2. PDD Holdings Inc. (NASDAQ:PDD)
Latest Fiscal Year Annual Growth Rate: 89.68%
Bridgewater Associates’ Q1 2024 Investment: $179 million
PDD Holdings Inc. (NASDAQ:PDD) is a diversified eCommerce retailer that delivers groceries, furniture, home appliances, and a wide variety of other products. Since it’s a relatively new player in the somewhat mature eCommerce market, PDD Holdings Inc. (NASDAQ:PDD) is taking risks and is a hungry company. It has one of the most unique business models in its Chinese platform Pinduoduo, which allows customers to team up and order in bulk from retailers to drive down buying prices. This leverages the Chinese culture of collaboration, and PDD Holdings Inc. (NASDAQ:PDD) also benefits from directly partnering up with merchants to deliver bulk orders. The discount model has helped the firm leverage Chinese economic weakness to its advantage. PDD Holdings Inc. (NASDAQ:PDD)’s global eCommerce platform, called Temu, also leverages its Chinese strengths to reduce costs as the firm uses its well established merchant base to sell lower priced products in Western markets. While these are all well and good, growing trade tensions between the West and China coupled with the risks of Americans’ data being accessed by Chinese companies as evidenced by TikTok could prove to be a headwind.
GreenWood Investors was out with a rather interesting Q4 2023 investor letter when it comes to PDD Holdings Inc. (NASDAQ:PDD). Here is what the firm said:
This herd-like mentality opened up two extremely high-quality investment opportunities for us in the back half of 2023. Using insights gleaned from our close proximity to e-commerce at CTT, we undertook a multi-month effort to underwrite PDD Holdings. This US-listed Irish holding company owns China’s leading disruptive marketplace called PinDuoDuo. During the summer, as it became unbearable for most investors to remain publicly invested in Chinese equities, we took a position in PDD.
During our diligence phase, a local Hong Kong investor that was invested in the company noted that Western investors should just stay away as they won’t appreciate PDD’s operating culture. He highlighted how the company gives no guidance, talks to no investors, and does not optimize its business for the short term. This means that quarterly earnings often have very large deviations from consensus, driving >20%+ moves in the stock. Paired with an extremely bearish market sentiment on Chinese equities, this combination became “uninvestable for those in western markets.”
Adding to the narrative during the summer for PDD was that its international business, Temu, was burning cash and carried with it a negative valuation consolidated into PDD’s holding company structure. Yet, as we were able to validate the major competitive advantage its direct-selling model has, from Chinese factory direct to the global consumer, we understood the losses to be highly temporary as the company leaned into digital marketing — becoming by far the largest digital advertiser on all leading platforms.
Temu has moved extremely rapidly to over-take Shein in global consumer wallet share, surpassing this highly-valued, yet private, startup in shipment volumes in many markets we track. While investors that own Shein continue to mark their investment to a mythical level, Temu is rapidly curtailing the market opportunity that Shein had in front of it. Yet, because of quarterly earnings volatility, we were able to take a position in this promising startup at a negative valuation.
