UPDATE: China Renaissance Upgrades Pinduoduo Inc. (PDD) to Buy

(Updated - August 6, 2021 4:14 AM EDT)

China Renaissance analyst Nicky Ge upgraded Pinduoduo Inc. (NASDAQ: PDD) from Hold to Buy with a price target of $150.00.

The analyst comments "PDD’s recent share price weakness partly reflects rationalizing market expectations for its 2021 GMV growth, in our view. Given a lackluster recovery in China’s internet retailing market in 1H21, we forecast PDD to deliver 43% and 40% YoY GMV growth in 2Q21E and 2021E, respectively, compared to 66% YoY growth in 2020. However, we believe PDD may surprise the market on the upside with its take rate and margins. Based on the company’s recent comments and our channel checks, PDD has already started charging merchants a marketing service fee for participating in its “Ten Billion Subsidy” program, which previously was free to merchants. After two years’ operation and user accumulation, merchants reportedly find the program has strong brand appeal that attracts consumer traffic and generates robust returns. Merchants therefore appear willing to make the marketing investment required to be included in this promotion. We forecast PDD’s platform business take rate to increase to 3.74% in 2Q21E (3.52% in 2Q20) as a result of the program’s extra revenue contribution and the greater revenue contribution coming from its Duoduo Maicai business, which carries a higher commission rate. We expect the higher take rate to drive PDD’s overall YoY revenue growth to 91%, with 3P revenue growing at 51%. With seemingly moderating competition in Duoduo Maicai’s community group purchase segment, we forecast PDD’s 2Q21E non-GAAP operating margin to narrow QoQ to -13.8% from -14.3% in 1Q21."

For an analyst ratings summary and ratings history on Pinduoduo Inc. click here. For more ratings news on Pinduoduo Inc. click here.

Shares of Pinduoduo Inc. closed at $88.74 yesterday.

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