3. PDD Holdings Inc. (NASDAQ:PDD)
Forward Price-to-Earnings Ratio as of March 4: 8.76
Number of Hedge Fund Holders: 85
PDD Holdings Inc. (NASDAQ:PDD) is a multinational commerce group that operates a portfolio of e-commerce businesses. Specifically, it owns and operates Pinduoduo, which is a platform that offers a range of consumer products. It also owns and operates Temu, which is an online marketplace with a focus on facilitating the integration of businesses and consumers into the digital economy.
This company is supporting its merchants and building a strong platform ecosystem. It launched a $10 billion fee reduction program in Q3 2024, which aims to save money for over 10 million merchants through refunds and reduced fees. It introduced a high-quality merchant support program, which provides help with product development and marketing. During the harvest festival, it allocated $1 billion RMB in subsidies and $2 billion in online traffic to support agricultural merchants.
To expand reach, it eliminated transshipment fees for orders in Western China, which reduced delivery costs by ~70% for some products. This led to growth in orders from remote areas. The company’s total revenues increased by 44% year-over-year in Q3 2024. Revenues from transaction services were up 72%. PDD Holdings Inc. (NASDAQ:PDD) is adapting to changing consumer preferences, and emphasizes quality and personalized products.
Baron Global Advantage Fund is highly optimistic about PDD Holdings Inc. (NASDAQ:PDD) due to its unique business model, rapid growth, international expansion, and undervalued stock price as strong indicators of substantial long-term value. Here’s what it said in its Q3 2024 investor letter:
“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.”