5) PDD Holdings Inc. (NASDAQ:PDD)
5-Year Revenue Growth: ~74.9%
Average Upside Potential: ~44.2%
Market cap as of 12 November: $157.7 billion
PDD Holdings Inc. (NASDAQ:PDD) is a multinational commerce group, which owns and operates a portfolio of businesses.
Market experts believe that PDD Holdings Inc. (NASDAQ:PDD)’s strength in its e-commerce business model appears to be a major positive, which should drive its long-term growth. Also, the analysts are optimistic about the company’s Pinduoduo platform due to its wide range of product offerings, such as agricultural produce, apparel, shoes, food and beverage, electronic appliances, and furniture, among others. Next, PDD Holdings Inc. (NASDAQ:PDD)’s growth trajectory is expected to be also supported by the strengthening of its Temu platform. This is an innovative online marketplace, which capitalizes on online ads, social media, coupon codes, and games in a bid to attract and retain users.
The accelerated path to profitability for Temu demonstrates PDD Holdings Inc. (NASDAQ:PDD)’s effective cost management and scalability in its business model. Also, it exhibits that its strategy of leveraging the experience from the Chinese market to expand internationally continues to yield favorable outcomes.
Its innovative approach to e-commerce, mainly its group-buying model integrated with social media platforms, appears to be well-received by Chinese consumers. Furthermore, Temu’s success might offer PDD Holdings Inc. (NASDAQ:PDD) a valuable hedge against potential slowdowns or higher competition in the domestic Chinese market. Through diversifying the revenue streams geographically, the company can reduce its dependency on a single market.
As per Wall Street analysts, the shares of PDD Holdings Inc. (NASDAQ:PDD) have an average price target of $168.99. Baron Funds, an investment management firm, released its Q3 2024 investor letter. Here is what the fund said:
“During the third quarter we re-initiated a small investment in PDD Holdings Inc. (NASDAQ:PDD). We believe the company is truly unique in the global e-commerce landscape, with an innovative business model, and very strong growth prospects. Founded in 2015 as Pinduoduo, the company has grown into China’s second-largest e-commerce player, capturing over 20% market share. PDD’s Consumer-to-Manufacturer (C2M) model, which connects manufacturers directly to consumers eliminated intermediaries, allowing for ultra-low prices that attract price-sensitive consumers and small merchants. Its discovery-based, algorithm-driven shopping experience has created a highly engaging platform, driving user and merchant growth in a virtuous cycle. We expect PDD to continue gaining share in China given its dominance in the value-for-money segment, growing branded product offerings at affordable prices, and high operational efficiency. PDD’s network effects and cost advantage, supported by its lean structure and efficient C2M model, are set to grow as it scales, both domestically and internationally. Its cross-border e-commerce platform, Temu, launched in September 2022, has rapidly become one of the world’s fastest-growing apps. Leveraging China’s excess capacity and PDD’s supply-chain efficiency, Temu wields strong pricing power over Chinese suppliers and attracts overseas consumers with competitively priced products. While still in early stage, Temu has achieved 2% of the global ex-China e-commerce market and a variable breakeven in the U.S. market, underscoring PDD’s focus on sustainable growth. Despite its rapid growth and profitability, PDD trades at a double-digit free cash flow yield (despite losses from the early-stage international expansion through Temu), significantly below sector peers. While concerns over geopolitical tensions exist, we believe PDD’s growing competitive edge, strong cash flow, and disciplined management position it to create substantial long-term value for shareholders.”
