6. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Investors In Q1 2024: 76
PDD Holdings Inc. (NASDAQ:PDD) is an online retailer that is known for its Pinduoduo platform in China and the Temu platform globally. While retailers are highly sensitive to economic cycles, PDD Holdings Inc. (NASDAQ:PDD) is one of the most unique firms in its industry. This is evident in its analyst share price targets. The average of 37 one year analyst share price targets for PDD Holdings Inc. (NASDAQ:PDD) is $202.67, which marks a hefty 44.7% upside over the recent closing price of $140. The shares are rated Strong Buy on average. This makes one wonder, why is PDD Holdings Inc. (NASDAQ:PDD) garnering such optimism even though China’s economy is slowing. Well, Pinduoduo’s market share grew to 19% in mid 2023 from 7.2% in 2019 as it leveraged the country’s economic weakness to its advantage. Pinduoduo allows users to bargain in groups, and as it eliminates middlemen from the retailer equation, customers are able to buy products at discounted prices. This provides PDD Holdings Inc. (NASDAQ:PDD) with a considerable advantage and could play in its favor globally as well as it leverages ties with Chinese merchants to ship low cost products overseas. However, trade tensions between the West and China remain a lingering threat and could affect the firm’s plans to expand to international markets if tariffs are placed on Chinese products.
Baron Funds mentioned PDD Holdings Inc. (NASDAQ:PDD) in its Q1 2024 investor letter. Here is what the firm said:
We added to our digitization theme by building a position in PDD Holdings Inc., a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China’s second largest e-commerce player, capturing approximately 20% market share. In our view, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company’s meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD’s revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China’s excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, coupled with achieving variable breakeven in the sizable U.S. market, showcase management’s skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.
