4. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) is one of the biggest e-commerce companies to invest in. The company is a multinational e-commerce group that owns Temu and Pinduoduo, two online retail sites, and holds a 20% market share in China’s e-commerce industry.
Pinduoduo is one of the most prominent online agriculture retail platforms in China. Temu, on the other hand, is an e-commerce platform in the United States and Europe that sells clothing, home decor, beauty, and handmade items.
PDD Holdings’s (NASDAQ:PDD) business model is such that it facilitates bulk buying. Customers can directly haul goods in bulk from manufacturers, eliminating intermediaries, and reducing costs. Temu, known for its notoriously low-priced products and fast deliveries, has partnerships with major distributors such as UPS, FedEx, and USPS to ensure all deliveries are made quickly and securely.
According to HSBC, the Chinese e-commerce market was valued at $155 billion in 2019 and is expected to grow to $500 billion by the end of 2025 from a valuation of $350 billion in 2023. Over 60% of the Chinese population uses online retailers to shop and 37% of retail spending in the country is executed via e-commerce channels. While the Chinese market is saturated, the markets in the US and Europe are attractive given that online shopping accounts for 22% of retail spending in the US and 16% in Western Europe.
PDD Holdings’s (NASDAQ:PDD) presence in China warrants its position as one of the best e-commerce stocks to buy. With a 20% market share in the country and a growing platform in Europe and North America, PDD’s Temu is set to become one of the most used platforms in the world. Over the past year, PDD’s growth has been exemplary. In the first quarter of 2024, PDD Holding’s total revenue reached RMB 86.8 billion, a 131% increase year-over-year.
Overall, 86 investors were bullish on the stock at the end of Q2 2024, with total stakes amounting to $8.1 billion. As of June 30, GQG Partners was the largest shareholder with a position worth $1.44 billion.
PDD is attractive at current levels. The stock is trading 11 times its forward earnings, a discount of 29% from its sector P/E, and analysts expect earnings to expand by 84% this year and 139% in 2025, from 2023.
Baron Funds 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.”
