Goldman Sachs: Buy Shares Of The Fastest-Growing Internet Company In The World

China-based Pinduoduo Inc PDD, an e-commerce platform that leverages social networks for buyer acquisition and engagement, is the fastest-growing internet company in the world in revenue terms and should be bought by investors, according to Goldman Sachs.

The Analyst

Goldman Sachs' Piyush Mubayi initiated coverage of Pinduoduo with a Buy rating and $31.90 price target.

The Thesis

Pinduoduo boasts 344 million annual active buyers on its platform, 195 million of whom use the platform at least once a month, Mubayi said in the initiation note. (See the analyst's track record here.)

The unique "team purchase model" of the e-commerce platform leverages Chinese social media platforms to incentivize purchases. As a result, expectations for 73-percent revenue compounded annual growth through 2021 and 60-percent CAGR in gross merchandise value makes it the fastest-growing online business in the world, the analyst said.

The company's business model is sustainable over the long-term, as it represents a compelling option for merchants by targeting multiple people in one transaction, Mubayi said. Users benefit from competitive pricing and a more fun shopping experience compared to rival e-commerce platforms, he said.

Much larger Chinese e-commerce platforms attempted to duplicate Pinduoduo's "team purchase model" but failed due to a different customer profile, the analyst said. For example, JD.Com Inc(ADR) JD customers are typically within a higher income bracket and focus more on computers and other electronic products rather than Pinduoduo's "more fun" items, he said.

Goldman Sachs expects Pinduoduo to become profitable in 2019 with a 0.3-percent non-GAAP net margin. In the long run, sales and marketing expense as a percentage of revenue should fall from an estimated 102 percent in 2018 to 44 percent in 2020 and continue trending toward the level of other e-commerce companies beyond 2020, in the sell-side firm's view.