Pinduoduo (PDD 2.76%), the third-largest e-commerce company in China in terms of annual revenue, recently posted its first-quarter earnings. It easily surpassed analysts' expectations on the top and bottom lines, but the stock price barely advanced, and remains down about 30% for the year.
That tepid response was likely due to investors' ongoing rotation from growth to value stocks, regulatory headwinds in both China and the U.S., and the anticlimactic conclusion of China's antitrust probe against its biggest competitor Alibaba (BABA 2.70%). Those same challenges seemed to cast a shadow over JD's (JD 2.21%) recent earnings beat.
However, Pinduoduo is still growing at an impressive rate. Let's examine five key numbers investors should review, and why they indicate Pinduoduo could still be worth buying in this tough market.
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1. 239% growth in revenue
Pinduoduo's revenue rose 239% year over year to 22.17 billion yuan ($3.38 billion) in the first quarter, accelerating from its 146% growth in the fourth quarter and beating estimates by $180 million.
Its online marketing services and others revenue, which mainly comes from listing fees and ads for third-party merchants, rose 157% to 14.11 billion yuan ($2.15 billion). Its revenue from transaction fees grew 180% to 2.93 billion yuan ($447 million), and it generated 5.12 billion yuan ($782 million) from its first-party merchandise marketplace, which didn't exist a year ago.
2. 49% growth in monthly active users
Pinduoduo's average monthly active users (MAUs) increased 49% year over year to 724.6 million, which only marked a slight deceleration from its 50% growth in the fourth quarter of 2020. Its number of annual active buyers rose 31% year over year to 628.1 million.
Pinduoduo has more shoppers than JD, which ended last quarter with 499.8 million annual active customers, but remains smaller than Alibaba, which served 811 million annual active consumers with its Chinese marketplaces last quarter. However, Pinduoduo still generates significantly lower revenue than JD, which makes most of its money from its first-party marketplace instead of third-party sellers.
Pinduoduo's ongoing growth indicates it isn't losing many shoppers to JD and Alibaba, which have both targeted its core market of lower-tier cities with their own discount marketplaces over the past two years.
3. Narrowing losses of $444 million
Pinduoduo remains deeply unprofitable, but its GAAP net loss narrowed from 4.12 billion yuan to 2.91 billion yuan ($444 million). Its non-GAAP net loss, which excludes stock-based compensation and other one-time expenses, also narrowed from 3.17 billion yuan to 1.89 billion yuan ($289 million).
Its sales and marketing expenses rose 80% year over year on a non-GAAP basis during the quarter, but that only accounted for 75% of its revenue, compared to 108% in the prior-year quarter. During the conference call, Pinduoduo's VP of Finance Tony Ma called that improvement a "reflection of our economies of scale."
4. More than 12 million farmers
Pinduoduo's gross merchandise volume (GMV) from agricultural products doubled to over 270 billion yuan ($42.3 billion), or 16% of its total GMV, last year.
During the call, VP of Strategy David Liu said "more than 12 million farmers" now sell produce directly to consumers through its marketplace. Liu said it "deepened" those relationships throughout the pandemic as it helped farmers set up live streams and provided additional online resources through its Duo Duo Academy and Duo Duo Farms platforms.
It also continues to expand that agricultural ecosystem with its own logistics platform, Duo Duo Grocery, and its mobile app Duo Duo Maicai. All those efforts could enable Pinduoduo to sell cheaper and fresher groceries than Alibaba and JD, which mainly support their online marketplaces with first- and third-party brick-and-mortar supermarkets.
5. Its price-to-sales ratio of 9
Analysts expect Pinduoduo's revenue to rise 83% this year, which would only mark a slight slowdown from its 97% growth in 2020. However, Pinduoduo's stock only trades at nine times this year's sales estimate. That price-to-sales ratio is low relative to its growth rate, as well as the valuations of many of its e-commerce peers.
Shopify (SHOP 5.29%), the e-commerce services giant expected to generate 52% sales growth this year, trades at 35 times this year's sales. Analysts expect MercadoLibre (MELI 2.02%), the top e-commerce company in Latin America, to grow its revenue 58% this year, and its stock trades at 11 times that estimate.
The bottom line
Pinduoduo is still a speculative growth stock. It will stay in the red as it clashes with Alibaba and JD, which are both larger, firmly profitable, and have deeper pockets. Tech stocks, especially Chinese ones, could also remain out of favor.
However, Pinduoduo is still growing like a weed, its ecosystem is expanding, and its stock looks cheap. Pinduoduo might not attract a lot of bulls this year, but investors who stick with this growing e-commerce underdog might be richly rewarded over the next few years.
