Morgan Stanley Calls Pinduoduo Inc. (PDD) a 'Catalyst Driven Idea' ahead of Earning
Morgan Stanley analyst Eddy Wang reiterated an Overweight rating and $181.00 price target on Pinduoduo Inc. (NASDAQ: PDD).
The analyst comments "What and when is the catalyst? PDD is scheduled to release its 4Q23 financial results on Wednesday March 20. We believe its 4Q23 OMS (online marketing services) revenue growth could be the next share price catalyst. We expect OMS to grow 47% YoY in 4Q23, which implies 20% YoY GMV growth, outpacing ecommerce industry growth of 7.3% YoY. We attribute the expected outperformance to continued market share gains owing to its 'low price' mindshare benefiting from consumers' price sensitiveness against a backdrop of weak consumption. Although there could be higher-than-expected GMV/revenue growth of its overseas platform, Temu, in 4Q23, which could lead to higher-than-expected transaction service revenue, we believe this might not be the key catalyst for PDD in 4Q23. This is mainly due to: 1) recently there has been more frequent negative newsflow (e.g., theinformation.com, Feb 23, 2024) reporting that US lawmakers were demanding a shipment ban on Temu, due to concerns over alleged use of forced labor among its suppliers (for more, see here); 2) we may potentially see higher-than-expected investment in Temu that drags 4Q23 margin. What are the potential outcomes for this event? Scenario 1: 4Q23 OMS revenue growth of 45-50% YoY, our current expectation. Scenario 2: 4Q23 OMS revenue growth of 50% YoY and above, more optimistic than we expect. Scenario 3: 4Q23 OMS revenue growth below 45% YoY, more conservative than we expect. What are the potential stock implications for these outcomes? Scenario 1: PDD's share price moves up 0-5%. Scenario 2: PDD's share price moves up 5-15%. Scenario 3: PDD's share price moves down >10%. What is our base case expectation for this event? Scenario 1 is our base case expectation, to which we assign a 50% probability."
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Shares of Pinduoduo Inc. closed at $123.74 yesterday.