On Thursday, Citi reaffirmed its Neutral stance on shares of Pinduoduo Inc. (NASDAQ:PDD), maintaining a $147.00 price target. The decision came after Pinduoduo reported third-quarter results for fiscal year 2024, which showed a 44% year-over-year increase in revenue to Rmb99.4 billion. This figure was slightly below Citi's projection of Rmb99.8 billion and 3% under the consensus estimate of Rmb102.8 billion.
The growth was attributed to a 72% surge in transaction services revenue to Rmb50 billion, which exceeded Citi's forecast by 2%, and a 24% rise in online marketing services revenue, although this latter figure fell short of Citi's expectation by 2.9%.
The company's non-GAAP net profit attributable to ordinary shareholders climbed by 61% year-over-year to Rmb27.5 billion. However, this profit was 14.5% lower than Citi's estimate of Rmb32.1 billion and 6% below the street estimate of Rmb29.2 billion. Pinduoduo's non-GAAP operating profit also increased by 48% year-over-year to Rmb26.8 billion, yet it was 20% beneath Citi's estimate of Rmb33.6 billion.
The report highlighted that Pinduoduo's sales and marketing (S&M) expenses as a percentage of revenue climbed to 31% compared to 27% in the previous quarter. This was higher than Citi's estimate of 29%, indicating increased spending in that area.
The rise in S&M expenses, along with lower gross profit margins (GPM) and higher sales and marketing costs, which were partially offset by reductions in general and administrative (G&A) and research and development (R&D) expenditures, influenced the company's financial performance.
Pinduoduo's latest financial results demonstrate a mix of robust revenue growth in certain segments, counterbalanced by higher operational costs and lower-than-anticipated profits. The maintained price target reflects Citi's assessment of the company's current financial health and market position following the release of the third-quarter figures.
In other recent news, PDD Holdings Inc. reported third-quarter earnings that fell short of analyst expectations. The Chinese e-commerce giant posted adjusted earnings per ADS of RMB18.59 ($2.65), missing estimates of RMB19.58. Revenue grew by 44% year-over-year to RMB99.35 billion ($14.16 billion), but this figure was below the consensus forecast of RMB102.87 billion.
Despite delivering strong top-line growth, PDD's results and guidance were weaker than expected, a fact attributed to intensified competition and ongoing external challenges. Operating profit rose by 46% to RMB24.29 billion ($3.46 billion), while sales and marketing expenses also increased by 40% due to heightened spending on promotions and advertising.
PDD Holdings has remained committed to investing in its platform ecosystem for long-term results, as reiterated by Chairman and Co-CEO Lei Chen. For the fourth quarter, the company provided cautious commentary, stating its focus on building a healthy and sustainable ecosystem.
InvestingPro Insights
To complement Citi's analysis of Pinduoduo's Q3 FY2024 results, InvestingPro data offers additional context on the company's financial performance and market position. Despite the mixed quarterly results, Pinduoduo maintains a strong financial foundation. The company boasts a market capitalization of $161.78 billion and an impressive revenue growth of 106.72% over the last twelve months as of Q2 2024, significantly outpacing the 44% year-over-year increase reported in the recent quarter.
InvestingPro Tips highlight that Pinduoduo "holds more cash than debt on its balance sheet" and has "liquid assets exceed short term obligations," which aligns with the company's ability to invest in growth initiatives, such as the increased sales and marketing expenses noted in the earnings report. Additionally, the "impressive gross profit margins" tip is reflected in the reported 62.44% gross profit margin for the last twelve months, underscoring Pinduoduo's operational efficiency despite the recent increase in expenses.
While Citi maintains a Neutral stance, investors might consider that Pinduoduo is trading at a P/E ratio of 11.86, which could be viewed as relatively attractive for a high-growth tech company. The InvestingPro Fair Value of $162.95 suggests potential upside from the current trading price, though this should be weighed against the recent stock performance, as the price has "fallen significantly over the last three months" according to another InvestingPro Tip.
For a comprehensive analysis, InvestingPro offers 13 additional tips on Pinduoduo, providing investors with a broader perspective on the company's financial health and market position.
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