PDD today
(As of 12/16/2024 ET)
- 52 week range
- $88.01
▼
$164.69
- P/E ratio
- 9.73
- Price target
- $173.40
Despite explosive revenue growth in 2024, PDD’s Nasdaq: BDD The stock price was not good. Shares were down 29% year-over-year as of the Dec. 12 close. Shares have been crushed following the company’s past two earnings releases after missing sales estimates. Metrics now show the stock is much cheaper than it was at the beginning of 2024. Have expectations been reset to a more reasonable level to ensure this stock recovers in 2025? I will present my view after explaining the workings of PDD and highlighting two main risks.
PDD’s differentiated e-commerce platforms
PDD has become a staple in the e-commerce market. Its business revolves around two e-commerce platforms: Pinduoduo and Temu. Pinduoduo serves consumers in China. It uses a “group buying” strategy. This strategy motivates consumers to form groups that purchase items together. The more customers are involved in the purchasing process, the less amount each customer has to pay. Pinduoduo is deeply integrated with China’s largest social messaging app, WeChat. This integration allows Chinese consumers to easily share targeted items.
Features typically included in mobile games also keep customers engaged with the platform. An example of this is timed challenges, where users try to reach a minimum number of others joining their group within a certain period. Overall, the platform takes advantage of the strong behavioral biases that humans have to keep users engaged. This includes fear of missing out, herding, and social proof.
Temu operates as a more traditional e-commerce space, just like Amazon Nasdaq: AMZN. It targets the rest of the world, allowing Pinduoduo to focus on China. Temu focuses less on the group purchasing and gaming aspects that Pinduoduo supports. It chooses to compete by offering extremely low prices by sourcing its products directly from Chinese manufacturers.
The company divides its revenue into marketing services and transaction revenue. Marketing revenue comes from advertising that sellers buy or from other ways they can pay to have their products more visible. Transaction revenue comes from PDD fee commissions per item sold. Last quarter, the split between revenue sources was essentially equal. However, transaction revenues grew at a rate Three times faster From marketing revenue.
The main danger: The US government appears to have Timo in its crosshairs
One big risk for Timo is the new minimum rules proposed by the Biden administration. The de minimis rule states that shipments of goods worth less than $800 are duty-free. Since Temu’s products are low cost, it has been able to use this to its advantage. However, there are serious proposals to completely remove this exemption on goods such as clothing, shoes and household goods. Temu sells a lot of these products. This would raise Temu’s costs, putting pressure on margins and sales. However, even with the addition of tariffs, it will still be very difficult for others to compete with TIMO’s prices.
The slowdown in the Chinese economy poses another risk. However, the Goldman Sachs Group New York Stock Exchange: A Only sees real GDP growth fall by 0.4% in 2025. Government stimulus It should help mitigate the effects From US customs duties.
PDD looks poised for a recovery in 2025 when compared to its peers
It is important to note that PDD platforms are just marketplaces. They don’t hold much inventory themselves, nor do they operate warehouses that hold inventory for vendors. Sellers are responsible for manufacturing and fulfilling the product. This asset-light model differentiates itself from JD’s Chinese competitors Nasdaq: JD And Ali Baba New York Stock Exchange: Beebe. This difference allows PDD much higher margins.
PDD stock forecast today
$173.40
74.08% upModerate purchase
Based on 13 analyst ratings
| High expectations | $272.00 |
|---|---|
| Average expectations | $173.40 |
| Low expectations | $105.00 |
PDD stock forecast details
Analysts expect revenue to grow 32% over the next 12 months, and they expect adjusted earnings per share to grow 16%. Both of these numbers are well above expectations for Alibaba and JD. Additionally, PDD’s margins are light years better than JD’s and much better than Alibaba’s margins. Despite these differences, the three companies trade essentially the same price-to-earnings (P/E) multiple. PDD’s forward P/E has fallen 60% this year to just over 9x.
PDD’s PEG ratio is also much lower than the other two companies, at around 0.4. This means that the markets value it relatively less when considering its expected earnings growth. To me, PDD shares are down a lot, and the outlook should be more reasonable at this point.
From Q3 2023 to Q2 2024, the company saw year-over-year revenue growth of more than 80%, a pace that would be difficult for any company to maintain. Its higher margins and higher growth rate justify a higher margin compared to its peers. This means that PDD stock could see a major rebound in 2025.
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