To The Moon

• Pinduoduo $PDD Holdings Inc(PDD)$ has fallen by 22.43% year-to-date and is still trading 42% below its all-time high.

• PDD is a multinational online marketplace. However, its main source of revenue is advertising income. It does not hold inventory and is not responsible for fulfillment.

• Instead of investing its cash flow in building its logistic arms like JD.com and Alibaba, PDD has been heavily spending cash on subsidizing merchandise to woo merchants and outsourcing fulfillment and logistics.

• PDD is currently relying on its overseas e-commerce unit, Temu, to maintain its high revenue growth momentum.

• PDD briefly overtook Alibaba in market cap end 2023.

Source: Bloomberg, 22 Apr 2024

Earnings Review:

• Revenue in 4Q2023 rose 123% year-over-year to RMB 88.88 billion, surpassing the estimate of RMB 79.2 billion.

• FY 2023 Revenue increased by 90% to RMB 247.64 billion.

• Net Income in 4Q2023 rose by 146% yoy to RMB 23.3 billion, exceeding the street estimate of RMB 15.1 billion.

• Its Operating Margin in 4Q2023 stands high at 25.2%.

• The online advertising industry in China experienced decent growth in the fourth quarter of 2023. PDD's advertising revenue surged by 56.9% year-over-year to RMB48.6 billion in 4Q2023, surpassing other major players such as Tencent $TENCENT(00700)$ (+20% yoy), Baidu $BIDU-SW(09888)$ (+6% yoy), Kuaishou $KUAISHOU-W(01024)$ (+20% yoy), and Meituan $MEITUAN-W(03690)$ (+41% yoy).

•  PDD's advertising growth was particularly noteworthy due to its substantial base effect compared to its competitors.

Source: Bloomberg, Tiger Brokers, 22 Apr 2024

Technical Analysis:

• PDD is estimated to release its 1Q2024 earnings on May 24 and may potentially deliver earnings surprises.

• With its PE ratio standing at an inexpensive 13.63x and its share price hovering around the 50% Fibonacci Retracement level at USD114.57, PDD stock may appear attractive to traders and investors.

• The significant support levels are at USD91.43 and USD58.49.

Source: Tiger PC App

Conclusion:

Source: Bloomberg, 21 Apr 2024

Source: Bloomberg, 21 Apr 2024

• PDD remains one of my favorite growth stocks in China. Currently, the projected revenue growth for FY2024 stands at 53%, while net income growth is 45%. However, every growth investor knows that the exciting momentum of growth will eventually dissipate, so investors are cautious of signs indicating a loss of growth momentum.

• Over the years, to offset the slowing revenue growth in China and maintain the growth narrative, PDD has been expanding its overseas e-commerce business under the brand name "Temu". PDD has extended its overseas presence to over 50 countries, according to management.

• However, potential policies and tariffs introduced by the US and Europe may impact Temu.

• The US House of Representatives approved a bill on Saturday that could force TikTok to be sold or banned, which is now advancing in the Senate. We see potential for Temu to face a US import ban over concerns related to forced labor and privacy. Other risks include several US senators urging Joe Biden to end duty-free treatment for packages valued at less than $800, as enjoyed by Temu.

• We also note that the current financial disclosures by the company remain too limited to fully understand the reasons behind the strong growth. PDD no longer reports its GMV, MAU, and has yet to disclose take rate, operating margin by segment, and any Temu-related metrics. Consequently, some analysts' target prices vary widely due to different assumptions about PDD.

• Another key downside catalyst investors should keep in mind is the risk of ADR delisting due to intensified US-China tensions.

• However, increased monetization in China and faster growth in Temu may continue to provide upside surprises to investors.

• PDD is also one of the few Chinese companies with a compelling overseas growth story. Temu's revenue contribution to PDD is estimated to reach 20% and is expected to continue rising.

• The consensus Bloomberg 12-month target price for PDD is USD181.09, representing an upside potential of 59.6% relative to Friday's closing price of USD113.49.

• Its forward PE ratio remains inexpensive at 13.63x compared to a 5-year average of 17.11x, especially considering the drop in forward PE ratio from the 2023 high of 23.7x.

Source: Bloomberg, 22 Apr 2024