On November 21 (Thursday) before the market opens,$PDD Holdings (PDD.US)$the financial report for the third quarter of 2024 will be published. According to market consensus expectations, pdd holdings is expected to achieve revenue of 103.699 billion yuan in Q3 2024, an increase of 50.64% year-on-year; expected eps is 19.77 yuan, an increase of 86.47% year-on-year.

Looking back at the last quarter, pdd holdings’ financial report results were still impressive, with revenues just a step away from breaking the 100 billion mark, and adjusted operation profits exceeding market expectations for six consecutive quarters, reaching 34.987 billion yuan, a year-on-year increase of 139%. However, the future guidance provided by the company's management was below expectations, leading to a nearly 28% plunge in pdd holdings stock that day.

The chairman of pdd holdings, co-CEO Chen Lei, stated that due to increasing competition in the e-commerce industry, the company will sacrifice some profits in exchange for long-term healthy growth, and will waive 10 billion yuan in fees for quality merchants in the coming year. The company's high income growth is not expected to be sustainable, and a decline in profitability is inevitable.

Looking ahead to the third quarter, pdd holdings’ revenue, GMV growth, and Temu's performance remain key concerns for investors. Additionally, as Trump wins the usa election, us tariffs may affect Temu's overseas performance, and investors should pay attention to whether the management team will disclose performance guidance on this matter again. So far this year, pdd holdings has recorded a decline of over 22%, and its brilliant performance and high growth have not translated into outstanding stock performance. Can pdd holdings rebound this time?

Specific segmented businesses.

According to Bloomberg consensus expectations, pdd holdings' Q3 online marketing services and other revenues are 49.124 billion yuan, with transaction service revenue of 53.01 billion yuan.

When analyzed by region:

• Domestic business

Bocom Intl pointed out that since the third quarter, PDD Holdings has successively implemented a hundred billion yuan discount policy to support merchants' operations, including lowering the base service fee rate for orders from pay-later to 0.6% from 1%, refundable fees for returned orders, automatic refunds of promotional expenses for returned products to the promotional account before shipment, the platform covering transit costs for remote areas, and reducing stores' deposit from 1000 yuan to 500 yuan.

It is expected that in the third quarter, PDD Holdings' domestic e-commerce GMV will still outperform its peers, achieving a year-on-year growth of 15-20%. The monetization rate is expected to remain flat year-on-year under the merchant support strategy including the hundred billion yuan discount, and the adjusted net income is expected to be 30.6 billion yuan, an annual growth rate of 80%.

Morgan Stanley stated that amidst uncertainties in China's e-commerce industry and insufficient consumer stimulus measures, PDD Holdings is viewed as the top choice among e-commerce stocks. Its defensive characteristics are particularly prominent in a weak consumption environment, as consumers are price-sensitive, making PDD Holdings’ value-for-money positioning more resilient.

Considering that the growth of e-commerce users in China has peaked, with e-commerce users accounting for 82% of the total internet users in China, PDD Holdings needs to drive future GMV growth by increasing the average transaction value. Attracting more brand merchants and enriching the variety of brand commodities will be key to achieving this goal.

• Temu overseas business

Morgan Stanley also stated that Temu, as PDD Holdings’ overseas business, has shown excellent performance in terms of global monthly active users and daily active users, reaching 0.311 billion and 32 million respectively by September. However, the market currently undervalues Temu despite its strong business performance. In the USA market, Temu has passed the aggressive user acquisition phase, with the current focus on expanding SKU supply and enhancing user experience. In non-USA regions, such as Europe and Latin America, Temu remains in a rapid growth phase.

Bocom Intl further pointed out that with the increase in semi-managed volumes, Temu's loss rate is expected to continue to narrow, and the USA region may have already achieved a break-even point, while TEMU is expected to achieve overall break-even by 2025.

Top institutions are increasingly divided! Nearly 90% of analysts have given a 'strong buy' rating.

In addition, with the recent disclosure of top institutions' form 13f, it can be seen that former 'major bulls' of PDD Holdings, Hillhouse and Jinglin, have chosen to reduce their holdings.

In the third quarter, Hillhouse reduced its holdings by 4.125 million PDD Holdings stocks, a decrease of 46.4%, falling from the number one holding in the previous quarter to the third largest holding. Jinglin reduced its holdings by 0.6892 million stocks, bringing its total shares down to 4.5178 million, with a market cap of 0.609 billion USD at the end of the period, though PDD Holdings remains its largest stock holding.

In contrast, Gao Yi continued to increase its holdings by 0.1728 million stocks of PDD Holdings, securing its position as the number one holding with a market cap of about 0.237 billion USD; it is also noteworthy that what the market speculates to be the H&H fund managed by Duan Yongping made its biggest move in the third quarter by significantly increasing its positions in PDD Holdings, adding 3.8 million stocks, with a change in position amounting to 36 times, and the end-of-period holding value increased to 0.527 billion USD, becoming the fifth largest holding in the fund.

Among overseas institutions, David Tepper, who previously shouted 'buy china', increased his stake in PDD Holdings by more than 1.7 times, bringing his holding value to 0.7 billion USD.

Recently, a total of 15 analysts rated PDD Holdings, with nearly 90% giving a 'strong buy' rating, the highest target price being 224 USD, providing nearly double the increase potential from the current stock price; the average target price is 170.46 USD, allowing for nearly 50% upward potential from the current stock price.

How has the stock price performed on past earnings days?

According to Market Chameleon, backtesting the performance days of the past 12 quarters, pdd holdings has a high probability of rising on the earnings release day, around 67%, with an average price change of ±13.7%, a maximum drop of -28.5%, and a maximum rise of +19.0%.

Currently, the implied volatility of pdd holdings is ±9.5%, indicating that the options market bets on a single-day price change of 9.5% after earnings; in comparison, the average stock price change for pdd holdings over the last four quarters after earnings was ±12.8%, showing that the current options value of this stock is undervalued.

In terms of volatility skew, the current market tends to be slightly bullish on this stock.

Editor/ping