Pinduoduo, China's second-largest e-commerce platform, on Friday released its financial results for the third quarter of 2021, with revenue well below Wall Street expectations.

Total revenue for the quarter was RMB 21.50 billion (US$3.36 billion), up 51% from the same time in 2020, but much lower than analysts' average estimate of RMB 26.59 billion (US$4.16 billion).

The growth mainly attributable to the increase in revenue from online marketing services and transaction services. According to the company, revenue from online marketing services and other sales was RMB 17.9 billion, an increase of 44% from RMB 12.4 billion in the same period in 2020, and transaction services contributed RMB 3.4 billion in revenue, an increase of 161% year-on-year.

However, revenue from merchandise sales, mainly composed of self-operated e-commerce services, plummeted 79% from the same period in 2020 to RMB 82.1 million.

China's economy decelerated in the third quarter of the year, which curbed consumer spending and greatly affected the growth of e-commerce platforms.

Pinduoduo's rival Alibaba also missed market expectations in terms of sales and profit in the third quarter. The largest e-commerce company in China even lowered its revenue forecast for this fiscal year, warning the slowest annual revenue growth since its inception in 2014.

Simultaneously, since the penetration rate of online shopping in China has reached a very high level, Pinduoduo's user growth, which once advanced at full speed, is also slackening.

The company recorded 741.5 million average monthly active users (MAUs) this quarter, a slight increase of 15% from 643.4 million in the same period in 2020, while annual shopper volume increased 19% year-on-year to 867 million, the slowest growth since its launch in 2018.

Due to changes in the environment, specifically, the slowdown in the overall market growth and the continuous influx of competitors, the legend of Pinduoduo’s rapid growth has come to an end.

It's not only that its archenemies Alibaba and JD.com are competing for its users by launching similar bargain online shopping services, short video platforms like Douyin and Kuaishou are also pushing their foray into the e-commerce world.

"E-commerce in China is a huge industry, full of vibrancy and potential. We have seen platform companies including the short video platforms entering the e-commerce sector," Chen Lei, CEO of Pinduoduo, said in the earnings call.

Despite the fact that total revenue is lower than expected and the self-operated e-commerce business has decreased significantly, Duo Duo Grocery, next-day grocery pickup service, may emerge as a critical force for the company's future development.

During the conference call, the firm pointed out that the rise in transaction service revenue was primarily driven by an increase in grocery delivery business and transaction processing fees.

The company said its next-day grocery pickup service, or also known as community group buying service, is able to lower the prices of the groceries on offer by having consumers collect their orders from nearby pickup points. 

In the Duo Duo Grocery channel, there is a section for flash deals, as well as one featuring recommendations and top-selling items. Vendors list their inventory of agricultural products and household necessities for sale, which are curated and presented by the platform to consumers based on their geographical location.

First launched in August 2020, Duo Duo Grocery is now available in more than 300 cities across China, ranging from the northernmost province Heilongjiang to southernmost province Hainan.

Grocery delivery, especially the distribution of agricultural products, seems to have become the company's expertise. “Pinduoduo actually started from selling agricultural products...We have been committed to helping users meet their daily necessities and basic needs. So, in my opinion, it distinguishes us from other e-commerce participants and new entrants." the CEO said.

Now, the e-tailer is devoting resources to building its agricultural business and is working with partners to expand cold-chain logistics, warehousing and sorting facilities to better fulfill Duo Duo Grocery business.

Although Chinese regulatory authorities have strengthened the supervision of community group buying in order to maintain a fair market order and the interests of small vendors, Duo Duo Grocery has already bagged 50% of the market share, followed by China's top food delivery platform Meituan.

Nasdaq-listed Pinduoduo ended the day at $68.46, down 15.86%. As the Chinese authorities crack down on large technology companies to check monopolistic behavior and protect personal data, the company's market value has plummeted by roughly 54% this year.