To The Moon

$PDD Holdings(PDD)$ is drawing attention as the Chinese multinational online commerce group and retailer prepares to announce its fourth-quarter results before the U.S. market opens on Thursday, Mar 20. So far, PDD stock has gained 12% this year.

Three Things to Watch Before Earnings Report

PDD at Risk of Margin Shortfall

PDD's 4Q adjusted operating margin is expected to be 25.94%, a 6.19% decline compared with the same period of 2023. That's if, like Alibaba's international digital commerce unit (AIDC), Temu incurred more costs than expected to entice both merchants and shoppers in newer overseas markets to transact on its platform. This resulted in larger-than-expected October-December losses for AIDC, including a 36% shortfall in Cainiao's profit vs.consensus.

Total costs of online marketing services and others is expected to be RMB46,562.66 million, an increase of 32.74% compared weith the same quarter of 2023.

Quarterly Revenue Likely Increases 30%

According to Bloomberg’s unanimous expectations, PDD to post revenue of RMB116.03 billion for 2024Q4, a 30.5% increase from RMB88.88 billion a year ago; Adjusted EPS is estimated to be RMB19.68 per share.

Temu Owner PDD's 2025 revenue and profit could miss estimates if delays in shipments and customs clearance of made-in-china goods sold by Temu in the US, where the platform derives more than a third of its gross merchandise value, persist amid trade policy uncertainties. This could limit PDD's revenue growth and spur the firm to subsidize Chinese sellers into the U.S.

Temu, which launched in the U.S. 2022, has capitalized on China’s low manufacturing costs and tariff-free import practices. However, recent U.S. tariffs — ranging from 10% to 20% on Chinese imports — pose a potential challenge for these ultra-cheap competitors, threatening to disrupt their business models.

Preparing for Future De Minimis Cancellation

More important than the 4Q24 results is the health of Temu expansion. The main risk Temu faces is the US tariff policy and the end of De Minimis that exempts purchases below US$800 for retail consumers daily. When the exemption does eventually come to an end, two companies that will be heavily affected are China-based e-commerce platforms Temu and Shein.

Temu, which focuses on lower-cost items and offers free shipping and returns, will face the most significant challenges to its business model without the de minimis loophole.

Options Strategies to Trade PDD’s Earnings

1. Bear Put Spread (Hedging Near Resistance)

Structure:

• Buy March 28 $130 Put

• Sell March 28 $120 Put

  $PDD Vertical 250328 120.0P/130.0P$

• Net Debit: $4.65 per contract×100

• Max Profit: $475

• Breakeven: $124.75

• Rationale: Protects against downside if PDD fails to hold near resistance ($127.84).

  Source: Tiger Trade App

2. Bull Call Spread (Targeting Breakout Above Resistance)

Structure:

• Buy March 28 $125 Call

• Sell March 28 $135 Call

  $PDD Vertical 250328 125.0C/135.0C$

• Net Debit: $4.25 per contract×100

• Max Profit: $605

• Max Loss: -$395

• Breakeven: $128.95

• Rationale: Capitalizes on a potential breakout above resistance ($127.84) with limited risk.

  Source: Tiger Trade App