Original title: Wall Street Investment Bank KeyBanc: Maintaining Pinduoduo's “Buy” Rating, Target Price Raised from $45 to $50
[TechWeb] On January 23, recently, KeyBanc Capital Markets (“KeyBanc”), a well-known Wall Street investment bank, released a report stating that Pinduoduo's “10 billion subsidy” campaign has advantages such as “unlimited direct subsidies, simple rules, complete categories, and the largest number of subsidized products,” which has effectively promoted an increase in the repurchase rate and GMV growth.
According to the report, since Q4 2019, both Ali and JD have adopted follow-up strategies for the “10 billion subsidy” campaign launched by Pinduoduo, which has further intensified competition in the Chinese e-commerce industry. Through research and comparison of similar activities on the three major e-commerce platforms, the report concluded that “Ali and JD both have system incompatibility in terms of subsidy experience and subsidy scale.” Therefore, other e-commerce platforms' follow-up strategies have failed to have an impact on Pinduoduo's growth momentum.
At the same time, KeyBanc believes that Pinduoduo's profitability in 2020 is expected to decrease due to more and more brand/subsidized GMV combinations, but as the customer base continues to increase and settle, it is expected that medium- to long-term profitability will be high, so it maintains a “buy” rating and raised the target price from 45 US dollars to 50 US dollars.
The report points out that although the “10 billion subsidy” has generated heavy subsidy expenses, Pinduoduo's operating cash flow (OCF) continues to rise, ensuring the robustness and sustainability of the current business model, which is conducive to increasing the user retention rate.
The report acknowledged the value of Pinduoduo's “10 billion subsidy” as a long-term strategy. “The '10 billion subsidy' will continue to bring about growth in platform GMV. Due to the increasing number of brand/subsidy GMV combinations, Pinduoduo's profitability is expected to decrease in 2020, but as the customer base continues to increase and settle, it is expected that medium- to long-term profitability will be high.”
According to information, KeyBanc is a famous boutique investment bank on Wall Street. It focuses on capital market business and industry analysis in the technology industry, covering leading Chinese Internet companies such as Alibaba, JD, Vipshop, and Pinduoduo. KeyCorp, the parent company of KeyBanc, is a US regional commercial bank ranked in the top 500 in the world, with total assets of nearly 150 billion US dollars.