Qudian And Its 'Potentially Massive' Market Opportunity

Chinese microlender Qudian Inc – ADR QD reported third quarter results Monday, showing a 308 percent jump in revenues and a 322 percent increase in net income.

Total transactions in value terms rose 219 percent and the number of active borrowers climbed 174 percent to 2.7 million.

The Analyst 

Stifel analyst John Davis initiatedQudian with a Buy rating and $35 price target. The analyst said he views the risk/reward favorably.

The Thesis

Qudian has a "potentially massive growth opportunity," as its 7.5 million active borrowers represent a fraction of the total addressable market of tech-savvy Chinese customers, estimated at nearly 400 million, Davis said in a Wednesday note.

The company's partnership with Alibaba Group Holding Ltd BABA's Ant Financial/Alipay reduces its customer acquisition costs while also giving it access to millions of potential customers, Davis said.

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The Chinese company is not without risks, the analyst said.

Further regulation of the online consumer finance industry in China could impact Qudian's growth and profitability, according to Stifel. And any change or disruption in Qudian's relationship with Ant/Alipay could significantly affect its business.

If delinquencies do not stabilize around 1 percent, in line with the company's guidance, it could not only impact the company's profitability but also derail the entire story and stock, Davis said. 

"More importantly, we view the company's laser-like focus on small dollar, short duration loans and its partnership with Ant/Alipay as sustainable competitive advantages that should enable the company to keep its market leadership position and capitalize on the tremendous growth opportunity ahead."

The Price Action

Qudian recently IPO-ed, offering 37.5 million American Depository Shares at $24 each. The stock made a gain of roughly 22 percent before ending its Oct. 18 debut session at $29.18.

At last check, shares of Qudian were up 0.87 percent at $25.38.

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