July 27 (NBD) -- Shares of Chinese group-buying site Pinduoduo (Nasdaq: PDD) soared 40.53 percent and closed at 26.70 U.S. dollars on its very first trading day.

Huang Zheng, founder and CEO of Pinduoduo, holds a total of 2.07 billion common shares in the company, equivalent to 518 million American depositary shares. If calculated by Thursday’s closing price, he has topped JD.com (NASDAQ:JD)'s Richard Liu in terms of personal wealth.

Huang studied computing science at Zhejiang University and got his master degree in the U.S. After graduation in 2004, he joined Google where he worked on search algorithms. In 2006, he went back home with venture capitalist Kaifu Lee to set up Google's China office. One year later, he resigned from Google.

In 2015, Huang set up Pinduoduo. As of September 2016, the group-buying platform has caught up with Chinese online discount retailer Vipshop (NYSE: VIPS) in terms of the number of orders and users.   

It took Pinduoduo only 2 years and 3 months to garner 100 billion yuan (14.7 billion U.S. dollars) in GMV (Gross Merchandise Volume). In contrast, JD.com spent 10 years and Taobao spent 5 years to reach that milestone.

Pinduoduo managed to make its way ahead by entering the niche areas where China's two online retail giants JD.com and Alibaba hadn't built a presence. According to big data platform JIGUANG, as of February 2018, Pinduoduo has gained a strong foothold in third-tier and smaller Chinese cities where 55 percent of netizens live. In addition, social concepts such as interacting and sharing with family members promoted by the company are also inspiring. 

However, according to its prospectus, Pinduoduo has paid Tencent 778 million U.S. dollars for services so far. This shows the company's overreliance on Tencent, which is one of its investors. Based on the tech giant's social platform and online payment solutions, the group-buying site has expanded its sales networks in smaller cities. 

There are also other challenges. For example, it is not easy to guarantee quality of products and services offered by third-party service providers. Fake products, late delivery, and damages during the delivery are all likely to dissuade users from using the group buying platform, Pinduoduo admitted in its prospectus. 

Moreover, its financial statement shows the losses keep widening despite a growing user base and higher per customer transaction. Pinduoduo reported losses of 570 million yuan (83.9 million U.S. dollars) in 2017. In the first 3 months this year, its losses increased 44 percent from the same period of last year.

Email: tanyuhan@nbd.com.cn