Pinduoduo (PDD) Surges On Strong Upside Q2 Results Despite Macro Headwinds In China
3:01 pm Thursday, August 18th, 2022
Pinduoduo (PDD) is surging today after the Chinese ecommerce giant reported upside Q2 results for both EPS and revenue. Revenue jumped 36% yr/yr to US$4.69 bln, which was a significant acceleration from the 7% growth seen in Q1.
Investors were not sure what to expect given the COVID lockdowns during the quarter and the impact that might have consumer sentiment. Also, the slowing economy in China was a concern that perhaps consumers would pull back on spending. On the other hand, Q2 did include what is known as the 618, which is seen as the second largest shopping festival in China. This seemed to help offset the macro concerns.
Taking that all together, the company said that it saw a recovery in consumer sentiment in Q2 especially during the 618 shopping festival. PDD sees it as a reflection of the resilience of overall consumption. Margins were also helped by the postponement of certain projects and lower business-related expenses during the first half of the quarter.
The other recent big news was a Reuters report last week that PDD plans to expand internationally, with the US being the likely prime target. PDD confirmed on the call this morning that it is looking at overseas expansion. However, it stressed that it would not just simply repeat what others have done. It will strive to create its own unique value.
Just to build on this last point a bit, PDD has been able to take share from larger peers in China like BABA and JD by focusing on extreme value pricing. Based on the comments from the call today, it sounds like that would be its strategy if it were to challenge AMZN in the US. However, we think it is going to be a heavy lift to make deep inroads in the US quickly as most Americans are unfamiliar with the brand and AMZN already has a dominant presence.
Overall, this was an impressive quarter for PDD and was a bit of a surprise given the more modest results we saw from BABA a few weeks ago and it was a nice improvement from Q1. We are also intrigued by PDD’s international expansion plans. We plan to keep a close eye on those developments in the coming quarters. But as of now, investors like what PDD accomplished in Q2 despite uncertain macro conditions.
