others. He then launched Leqi, which enabled companies to market their services on websites such as Alibabas Taobao or JD.com Inc., and a game company that allowed users to play WeChat on Tencent’s messaging app. Both started and Huang found himself "financially free" according to an interview from 2017.
After contracting an ear infection, he decided to retire in 2013 at the age of 33. After thinking about what to do with his life for a year – considering starting a hedge fund and moving to the United States – he came up with the idea of combining e-commerce and social media. At that time, Alibaba dominated online business and WeChat became a must for smartphones in China.
Since then the tables have turned. In 2018, Alibaba launched a PDD-style app to lure users from small towns with bargains. It took months for Huang to launch his company on the New York Stock Exchange, bringing in $ 1.63 billion when it went public in July 2018. Since then, the PDD has risen by 389%, while Alibaba has only increased by 13%.
In 2017, Huang said it was unlikely that he would spend the rest of his life with PDD. While still chairing the company, he now wants to give younger colleagues more responsibility to maintain entrepreneurship when PDD matures, he wrote in a letter to employees.
"We think of Pinduoduo as an organization that creates value for the public instead of being a showoff trophy for a few or wearing too much personal color," said Huang. "This means that one day Pinduoduo can continue to develop with or without us."
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