Alibaba Rival Pinduoduo Gets Bullish Nod from Goldman Sachs Backed By Temu's Potential

Goldman Sachs analyst Ronald Keung upgraded PDD Holdings Inc PDD from Neutral to Buy and a $129 price target.

PDD’s significant 2Q earnings beat (driven mainly from domestic online ad revenue +50% yoy) despite aggressive Temu investments have made the analyst reassess his domestic platform margin trajectory/valuation. 

However, the solid 2Q beat, despite one of the industry’s most intense 618 campaigns, has led him to reset his Pinduoduo central platform upward take rate/margin expectations on its success in blockbuster SKUs/SME merchant focus (where platforms have higher bargaining power in this macro environment). 

Meanwhile, adequate cost controls and the eCommerce sector’s broadly rational margin outlook led Keuung to lift his PDD FY23E central platform EBIT forecasts. 

With no value ascribed to its Temu business, he sees a path to positive unit economics with sizable profit longer-term, leading to the rerating. 

Pinduoduo maintains the most robust value-for-money mind share amongst Chinese consumers on eCommerce platforms, despite more aggressive strategies from Alibaba Group Holding Limited BABA, and Pinduoduo’s strong presence in relatively under-penetrated fresh/groceries categories, undemanding valuation and free option value in Temu, tapping into overseas TAM with strong traction despite geopolitical risks.

Keung projects an FY23 revenue of RMB 200.1 billion (prior RMB 186.8 billion) and EPS of RMB 33.49 (prior RMB 25.20).

Price Action: PDD shares traded higher by 3.21% at $96.21 on the last check Wednesday.