Why BofA Is Upgrading Pinduoduo After The Q3 Print

Pinduoduo Inc’s PDD upbeat third-quarter earnings indicate better monetization and profitability prospects in its marketplace, while its expanded addressable market and user base from the grocery feature Maicai could lend growth upside, according to BofA Securities.

The Pinduoduo Analyst: Joyce Ju upgraded Pinduoduo from Neutral to Buy and raised the price target from $90 to $155.

The Pinduoduo Thesis: The company reported solid third-quarter results, beating expectations on all metrics, Ju said in the upgrade note.

The growth in Pinduoduo’s user base was impressive, with annual active buyers reaching 731 million, closing the gap with rival Alibaba Group Holding Ltd BABA, the analyst said.

The company generated 89% revenue growth, driven by a reacceleration of gross merchandize value and improved monetization, according to BofA. 

What was most surprising was that non-GAAP net income turned positive for the first time, driven by rising monetization and better marketing efficiency, Ju said.

“The robust growth and increasing leverage shown in 3Q reduced our concerns on marketing expenses’ ROI, and growth sustainability of the marketplace, providing us more confidence on co.’s strategic visions, executions, and path to profitability.” 

PDD Price Action: Shares of Pinduoduo were trading 8.38% higher at $145.46 at last check Friday. 

Courtesy photo.