HomeMost PopularPDD Holdings Delivers Another Explosive Quarter and Continues to be Undervalued

PDD Holdings Delivers Another Explosive Quarter and Continues to be Undervalued

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Pinduoduo, Taobao, Tmall, Temu, Vipshop and JD.com app icon on screen

So, I’ve written about PDD Holdings (NASDAQ:PDD) before, preaching my investment thesis. And guess what? PDD just smashed through analysts’ expectations in their recent earnings report. The stock rocketed up 18% after those astounding figures were let loose. And you know what? Despite the stock soaring close to 50% since my last piece, I still reckon it’s being undervalued. Yes, I’m outraged about this. But let’s delve into the deets.

Another Smashing Quarter

Alright, let’s dig into the numbers. According to their press release:

Total revenues came in at RMB68,840.4 million (US$9,435.4 million), a whopping 94% jump from RMB35,504.3 million in the same quarter of 2022.

Revenues from online marketing services and others raked in RMB39,687.7 million (US$5,439.7 million), a 39% hike from RMB28,482.0 million in the same quarter of 2022.

Revenues from transaction services stood at RMB29,152.7 million (US$3,995.7 million), a staggering 315% surge from RMB7,022.3 million in the same quarter of 2022.

Man, PDD’s revenue growth is off the charts! I mean, Alibaba Group (BABA)’s revenue only soared 9% during the same quarter, whereas JD (JD)’s growth was even lower at 1.7%. Not to mention, Goldman Sachs claims that PDD’s domestic GMV growth totally outshines BABA and JD. It’s like PDD is setting off fireworks while everyone else is just holding a sparkler.

But here’s the kicker – PDD’s expense growth was way lower than its revenue growth. Their press release states:

Total costs of revenues ballooned by 262% from RMB7,414.1 million in the same quarter of 2022 to RMB26,830.2 million (US$3,677.4 million).

Total operating expenses increased by 44% from RMB17,653.6 million in the same quarter of 2022 to RMB25,354.1 million (US$3,475.1 million).

So even though total costs of revenue surged by a mind-boggling 262%, their SG&A expenses and R&D expenses dropped compared to the same quarter of 2022. It’s like PDD is juggling flaming batons while the others are struggling with bean bags.

Temu’s Explosive Growth

A key point I made in my earlier piece was about Temu’s global potential. Well, PDD’s transaction services revenue shot up by 315% this quarter, mostly due to Temu’s revenue. That’s a clear sign that Temu is becoming a global juggernaut.

And guess what? Temu’s global footprint is expanding at lightning speed. It launched in the U.S. in September of 2022, and now it’s available in 48 countries across Europe, the Middle East, South East Asia, and Australia. It’s like Temu is a race car speeding across a global highway.

A report from Berstein’s analyst shows that Temu has already been downloaded 280 million times, with 37 million daily active users and 158 million monthly active users. Those figures are like a skyrocketing hot air balloon compared to everyone else’s kites.

But here’s the tiny rain cloud in Temu’s otherwise sunny sky – it’s currently burning money like there’s no tomorrow. Total costs of revenues shot up by 262% this quarter, mostly due to Temu’s growth. However, most investors believe that Temu is just getting warmed up in the money-making department. So basically, for investors, it’s like watching a rocket launch – it’s all about the anticipation of the breathtaking spectacle that’s about to unfold.

Financial Projections and Valuation

Financial projections? Well, since PDD’s domestic business performed exactly as I predicted, I’m sticking with the same model as before.

PDD's domestic model

As for valuation, I’ve tweaked my model to accommodate the change in USD/RMB exchange rate. And I’ve bumped up my valuation for Temu by 20% because its growth left me gobsmacked.

PDD valuation

Based on my financial projections and valuation model, I reckon PDD’s stock still has more than 60% of upside from today’s price. It’s like finding out your $100 lottery ticket is actually worth $160!

Risks

Of course, there are always risks. For instance, the competitive landscape in China’s e-commerce industry is shifting, with JD and BABA deploying aggressive pricing strategies. This could cause short-term hiccups for PDD in its domestic market.

Then there’s the risk of Temu’s global expansion slowing down due to warehouse capacity or political woes. PDD is working hard to ensure these speed bumps don’t bring Temu’s growth to a screeching halt.

Lastly, the stock is as volatile as a bucking bronco. Any political tensions or company scandals could certainly toss PDD’s stock price about like a dinghy in stormy seas.

To Conclude

Alright, to wrap things up, PDD nailed another phenomenal quarter both domestically and internationally. Temu is clocking in some serious growth, with no sign of stopping. And even though the stock has shot up 50% since my last spiel, I still reckon it’s being undervalued. So, I’m standing by my “buy” rating for PDD Holdings.

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