Tag: Tech

The first 10 days of 2021 is not usual for Pinduoduo (NASDAQ: PDD): a female employee’s sudden death on her way back to home midnight, widely reported in China + a suicide by jumping from an employee’s home on the 27th floor + firing of a Shanghai-based employee due to posting unwanted messages on Maimai. (see details below)

Pinduoduo is not alone. The three cases, although all about Pinduoduo (NASDAQ: PDD), are the latest extreme illustration of “involution” (内卷), a very popular word in China right now.

To explain it in one sentence, involution = excessive competition with no real growth. It’s mostly used with China’s urban working class and popular in the case of internet companies.

How did involution happen? For internet companies in China:

1/ no more demographic dividend. No easy growth from new handset shipment, MAUs. Growth from lower-tier cities has been explored for the past 2-3 years.

2/ major business models are occupied by established companies. It’s the same across US and China. Rarely a new thing could pop up and sustain (Pinduoduo and ByteDance are years old and becoming “established”). Established companies are disproportionately more powerful. And internet companies are usually more innovative than others.

3/ too big to grow domestically and hard to grow overseas. When those $200bn+ companies want to grow fast, they require more energy and space. China has a big market, but US big techs not only have a large domestic market but can easily participate other markets globally. Southeast Asia is important for China’s tech/internet sector but cannot provide enough TAM.

On a side note, investors globally should start to focus on ESG measures in China.

Leading investors in China should take a lead, be more responsible on values (not just value), and care more about all stakeholders (not just as shareholders).

Three Pinduoduo cases attached:

1. The girl’s death on her way home after working until midnight

The tragedy is well reported in medias (Bloomberg, Reuters, etc.). The girl, born in 1998 (22 years old) and joined Pinduoduo (NASDAQ: PDD) in July 2019, collapsed while walking home with colleagues at 1:30 am. She died in the early hours of Dec 29, 2020 in local time – didn’t make it through the new year.

In China, the death quickly get massive public attention and criticism over the internet, as well as the regulator’s probe according to the news.

2. The suicide on Jan 9 by jumping from the 27th floor

The male developer joined Pinduoduo (NASDAQ: PDD) in July 2020. His suicide on Jan 9 (Jan 8, Friday in local time) in Changsha has been confirmed by Pinduoduo and is well-reported in China. It hasn’t been reported much in english so far but here is one from EqualOcean. The details are still unclear.

3. An employee in Shanghai fired on Jan 9 for posting photo

The story is still developing. The fired employee posted a video detailing his experience on social medias, including Bilibili, Weibo and Zhihu. The video is only in Chinese, but here are the major facts he provided:

• The fired employee joined Pinduoduo (NASDAQ: PDD) as a front-end developer in July 2019, right after graduating from college.
• On Jan 7 (local time) morning, when he entered the Pinduoduo office building, he saw a male being put on an ambulance in front of the building. He then posted a photo of the ambulance on Maimai, a career social platform in China known for anonymous forum.
• Somehow, Pinduoduo found out it was him to post the photo anonymously and asked for a “talk” on Jan 8 (local time) afternoon.
• He was told that he was making Pinduoduo look bad and was asked to sign an agreement that says he will voluntarily quit, confirm that he made certain comments, and not to talk about it after quitting.
• He refused to sign the agreement and was fired immediately afterwards.

He also confirms some “rumors” about how Pinduoduo treats its employees and the unpleasant working environment, e.g.

• Employees in Shanghai are implicitly asked to work 300 hours per month; some departments are asked to work up to 380 hours per month
  • It’s much more than the so-called “996” culture; employees mostly get off work around 11pm/12am
• For any legal holiday that is longer than 3 days, employees are required to get back to work early
• Employees are asked to move into newly renovated buildings/offices when there is unpleasant/unusual smell in the air

Continuing on the last post, I said although some earnings number are not pretty, Jumia has become a different firm in two year.

It was relying heavily on first-party sales (“resell” model like JD.com) which accounted for over 70% of its revenue in 2018Q1. That number decreased overtime to 34% in 2020Q1 (halved), partially due to the coronavirus disruption from Jumia’s own suppliers.

Another way to look at this is on the GMV level. 1st party revenue as % of GMV decreases overtime as well – what is more, the take-rate on the rest of the GMV, where marketplace revenues come from, is improving.

I do believe marketplace revenues (like Alibaba) are more valuable. Thus, Jumia’s has grown its higher-quality revenue overtime. The third-party business has shaped Jumia into a different company (with more valuable revenues).

As JumiaPay keeps growing, it will deliver value just like Alipay.

Another important matrix that is improving significantly is gross profit after fulfillment expense. This value could be used as “gross profit” or even “revenue” to better track the long-term profitability.

Fulfillment expense is not trivial and grows with the GMV as both 1st-party and 3rd-party sales uses Jumia’s delivery network.

And as mentioned in the previous post, African nations are now more willing to use mobile payments due to coronavirus. The improvement in adoption will give Jumia a boost in monetization overtime.

To sum up, three reasons that I believe Jumia is a different company:

1. 1. higher-quality marketplace revenues are now driving the growth
   2. gross profitability after fulfillment improves meaningfully
   3. pandemic-shaped population will adopt mobile payments & fintech solutions much more easily – trust is forced to build.

Industrialization: Railway & Steamship

Postal system has its political importance, which is why it’s included in the constitution. As the US expanded, how information / news / mails were transmitted were directly influencing the limit of a united society.

The Railway mail service began as early as November 1832. In 1835, railroads accounted for only one percent of mail transportation and connected only two major cities – Washington and Baltimore.

On July 7, 1838, Congress declared all railroads to be post roads and enabled the railways to make contracts as long as sending mail by rail cost no more than 25 percent above transporting it by stagecoach.

But it’s the industrialization that enabled the US to include / connect California and other lands that are far away from the initial states.

In 1848, US acquired California at the end of the Mexican War. Under the  Treaty of Guadalupe Hidalgo, Mexico also recognized the U.S. annexation of Texas, and agreed to sell California and the rest of its territory north of the Rio Grande for $15 million plus the assumption of certain damages claims.

In November 1848, Postmaster General Cave Johnson dispatched a special agent to California to establish Post Offices. By Christmas, steamships were carrying mail from New York to California via the Isthmus of Panama. This was before the construction of the canal. When the ships reached Panama, the mail was taken off and transported in canoes or on pack animals – and later by railroad – about 50 miles to the Pacific coast. Another steamship collected the mail on the Pacific side and headed north.

Congress authorized funding for the overland routes not because they brought any financial profit to the Post Office Department or the federal government, but because they helped build and bind together a nation.

Also briefly mentioned in 一朝风雨一代王：Sears, Walmart, Amazon, the expansion of the US rail transportation contributed to the growth of USPS (Post Office Department at the time).

In 1862, mail was sorted en route, as a train moved between two points, using converted baggage cars.

On August 28, 1864, the first U.S. Railway Post Office (RPO) route was established officially.

By the early 1900s, railroads were critical to postal operations. Like Union Station in Washington, D.C., located adjacent to the City Post Office Building, the Post Office Department ordered that all new main post offices in large cities be built as near as possible to the principal railroad station.