JD.com (NASDAQ:JD) recently launched Jingxi, a new online marketplace that lets shoppers team up with other shoppers to make bulk purchases at lower prices. It runs as a stand-alone app and a mini-app in Tencent's (OTC:TCEHY) WeChat, and it closely resembles Pinduoduo (NASDAQ:PDD), which popularized the group purchase model over the past four years.

Pinduoduo now accounts for 7.3% of China's e-commerce market, according to eMarketer. That puts the newcomer in third place behind Alibaba (NYSE:BABA) and JD, which control 55.9% and 16.7% of the market, respectively.

A woman checks her smartphone while shopping.

Image source: Getty Images.

Pinduoduo already has more shoppers than JD. Its number of active shoppers over the past 12 months rose 41% annually to 483 million last quarter, while JD's annual active shoppers only grew 2% to 321 million. Alibaba remains the market leader with 755 million mobile monthly active users across all its Chinese marketplaces.

Pinduoduo's customers, many of whom live in rural areas and lower-tier cities, spend less money than JD or Alibaba's customers -- but that growth is spooking the market leaders. Alibaba already launched its flash sale marketplace Juhuasuan and a bargain-oriented version of Taobao to counter Pinduoduo, so it isn't surprising to see JD follow suit with Jingxi.

JD's three main advantages

JD can leverage three key strengths to boost Jingxi's presence against Pinduoduo. First, about half of JD's shoppers already come from the lower-tier cities which Pinduoduo targets, so it could be easy to nudge those shoppers toward Jingxi.

Second, JD already owns the largest fulfillment and logistics network in China, which makes it easy to quickly fulfill bulk orders. Part of that system is already automated, with warehouse robots, drones, and autonomous delivery vehicles. Pinduoduo is still gradually building its own logistics network, but that could be challenging because it isn't profitable like JD.

Lastly, Jingxi's integration into WeChat, which has over 1.1 billion monthly active users, should help it encourage more shoppers to team up with group purchases. JD Mall was already integrated into WeChat's mini-apps, but shoppers didn't really have any reasons to share their purchases. Jingxi could close that gap by cloning Pinduoduo's model.

Boxes in a warehouse.

Image source: Getty Images.

However, investors should note that Tencent, JD's top investor, also owns a major stake in Pinduoduo. Pinduoduo also runs a popular WeChat mini-app. This means that while Tencent supports Jingxi's growth, it probably won't grant the new platform any big advantages (like free marketing) against Pinduoduo.

What this means for JD's investors

JD struggled over the past year with concerns about its slowing growth, rising expenses, and the economic slowdown in China. However, it continued to gain new customers as its revenue growth stabilized.

YOY growth

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Annual active customers

21.5%

14.6%

4.4%

2.9%

2.4%

Revenue*

31.2%

25.1%

22.4%

20.9%

22.9%

YOY = Year-over-year.. *RMB terms. Source: JD quarterly reports.

JD attributed its accelerating revenue growth last quarter to strong demand for big-ticket items like consumer electronics and home appliances, and it expects its third-quarter revenue to rise 20%-24% annually.

JD also noted that it was generating stronger growth in lower-tier cities as its growth in top-tier cities -- like Beijing and Shanghai -- softened. Targeting lower-tier cities with Jingxi could offset that slowdown while widening its moat against Pinduoduo, Alibaba's lower-end marketplaces, and other challengers.

Will Jingxi gain ground against Pinduoduo?

JD's introduction of Jingxi is a smart move, but it's unclear if it will contain Pinduoduo's growth. Pinduoduo has a first-mover's advantage in the social shopping market, and it's growing at a much faster clip than JD, with 169% year-over-year revenue growth last quarter. It's also advancing quickly into top-tier cities.

Looking ahead, investors should compare the growth of JD and Pinduoduo over the next few quarters to see if the former is losing shoppers to the latter. If so, it could indicate that JD needs to bring out bigger guns to contain this social shopping juggernaut.