BofA Downgrades Pinduoduo On Monetization Concerns

Pinduoduo Inc – ADR PDD is scheduled to report first-quarter results Friday.

While the Chinese e-commerce company company is likely to report its topline numbers broadly in-line with expectations, there are concerns surrounding monetization and profits, according to BofA Securities.

The Pinduoduo Analyst

Joyce Ju downgraded Pinduoduo from Buy to Neutral and raised the price target from $48.40 to $64.

The Pinduoduo Thesis

A strong recovery in consumer demand has occurred since March following the coronavirus outbreak, and this is likely to have propelled Pinduoduo’s first-quarter performance, Ju said in the Wednesday downgrade note.

The analyst expects the company to report 40% year-on-year growth in gross merchandise value to 213 billion yuan ($31 billion) and 11% growth in revenue to 5 billion yuan.

Pinduoduo’s monetization rate is likely to have declined from 2.9% to 2.4% quarter-over-quarter

and from 3% in the first quarter of 2019 due to traffic support and subsidy to merchants, she said. 

The company’s sales and marketing expenses are likely to have risen to 125% of revenues, up from 86% in the previous quarter and 108% in the first quarter of 2019, mainly due to lower monetization and epidemic-related subsidies, Ju said. 

While traffic data indicates a reacceleration in user and engagement trends in April, the analyst expressed concern around the company’s monetization rate and profits as well as its ability to generate faster revenue growth due to competition from Alibaba Group Holding Ltd BABA and JD.Com Inc JD.

PDD Price Action

Shares of Pinduoduo were down 3.47% at $60.90 at the close Wednesday. 

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