As the first quarter report approaches, will "Coupon King" Pinduoduo continue its "crazy growth"?

Against the backdrop of Temu's multi-point breakthrough and the main site, Pinduoduo's first-quarter report is expected to continue its high-growth trend, but also faces the test of whether growth momentum can be sustained.

Pinduoduo will release its 2024 first-quarter financial report on May 22. After the financial report is released, the company will hold an earnings conference call at 19:30 on the evening of the 22nd Beijing time.

The current Wall Street consensus expectation is that Pinduoduo's first-quarter revenue is 76.86 billion yuan, a year-on-year increase of 104.2%, adjusted net profit year-on-year growth of 53.4% to 15.53 billion yuan, adjusted earnings per share of 10.5 yuan, a year-on-year increase of 52.2%. The overall growth rate has significantly slowed compared to the previous quarter, but remains strong.

As Temu, the new growth engine of Pinduoduo, boosts performance, whether it can break through the ceiling and deliver long-term profitability remains a major focus of this quarter's financial report.

Online marketing services or year-on-year growth doubled, strong advertising demand

In terms of business segments, Wall Street expects that Pinduoduo's online marketing services and other revenue in the first quarter were 37.65 billion yuan, a year-on-year increase of 104%; transaction service revenue was 38.07 billion yuan, a year-on-year increase of 38%.

Some analysts point out that Pinduoduo's initiatives in promoting product and service innovation, supporting agriculture and grocery businesses, strengthening cooperation with various parties, and meeting diverse consumer needs are expected to make a positive contribution to first-quarter revenue.

The growth in advertising demand, as well as the strong momentum of online marketing and transaction services, are also expected to drive Pinduoduo's first-quarter revenue growth.

However, factors such as reduced consumer spending, increased advertising and promotional expenses, rising payment processing fees, and cloud service costs may drag down Pinduoduo's first-quarter performance.

How did Temu perform in the first quarter?

The most eye-catching part of this financial report is undoubtedly Temu, Pinduoduo's cross-border e-commerce platform. According to Dolphin Research, Temu achieved an astonishing revenue of 26 billion yuan in the fourth quarter of 2023. Pinduoduo's management revealed during the fourth-quarter conference call that since the launch of Temu in September 2022, it has entered more than 50 countries and regions globally.

Many institutions are optimistic about Temu's market potential.

UBS believes that the market may underestimate Temu's market expansion potential for low-income consumers and the higher profit margins that its management e-commerce model may bring. However, UBS also mentioned that Temu faces certain geopolitical risks.

HSBC believes that with a full-line low-price strategy from clothing to children's toys and aggressive marketing methods, Temu's expected growth rate is the fastest among Chinese cross-border e-commerce, and is expected to achieve a GMV of 140 billion US dollars by 2027. Some analysts have pointed out that although Temu has been performing well in the short term, the limitations of its business model and the increased costs of expanding into new markets may constrain its potential for value appreciation. The upper limit of Temu's value is believed to not exceed a few hundred billion US dollars, which still falls short compared to the nearly 200 billion US dollars value of Pinduoduo's main site. At the same time, as Temu expands into new markets outside the United States, the increasing difficulty in fulfillment and the diminishing economies of scale have led to a slower growth in gross profit compared to revenue, with the gross profit margin facing downward pressure.

How is the market reacting?

As of the close of the US stock market on Tuesday, Pinduoduo fell by 0.9% to $146.19. Over the past year, Pinduoduo's stock price has surged by over 130%, but profit-taking has been happening since 2024, leading to a continuous decline in Pinduoduo's stock price.

Will the first quarter report be a catalyst for the rebound of Pinduoduo's stock price? Some investment institutions have already made their choices before the financial report is released.

The famous billionaire hedge fund manager David Tepper's Appaloosa Management significantly increased its holdings of Pinduoduo stock in the first quarter of 2024, acquiring 1.325 million shares, which now account for 3.61% of its investment portfolio.

In addition, Pinduoduo has become the largest holding of the billion-dollar private equity firms Hillhouse Capital and GGV Capital International, especially the former.

Hillhouse increased its holdings of Pinduoduo by 1.68 million shares in the first quarter, with an increase ratio of 16.62%. The latest number of shares held has risen to 11.7815 million shares, with the end-of-period holding value reaching 1.37 billion US dollars (approximately 9.891 billion RMB), indicating a strong favor towards Pinduoduo with a single stock holding value close to tens of billions of RMB.

UBS has raised Pinduoduo's stock target price from $217 to $248, maintaining a buy rating.