4. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Investors: 86
PDD Holdings Inc. (NASDAQ:PDD), formerly known as Pinduoduo, is a Chinese e-commerce platform founded in 2015. The company is known for its unique “social commerce” model, which encourages group buying and social sharing to unlock discounts.
One of the most promising aspects of PDD Holdings Inc.’s (NASDAQ:PDD) business is its ownership of the online marketplace Temu, which is rapidly expanding in Europe and North America and has the potential to become one of the world’s most popular online shopping destinations. PDD Holdings Inc.’s (NASDAQ:PDD) growth is driven by its ability to aggregate large groups of buyers to negotiate lower prices from suppliers, passing the savings on to its users. This model has proven to be highly effective. As the company continues to expand its user base and cross-border business, it is well-positioned to maintain its growth momentum.
On August 26, PDD Holdings Inc. (NASDAQ:PDD) reported that its revenue surged by 86% year-over-year to $13.35 billion for the quarter ended on June 30. However, the revenue fell short of consensus estimates of $14.04 billion. This shortfall in revenues was due to an increase in operating expenses, which ballooned by 48% year-over-year to $4.23 billion. The rise in operating expenses was driven by increased investments in marketing, advertising, and promotions to attract shoppers.
PDD Holdings Inc.’s (NASDAQ:PDD) lower-than-expected revenues were due to high unemployment rates in China’s economy which has led consumers to reduce spending and negatively impacted the country’s retail and e-commerce companies. However, sales growth is expected to recover, due to significant stimulus in China which aims to boost economic growth and consumer spending. In their Q2, investment letter, Hayden Capital, an investment management firm, stated the following regarding PDD Holdings Inc. (NASDAQ:PDD):
“A few weeks ago, Latepost (a leading Chinese technology news outlet) confirmed Pinduoduo’s online grocery initiative is solidly profitable (LINK). According to the article, Duoduo Grocery is able to achieve ~5% net profit margins in competitive markets (where they go up against Meituan Select). In non-competitive markets, they can achieve ~10 – 15% net margins. The company doesn’t disclose the exact scale of Duoduo Grocery, but our calculations indicate it’s likely around ~RMB 300BN this year, and still growing in the double-digits. At that level, the division is likely contributing ~US $2.5BN in annual profits17. It’s an impressive result, but admittedly, not a huge needle-mover in light of the total $17.6BN net profits the company is expected to make this year (~14% of overall profits).
From a valuation perspective, PDD Holdings Inc. (NASDAQ:PDD) is trading at attractive levels, with a forward price-to-earnings ratio of 10.45 as of October 21, representing a nearly 40.19% discount to its sector median of 17.48. Analysts expect a nearly 58.67% increase in PDD Holdings Inc.’s (NASDAQ:PDD) earnings this year. Industry analysts are bullish on the company’s stock price and have a consensus Buy rating at a target price of $167.85, which implies a 29.18% increase from its current level. PDD Holdings Inc. (NASDAQ:PDD) is a compelling investment opportunity for investors looking to capitalize on the growth of the e-commerce industry.
