Pinduoduo: Where next after stellar 1Q results?

Despite fierce competition, agriculture and grocery e-commerce giant Pinduoduo could continue to outperform its rivals, analysts believe.

  • Pinduoduo Inc (Nasdaq: PDD) share price hits US$124.88 per share
  • The group reported better-than-expected results, with revenue spiking 239%
  • Its grocery service Duo Duo Maicai has ‘significant competitive strengths’, analysts say
  • Buy and sell Pinduoduo stocks with an IG account

Pinduoduo stock price jumps after earnings beat

Shares of Pinduoduo - whose online marketplace lets farmers sell produce to consumers - climbed 4.4% to finish at US$124.88 on Friday (28 May 2021).

The stock price performance came after the Chinese tech platform’s stellar first-quarter financial showing.

Among 52 analysts covering Pinduoduo shares, 40 recommended ‘buy’, nine suggested ‘hold’, while three gave ‘sell’ calls.

Their average target price was US$168.17 per share, Bloomberg data showed. That implies a potential upside of 35% based on Friday’s close.

Pinduoduo’s top-line soars 239%

Total revenue for the first quarter of 2021 more than tripled year-on-year to 22.17 billion yuan (US$3.38 billion), up from 6.54 billion yuan previously.

This exceeded analysts’ expectations by 12%, said CMB International, which reiterated ‘buy’ and a US$175 target on PDD’s stock.

The top-line surge was thanks to an increase in revenues from online marketing services and contribution from merchandise sales, the e-commerce giant announced last Wednesday.

Net loss narrowed to 2.91 billion yuan, improving from the 4.12 billion yuan net loss in the year-ago period.

Average monthly users grew 49% to nearly 725 million, from 487 million in 1Q 2020.

Huatai Financial analysts believe Pinduoduo needs to enhance its service capability to help merchants create more sustainable margins amid intensifying competition in the e-commerce sector. They maintained their ‘hold’ call and target price of US$143.

Could Pinduoduo become profitable soon?

Bloomberg Intelligence (BI) analysts expect the company’s growing shopping ecosystem to increasingly appeal to merchants looking to advertise.

‘Despite heavy marketing expenses, Pinduoduo's marketplace model can sustain a high gross margin, and could deliver a profit as revenue achieves greater scale,’ they added.

However, the ‘substantial discretionary investments ahead may delay profitability’, BI noted.

This comes as the company’s efforts to build its next-day grocery self-pickup service Duo Duo Maicai, also known as Duo Duo Grocery, will entail higher investment costs and may extend over a longer period of time as competitors have similar goals, BI said.

Will Pinduoduo win the group-buying race?

In China’s community group-buying market, Duo Duo Maicai (DDMC) faces fierce competition from Hong Kong-listed food-delivery giant Meituan, Everbright analysts wrote.

Fortunately, DDMC has ‘significant competitive strengths’, the analysts said, upgrading their rating on PDD shares to ‘buy’. For instance, over 12 million farmers sell agricultural products on Pinduoduo’s main online marketplace, and they are potential local suppliers for the grocery service, Everbright opined.

CMB’s research team likewise noted that Pinduoduo has excelled with its agricultural goods, sizeable user traffic, and high exposure in low-tier cities. ‘We think DDMC’s 1Q 2021 margin might be better than Meituan’s, and supply chain and next-day fulfillment enhancement would be the key in the future,’ CMB added.

CMB remained positive on Pinduoduo’s secular growth, driven by stronger user engagement and DDMC initiatives.

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