Pinduoduo's founder leaves as his Chinese e-commerce giant grows bigger than ever

Hong Kong(CNN Business) Pinduoduo's founder stepped down suddenly this week, shaking investors who had watched him take the Chinese e-commerce company from nothing to a potential Alibaba competitor in less than a decade.

Colin Huang's decision to resign as chairman wasn't a complete surprise. The 41-year-old entrepreneur already quit as CEO last summer, and was expected to eventually leave leadership at Pinduoduo altogether.

But his exit still came faster than expected, and during an uncertain time for many of China's internet firms as Beijing works to rein in the sector.

"The abrupt resignation of Mr. Huang was a big negative surprise to investors," wrote Nomura analysts Jialong Shi and Thomas Shen in a Thursday research note. "Mr. Huang was widely regarded as the signature person of the company whose strong insight and leadership have been deemed by many investors as a key factor to the success" of Pinduoduo.

Shares in Pinduoduo (PDD) plummeted 7% in New York on Wednesday following Huang's announcement.

Huang founded Pinduoduo in 2015 and quickly turned it into a formidable e-commerce company. It's still a long way from surpassing industry leader Alibaba in market share — it holds about 10% of the market, behind Alibaba's 53% and competitor JD.com's (JD) 19%, according to estimates by Guiyang-based Huachuang Securities. But the company is edging out its biggest competitor in at least one important way: It announced Wednesday that it had nearly 789 million active users in 2020, surpassing Alibaba's 779 million.

And while it posted a $1.1 billion loss last year, the company is also still growing. It said Wednesday that revenue for 2020 doubled over the prior year to $9.2 billion. Its rise can be attributed to its success with people in small cities and rural areas, markets that other e-commerce firms have largely missed out on over the years. Its grocery division also grew significantly during the pandemic, playing a role in last year's expansion.

Huang — who has a net worth of about $53 billion, according to Bloomberg, and is China's third richest person behind Nongfu Spring founder Zhong Shanshan and Tencent (TCEHY) founder Pony Ma — told shareholders that he resigned because he wanted more time to pursue other goals, including his childhood dream of becoming a scientist or researcher.

"Although Pinduoduo is still a young company with a long runway for growth, it is about the right time to explore what's next if we want the same quality and pace of growth in 10 years," he wrote to them in a letter Wednesday. He also cited a desire to allow "a new generation of leaders and managers" to "shape the Pinduoduo they aspire to build." He remains the company's largest shareholder.

It's not unusual in China for entrepreneurs to leave companies, even when they're in their prime. In 2018, Alibaba (BABA) co-founder Jack Ma announced that he would resign as executive chairman and pursue more work in philanthropy. He was 54 at the time. (Ma has not escaped scrutiny since his resignation and was questioned by regulators late last year over Ant Group, the Alibaba financial affiliate he helped to build. Its high profile IPO was shelved afterward.)

But Huang also leaves Pinduoduo in a somewhat precarious position. Beijing has been cracking down on the tech sector for months, and its reach has on occasion extended to Pinduoduo.

Earlier this month, regulators fined Pinduoduo 1.5 million yuan ($230,000) over accusations that it sold food on its platform at unreasonably low prices to edge out rivals.

Pinduoduo also recently faced backlash over allegations that it overworks its employees, including from Chinese social media users who called out the deaths of two workers as emblematic of a troublesome work culture. The company at the time said it set up a team to provide psychological counseling following the suicide of one worker.

On Monday, just two days before Huang said he would step down, Chinese President Xi Jinping called on the country's regulators to increase their scrutiny of the country's internet and tech firms — particularly those that have accumulated a lot of user data.

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