$PDD Holdings (PDD.US)$ The results will be announced before pre-market trading on August 26th. According to market expectations, PDD is expected to achieve revenue of 100.099 billion yuan in Q2 2024, a year-on-year increase of 91.46%; expected EPS of 19.01 yuan, a year-on-year increase of 111.27%.
Looking back at the first quarter, PDD's financial report was remarkable, with revenue reaching 86.8 billion yuan, a year-on-year increase of 131%, mainly due to the increase in revenue from online marketing services and transaction services; adjusted net profit of 30.6 billion yuan, a year-on-year increase of 202%; operating profit surpassed Alibaba for the first time, reaching 25.9 billion yuan. The low-price strategy boosted performance, and PDD's cross-border e-commerce platform, Temu, also expanded strongly, driving up the post-earnings stock price and market cap, surpassing Alibaba at one point.
Looking ahead to the second quarter, PDD's revenue and GMV growth, as well as the performance of Temu, remain the focus of investors. So far this year, PDD has experienced a slight decline, with impressive performance and high growth potential not translating into outstanding stock price performance. Can PDD revive its momentum this time?
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Maintaining high growth in revenue! Temu remains a key growth driver.
In the first quarter, PDD's revenue from online marketing services and other sources was 42.46 billion yuan, a year-on-year increase of 56%; transaction service revenue skyrocketed by 327% to 44.36 billion yuan, surpassing online marketing business to become PDD's largest source of revenue.
According to Bloomberg's consensus expectations, PDD's Q2 revenue from online marketing services and other sources is expected to be 50.49 billion yuan, a year-on-year increase of 33.12%. Transaction service revenue is expected to be 50.02 billion yuan, a year-on-year increase of 249%, with both business segments showing a slight slowdown in growth.
In terms of business segments, PDD's revenue structure is divided into online marketing service revenue (also known as advertising revenue) and transaction service revenue (commission revenue). The business structure is divided into domestic main site and overseas Temu business division. As PDD has not disclosed specific data for Temu, Temu's revenue is included in transaction service revenue. Industry experts generally believe that PDD's transaction service revenue has grown significantly in recent quarters, with the Temu cross-border e-commerce platform being a key growth driver.
According to media estimates, Temu's GMV in the second quarter is about $12 billion, accounting for nearly 45% of the US market share, and its sales in the first half of this year surged to $20 billion, surpassing the full year of last year, showing impressive overseas performance.
However, Temu's competitors are also eyeing its business, and its operations may be affected by overseas regulations. First of all, Amazon plans to launch a "low-price store" project to compete with Temu. This project focuses on selling unbranded products, mainly attracting investment in fashion, home and daily necessities categories, with prices below $20. Secondly, stricter regulation of APPs and customs clearance policies will put pressure on the stock price, and investors need to pay special attention.
However, Morgan Stanley believes that Temu should be able to bring performance surprises. One reason is that Temu has been raising prices to drive profit margins. Another reason is that the degree to which the United States increases tariffs on Chinese products is limited. Although PDD's profits may be eroded, some risks have been priced in. The stock price valuation is low, and the bank reiterated its buy rating on PDD with a target price of $220.
Diminishing the low-price strategy, GMV returns to the top priority?
According to media reports from "Wandian", after Taobao and Douyin e-commerce, PDD has also adjusted its business focus, shifting from pursuing commercialization and profit improvement to putting GMV back at the top priority. This means that PDD will no longer pursue a higher monetization rate brought by absolute low prices.
Previously, the consensus in the e-commerce industry for low prices was largely driven by consumer demand. However, for PDD, ensuring the growth of the company's business revenue also requires addressing the loss of small and medium-sized merchants and attracting more brands to join.
According to media reports, PDD is considering reusing Temu's business experience in domestic business and trying the "fully managed" model in some categories, where merchants are responsible for supplying goods and platforms determine the retail price, achieving even lower prices.
In the last earnings conference call, PDD Group's Chairman and Co-CEO, Chen Lei, stated that "consumers have formed a habit of cross-platform consumption and will comprehensively compare various dimensions of products, such as category, price, and service quality, before making a choice." From this, it can be seen that PDD is also keenly aware of the changes in the consumer market, and the management's statements on future strategies in this earnings conference call will also attract attention.
GTJA predicts that PDD's GMV is expected to increase by 24.8% YoY to reach 104.1 billion. Previously, PDD had maintained a GMV growth rate of over 40%, but as industry competition intensifies, the growth momentum has slowed down.
How has the stock price performed on past earnings days?
According to Market Chameleon, backtesting the past 12 quarters of performance days, PDD has a high probability of rising on the day of performance release, about 75%, with an average stock price change of ±13.2%. The maximum decline is -15.9%, and the maximum increase is +22.2%.
Currently, PDD's implied volatility is ±8.5%, indicating that the options market is betting on a single-day price change of 8.5% after its performance announcement. In comparison, PDD's average stock price change after the previous 4 quarters of performance was ±9.5%, indicating that the current options value of the stock is slightly undervalued.
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From the skewness of options volatility, the market sentiment towards PDD tends to be bullish.
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