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Why Pinduoduo Stock Gained 41% in May

By Jeremy Bowman – Updated Jun 4, 2020 at 1:36AM

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Shares of the Chinese social commerce company gained on a strong earnings report.

What happened

Shares of Pinduoduo (PDD 1.02%) surged last month as the Chinese social commerce posted a strong first-quarter earnings report and seemed to gain on broader enthusiasm for the global economy reopening. According to data from S&P Global Market Intelligence, the stock finished up 41%. 

The stock rose throughout the month:

^SPX Chart

^SPX data by YCharts

So what

Through the first half of May, Pinduoduo stock seemed to gain as the Chinese economy  continued to reopen, and there were signs of strong consumer demand in the country, such as when Shanghai Disneyland sold out on its opening day on May 11. Meanwhile, expectations that e-commerce and social commerce boomed during China's shutdown also seemed to lift the stock, as put up big gains last month as well.

An Asian woman talking on a phone while holding a box

Image source: Getty Images.

As anticipated, Pinduoduo stock surged 15% when its earnings report came out on May 22. The company said revenue rose 44% to $923.8 million, which beat expectations, and gross merchandise volume increased 108% to $163.4 billion over the last year. 

Active buyers rose 42% to 628.1 million, and active monthly users were up 68% to 487.4 million, showing that about half of the Chinese population used Pinduoduo during the quarter. By comparison, Alibaba, the leading e-commerce marketplace in China had 726 million active users, showing Pinduoduo is quickly narrowing the gap.  

Pinduoduo is still operating at a substantial loss as it spends aggressively on sales and marketing expenses to drive its growth. The company reported an adjusted operating loss of $506.7 million in the quarter, and on a per-share basis, the company posted a loss of $0.39, which more than doubled from the year before, which missed estimates at a loss of $0.28.

CEO Zheng Huang said, "Despite the unprecedented challenges in the first quarter, Pinduoduo has grown and now serves more than 600 million active buyers."

Now what

Pinduoduo's stock pulled back after the earnings report as it got slapped with some analyst downgrades as Wall Street seemed to believe the stock was ready for a breather after more than tripling over the last year. Eventually, Pinduoduo will have to show a profit, but the company's user growth and sales growth shows that its unique business model has won over Chinese consumers.

Jeremy Bowman owns shares of The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd. and The Motley Fool has a disclosure policy.

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