PDD Holdings (PDD +1.12%) -- better known as Pinduoduo, the quickly growing e-commerce platform -- has outperformed its Chinese peers Alibaba Group and JD.com by delivering a close to 100% return to investors in the last 12 months.
The company's stock performance has been particularly outstanding if we consider that investors have generally avoided Chinese companies amid challenges like the crackdown by the Chinese government and increased scrutiny by the Securities and Exchange Commission.
Let's look at the reasons behind Pinduoduo's solid performance from the perspective of its business fundamentals -- and where the stock might go from here.
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Pinduoduo has proven its skeptics wrong
Pinduoduo's rise has been astonishing. From zero revenue in 2015, the company grew into an e-commerce giant with 72.6 billion yuan in revenue ($11.4 billion) in 2021. But in the same year, its founder and chairman, Huang Zheng, stepped down from the company, having relinquished his CEO job just a few months earlier.
Most investors were shocked by the founder's decision, thinking the company might have just reached its peak. After all, why would a young founder step down from the company? Understandably, Pinduoduo's stock price fell from its all-time high of $203 in 2021 to below $60 by the end of that year.
Yet, the young company proved the doubters wrong. Revenue grew rapidly, up 58% and 46% in 2021 and 2022. By 2022, the e-commerce company generated 130.6 billion yuan ($18.9 billion) in revenue and 30.4 billion yuan ($4.4 billion) in operating profit. But it didn't stop there. In the first and second quarters of 2023, revenue surged 58% and 66%, respectively. By contrast, its peers Alibaba and JD.com grew revenue by 14% and 8%, respectively, in the latest quarter.
Pinduoduo's performance has been even more remarkable if we consider that it was profitable even as it grew its revenue rapidly. In fact, operating profit grew even faster, up by 222% and 46% in the first two quarters of 2023. The e-commerce company's solid performance signals to investors that it remains in good hands after the departure of its founder.
NASDAQ: PDD
Key Data Points
Rapidly gaining traction overseas
As Pinduoduo's China business continues to scale and gain traction, the e-commerce company has set its eyes on overseas expansion to sustain its long-term growth. Enter: Temu. This e-commerce site first set foot in the U.S. in September 2022 and has since entered other markets, including the United Kingdom, Australia, New Zealand, and Japan. It has also launched in the Philippines and Malaysia lately, a market where Sea Limited's Shopee is the incumbent.
Temu's value proposition is simple. It offers unbeatable prices on a wide selection of products, guarantees shipping time, and promises a full refund in 90 days. It leverages the experience and the supply chain of its sister platform, Pinduoduo in China, to help deliver these promises to overseas customers.
So far, Pinduoduo has not disclosed any numbers on Temu's progress. Still, we can look at external metrics that can help us gauge Temu's performance one year into operation. According to BusinessofApps, Temu surpassed 100 million active users in the U.S. in May 2023. Temu's user base continued to grow as it entered new markets, and by September 2023, its app monthly global downloads reached 40.5 million after averaging 30 million or more since May 2023.
Temu has now become a real competitor in the global e-commerce market. Still, while acquiring users is an essential part of the story, the other part is retaining them over the long term. To this end, Temu still has plenty of work to do, especially on solving issues like long shipping times, and counterfeit and low-quality products.
While Temu has plenty more to do to catch up with the incumbents, it has executed well to gain this level of exposure beyond China. If it continues to perform at this level, it is well positioned to replicate the success of its sister platform, Pinduoduo, in the overseas markets.
Pinduoduo is a stock to watch now
Pinduoduo's rise has been unexpected and completely changed China's e-commerce industry's competitive landscape. As it continues to penetrate the Chinese e-commerce market, it will likely keep growing its Chinese business for a while, albeit at a slower pace -- a company can't keep growing revenue at 50%!
Similarly, its overseas e-commerce business, Temu, is rapidly expanding, which may carry more responsibility for sustaining the company's high growth rate in the coming years.
