PDD Expects Robust Q3 Revenue Growth, Temu Business Gradually Contributes to Valuation
$PDD Holdings (PDD.US)$'s earnings release is scheduled for Nov 28. Quarterly revenue is expected by consensus at 53.77billion RMB, which means a massive 51.45% YoY growth. Despite the expected massive revenue growth, consensus EPS is expected to be 7.48 RMB, which is basically flat compared to the that of 2022 Q3, with a year-on-year growth of 1.63%.
What analysts are saying
As of Nov 23, moomoo has collected viewpoints from 15 institutional analysts, including Buy ratings from Goldman Sachs, Citigroup, and Bernstein, and a Hold rating from Jefferies.
Goldman Sachs Group Inc. sees a "strong top-line beat" in the third quarter while warning that Temu could post a bigger-than-expected loss. But investors are "gradually willing to ascribe some valuation for the Temu business" on the back of faster-than-expected GMV expansion, analyst Ronald Keung wrote in a note.
If PDD is able to beat consensus estimates and deliver a narrower-than-expected margin drop while delivering strong 2H growth of more than 50%, the stock could re-rate further," said Bloomberg Intelligence analyst Catherine Lim.
While PDD usually deemphasizes its participation in Singles’ Day, we believe more buzz around its 'Billion Dollar Subsidy' and 'Annual Price Reduction Lists' and the consumption trade-down trend is likely to support higher growth," Citigroup Inc. analyst Alicia Yap wrote in a note.
We believe that Temu's rapid rise in popularity was supported by the company's elevated marketing investments, its low prices and focus on promotions, and the success of its referral campaigns," said Berstein's analysts.
PDD's strong financials performance
PDD's impressive financial performance in Q2 resulted in a leveraged free cash flow of nearly $2.9 billion, representing a YoY increase of almost 100%. This robust FCF has also contributed to the company's already strong balance sheet, with PDD currently holding a net cash position of $22 billion and very little debt. Furthermore, PDD's liquidity metrics are favorable. Overall, PDD is well-positioned to continue investing in growth and innovation, given its sound financial standing.
PDD's Q3 results are expected to be strong due to China's better-than-expected economic growth and robust consumer spending as a key driver. As Pinduoduo is the company's primary revenue stream, the stronger consumer spending data indicates that PDD may surpass consensus revenue figures. The recent earnings beat by JD.com, one of PDD's closest rivals, also adds to the optimism..”
PDD's global expansion may encounter multiple opportunities and difficulties
Pinduoduo further expanded its product range by launching the Temu platform, which has already entered 47 countries. With Pinduoduo's sustained high growth and expansion plans, the company will continue to receive close attention from the market and investors. Here are the opportunities and challenges that PDD may encounter during its development.
Competitors Amazon's increasing cut of seller revenues sparks dissatisfaction. "[Marketplace Pulse] reported that Amazon is now taking more than 50% of seller revenues, and that's a combination of their take rate and fees for fulfillment and advertising, and it’s up from about 40% five years ago," said Insider Intelligence." That's really made more sellers feel dissatisfied because they're not able to even get the money that they're selling products for, and so maybe look to other channels to sell on.
Temu's Success to Product Range and Affordability. The wide array of products on offer is "arguably the most significant" factor in propelling Temu, Euromonitor International analyst Fatima Linares said. "At a time when the ongoing cost of living crisis demands more budget-conscious shopping, Temu's kitchen gadgets and electronics priced between $5 to $10 hold strong appeal," she said.
Unsustainable Caution for Temu Due to Long-Term Losses. Bank of America cautioned that Temu's rapid expansion may not be sustainable in the long term if the appetite for losses and ad spending by its parent wanes. Temu may see a $3.65 billion operating loss this year despite global sales of $13 billion, Sanford C. Bernstein estimates — double the revenue it predicted in January but still potentially a conservative forecast given the pace of growth. Temu's loss may narrow to $1.9 billion in 2025, Bernstein forecasts.
TikTok Shop Presents Serious Competition to Temu. TikTok Shop, which has recently been made available to all of its 100 million US users, poses a significant threat of competition to Temu.
Source: Bloomberg, Insider Intelligence, Seeking Alpha, CNBC, Yahoo Finance
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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