4. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) is one of the best e-commerce stocks to buy according to hedge funds. 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.
In the second quarter of 2024, PDD Holding’s total revenue reached RMB 97 billion, an 86% increase year-over-year. It also generated an operating profit of $4.5 billion, hinting that it is extremely profitable. Temu, its proprietary e-commerce platform, is rapidly growing in the United States and Europe. It sells all sorts of items such as clothing, home decor, beauty, and handmade items, at affordable prices.
Temu, known for its low-priced products and fast deliveries, is set to become one of the most used platforms in the world. Temu has a 20% market share in its home country and is rapidly expanding in Europe and North America, known as the fastest-growing e-commerce platform in the world. What sets Temu apart is its expenditure on advertising and marketing. PDD Holdings’ (NASDAQ:PDD) company ensures that its ad spending on social media garners reach and attention from customers globally.
The company has placed significant bets on its cross-border growth, which may have been in jeopardy due to geopolitical tensions at the moment. Conversely, as the Chinese government takes steps to stimulate the economy, PDD Holdings Inc. (NASDAQ:PDD) is expected to accelerate rapidly. Its growth strategy is also supported by its expansive advertising strategy and optimized operations.
Baron Emerging Markets Fund 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.”
