6. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 76
PDD Holdings Inc. (NASDAQ:PDD), previously known as Pinduoduo, is a global e-commerce powerhouse. The company runs Pinduoduo, a prominent e-commerce platform in China that stands out for its extensive range of products and its unique team purchase model, which improves the shopping experience by encouraging group buys. Additionally, the company manages Temu, an international online marketplace focused on delivering high-quality, cost-effective products to consumers around the world. It is the 6th best consumer discretionary stock on our list.
In Q1, 76 hedge funds had investments in PDD (NASDAQ:PDD), with positions worth $5.8 billion. As of March 31, Hillhouse Capital Management is the top investor in the company and has a stake worth $1.37 billion.
PDD (NASDAQ:PDD) is making significant strides in the e-commerce world, particularly through its brands Temu and Pinduoduo. The company’s success in the e-commerce sector can be traced back to its early focus on rural and smaller cities in China, where it carved out a substantial presence. Unlike its competitors, which primarily targeted larger urban centers, the company tapped into a market eager for affordable products in less saturated areas.
PDD’s (NASDAQ:PDD) innovative approach, which includes a group-buying model, allows customers to pool their orders and secure lower prices, quickly resonated with shoppers looking for savings. This model has propelled the company into becoming one of China’s top e-commerce platforms.
Building on its success at home, PDD (NASDAQ:PDD) expanded internationally with the launch of Temu in the U.S. in 2022. Despite being a relatively new entrant, Temu has made impressive progress. According to Business of Apps, a B2B media and information platform, by September 2023, Temu had attracted 82 million active users in the U.S. alone and achieved over 250 million downloads globally, predominantly from the American market.
Temu’s approach focuses on offering a selection of products at competitive prices, with delivery times of about a week. This model emphasizes value for money and sells good-quality, generic goods at lower prices compared to many other retailers.
PDD’s (NASDAQ:PDD) ability to deliver both value and convenience has set it apart in the crowded e-commerce landscape. As Temu continues to grow and establish itself internationally, it builds on the successful strategies that it has employed in China, positioning the company as a formidable player in the global e-commerce market.
Baron Emerging Markets Fund stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its fourth quarter 2023 investor letter:
“We added to our digitization theme by building a position in PDD Holdings Inc. (NASDAQ:PDD), 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.”
