PDD Holdings (PDD) Potential Upside If OMS and GMV Outperform Estimates

PDD online marketing services (OMS) revenue growth would be something that we need to watch, as this should be the catalyst for PDD next stock price movement.

OMS is expected to grow 47% YoY in 4Q23, which implies 20% YoY GMV growth, outpacing ecommerce industry growth of 7.3% YoY, this significant performance could be due to the 'low price' mindshare which benefit from customer approach towards price sensitiveness as weak consumption have been seen.

We could be seeing unexpected growth in Gross Merchandise Value (GMV) and revenue from its international platform, Temu, in Q4 2023. But this is not seen to be the main force behind its stock’s performance.

Though we saw a more than 4% upside for PDD on 18 March 2024 trading, but the overall buying strength have not come back based on daily chart.

I will be watching the buying/selling strength closely for PDD as need to seek out a more clear signal of which way it would be moving.

PDD last reported earnings on 28 Nov 2023 before the market opened (BMO). PDD shares gained +18.1% the day following the earnings announcement to close at 139.00. Following its earnings release, 111 days ago, PDD stock has drifted -7.4% lower.

From the time it announced earnings, PDD traded in a range between 108.87 and 152.99. The last price (128.71) is closer to the lower end of range.

Estimated implied straddle for upcoming earnings is 13.3%. If we look at the past implied straddle, we could be looking at around 10% upside post earnings for PDD.

The options market overestimated PDD stocks earnings move 25% of the time in the last 12 quarters. The predicted move after earnings announcement was ±11.7% on average vs an average of the actual earnings moves of 13.8% (in absolute terms). This shows you that PDD tended to be more volatile than the options market predicted for the earnings stock price reaction.

PDD option valuation is showing undervalued, and this signal more volatility. Strong consumer interests across different categories like agriculture produce, FMCG, household electronics and cosmetics are likely to have been a tailwind.

PDD’s continuous efforts to strengthen the agriculture and grocery businesses are expected to have contributed well to the top line in the fourth quarter. Strengthening partnerships with local communities, shops, farmers and agri-merchants are anticipated to have aided its performance in the quarter under review.

We could see a higher stock price move after its earnings release.

PDD could be giving us a surprise earnings, but the contribution from consumer interests might outpace the OMS, if revenue and EPS beats the estimate, we could expect PDD to give us a nice upside in its stock price.

I think can consider to buy into PDD today (19 Mar) before its earnings.

Appreciate if you could share your thoughts in the comment section whether you think PDD would report a better-than-expected earnings in OMS?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.