UPDATE: PDD Holdings has just announced a significant rebound in its earnings, with third-quarter EBIT rising by 3% year-on-year, a stark contrast to a 21% decline in the previous quarter. This surge is attributed to decreased subsidies at its domestic platform, Pinduoduo, and improved margins, prompting analysts to raise the company’s fair value estimate by 25% to $154.00 per share.
The latest data from Morningstar highlights that while revenue growth from PDD’s online marketing services has slowed from 13% to 8% sequentially, the overall performance remains promising. Analysts suggest that this deceleration points to either slower gross merchandise volume growth or a lower monetization rate at PDD. However, transaction services revenue has exceeded expectations, indicating better-than-expected performance from Temu, with revenue growth estimated in the high-single-digit percentage range.
Why it matters: The adjustment in EBIT forecasts by an average of 23% for the years 2025-34 reflects a positive outlook on profit margins, amidst ongoing investments in Temu. PDD has managed to stabilize its monetization rate following extensive merchant support programs, setting the stage for anticipated margin expansion.
As PDD navigates a competitive landscape, the company is scaling back subsidies now that more merchants qualify for national support. This shift comes at a crucial time as the United States concludes its de minimis policy, implementing a more predictable tariff regime. Temu’s strategic adoption of a stable half-assignment model allows it to expand beyond the U.S., paving the way for enhanced profit margins.
The bottom line: While the market remains cautious due to management’s comments on unpredictable quarterly profitability, PDD’s recent performance suggests the stock is undervalued. With strong fundamentals and strategic adjustments, investors are watching closely as PDD Holdings positions itself for future growth in a rapidly evolving market.
Next steps: Analysts urge investors to keep an eye on upcoming earnings reports and trends in transaction services, as these will be crucial indicators of PDD’s ongoing recovery and market position. The evolving landscape in e-commerce and online marketing services continues to shape the future of PDD Holdings, making this a critical time for stakeholders.
Stay tuned for more updates as this story develops.
