Why KeyBanc Is Bullish On Pinduoduo Despite Short-Term Challenges

While Pinduoduo Inc’s PDD near-term prospects remain under pressure due to elevated competition, its big new customer wins and market share gains in high-frequency categories bode well for growth in the long term, according to KeyBanc Capital Markets.

The Pinduoduo Analyst: Hans Chung maintained an Overweight rating on Pinduoduo, with a $100 price target. 

The Pinduoduo Thesis: The company reported mixed second-quarter results Friday, with in-line revenue due to a higher take rate and a better operating loss due to lower sales and marketing expense, Chung said a Monday note. (See his track record here.)

Despite stiffening competition and higher promotions from peers, Pinduoduo incurred higher expenses on new customer acquisitions to capitalize on the acceleration in e-commerce adoption, the analyst said. 

"We view PDD's change in growing tactics as a positive move from a LT perspective as high-frequency categories help drive user engagement and stickiness to the platform, and eventually could lead to upselling opportunities."

Agriculture e-commerce is a compelling long-term opportunity for Pinduoduo, given its large total addressable market and barriers, Chung said. 

The team purchase model gives the company a unique advantage, and efforts to improve the supply chain and food safety "could further enhance its competitive moat," the analyst said. 

The company has a long runway for growth, given its low monetization, massive user scale and healthy engagement, according to KeyBanc. 

PDD Price Action: Shares of Pinduoduo were trading higher by 0.14% at $84.12 at the time of publication Monday.

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