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Here's Why Pinduoduo Stock Headed Higher on Friday

By Jon Quast - May 22, 2020 at 2:54PM

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Robust growth even during the worst of the coronavirus shutdown in China surprised investors.

What happened

Shares of Chinese e-commerce giant Pinduoduo (PDD -5.13%) headed higher on Friday after the company reported unaudited results for the first quarter of 2020. As of 2:30 p.m. EDT, the stock had gone up 12%.

Investors are celebrating Pinduoduo's across-the-board growth, despite the quarter running through the worst of the COVID-19 outbreak in China. After today's move, shares are trading near all-time highs.

PDD Chart

PDD data by YCharts.

So what

Many U.S. companies have reported first-quarter results negatively impacted by the coronavirus. But most reflect less than a month of headwinds due to when the outbreak started in North America. By contrast, the outbreak started much earlier in China, affecting much of Pinduoduo's Q1.

Undeterred, Pinduoduo reported strong quarterly revenue growth of 44% year over year, coming in at $924 million. Active buyers also surpassed 600 million for the first time.

Pinduoduo distinguishes monthly average users (MAU) from active annual buyers. MAU refers to people using the app during a given month, while active annual buyers obviously refers to actual purchases. MAU increased 68% to 487 million. But more importantly, a higher percentage of these are active annual buyers. In Q1, the ratio was 77.6% compared to 65.4% last year.

So not only are more people using Pinduoduo's platform, more are actually buying things -- some for the first time.

A businessman draws an upward arrow on a transparent screen with his finger.

Image source: Getty Images.

Now what

In celebrating Pinduoduo's quarter, investors are shrugging off legislative news from earlier in the week. Chinese companies could be delisted from U.S. exchanges if a bill passed by the Senate gains traction. Legislators are wanting to require unaudited financial results, like those reported by Pinduoduo today, to be audited by third parties. Failure to submit to this requirement would result in being evicted from Wall Street.

Pinduoduo shareholders will need to keep their eyes both on what's happening in Washington, D.C., and on how this e-commerce retail company responds to the new financial scrutiny.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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