Citi cuts Pinduoduo stock target to $152, maintains Buy rating

On Tuesday, Citi analyst Alicia Yap adjusted the price target for Pinduoduo Inc. (NASDAQ:PDD) shares to $152 from the previous $152 while reiterating a Buy rating on the stock. The revision follows Pinduoduo’s reported shift in its business model and its impact on financial performance. The company, currently valued at $169 billion, maintains an "EXCELLENT" financial health score according to InvestingPro analysis, with impressive gross profit margins of 61%.

Pinduoduo experienced a slowdown in its transaction services revenue, which grew by only 6% year-over-year in the first quarter of 2025, a stark contrast to the 33% year-over-year growth seen in the fourth quarter of 2024. The change from a fully managed to a semi-managed model for its Temu platform was identified as a significant factor in this deceleration. Despite the slowdown, the company maintains strong fundamentals with a healthy current ratio of 2.21 and minimal debt, holding more cash than debt on its balance sheet.

The company also faced challenges due to the accounting treatment of merchant support investments as expenses. This resulted in a mismatch between the investment cycle and the return cycle, indicating that while costs were incurred during the quarter, the revenue growth might be realized in future periods.

The first quarter of 2025 proved to be unusual for Pinduoduo, as tariff concerns led to the pre-shipping of three to five months’ worth of inventory. This was compounded by additional subsidies from a national trade-in program. Consequently, sales and marketing expenses surged by 44% year-over-year, yet revenue only saw a 10% increase. Operating profit and net profit both fell significantly, by 36% and 45% year-over-year, respectively.

Despite the current uncertainties regarding when revenue and profit growth may stabilize, Citi sees a growing opportunity for investors to buy Pinduoduo shares following the more than 15% decline in share price. With the new price target set at $152, down from $165, Citi maintains its Buy rating on the stock, suggesting confidence in Pinduoduo’s potential for recovery in the longer term. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations, with a P/E ratio of 10.6 and strong return on equity of 45%. For deeper insights into PDD’s valuation and 12 additional ProTips, including detailed financial health metrics and growth projections, investors can access the comprehensive Pro Research Report on InvestingPro.

In other recent news, Pinduoduo Inc. has been in the spotlight with several key developments. Barclays (LON:BARC) reiterated its Overweight rating on Pinduoduo, maintaining a price target of $158, despite a revenue shortfall in the first quarter attributed to lower transaction revenues from its Temu platform. Morgan Stanley (NYSE:MS) also maintained its Overweight rating with a $150 target, projecting an 11% year-over-year growth in online marketing services revenue for the first quarter, though it anticipates a decrease in non-GAAP net profit due to increased merchant subsidies. Citi upgraded Pinduoduo to a Buy, raising the price target to $165, citing tariff reductions that could benefit Temu’s sales in the United States. PDD Holdings, the parent company of Pinduoduo, is shifting its Temu platform to a local US merchant model, a strategic move aimed at mitigating tariff impacts. This transition is expected to help maintain competitive pricing in the US market. Additionally, Chinese authorities have requested e-commerce platforms, including PDD Holdings, to stop the practice of requiring vendors to offer refunds without product returns, a change aimed at reducing financial pressure on merchants.

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