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On Thursday, Tiger Securities downgraded shares of Pinduoduo Inc. (NASDAQ:PDD), a prominent player in the Broadline Retail industry with a market capitalization of $175 billion, from Buy to Hold, while maintaining a price target of $130.00. According to InvestingPro data, the company maintains an "Excellent" financial health score of 4.05 out of 5, supported by strong cash flows and robust balance sheet metrics. This decision followed Pinduoduo’s fourth-quarter earnings report, which revealed revenue and profit figures that fell below consensus expectations. The company’s fourth-quarter revenue growth slowed to 24% year-over-year, a notable decrease from the 44% growth observed in the third quarter, and came in slightly below Tiger Securities and Wall Street estimates.
Pinduoduo’s online marketing services revenue saw a year-over-year increase of 17%, down from 24% in the previous quarter, indicating a slowdown relative to its domestic peers. Although this segment’s revenue was marginally above expectations, transaction services revenue experienced a significant deceleration, growing 33% compared to 72% in the prior quarter, and missing Tiger Securities and Street projections by 5% and 7%, respectively.
The company’s profitability also fell short of expectations, with a gross margin decline of 3.7 percentage points year-over-year to 56.8%. However, InvestingPro data shows that PDD maintains impressive gross profit margins of 62.06% in the last twelve months, demonstrating sustained pricing power despite competitive pressures. InvestingPro subscribers have access to 13 additional key insights about PDD’s financial performance and market position. This drop was likely due to a shift in revenue mix toward Temu and ongoing investments in Pinduoduo’s domestic ecosystem. Sales and marketing expenses as a ratio of revenue improved, decreasing to 28.3% from 30.7% in the third quarter and 30.0% a year ago. However, non-GAAP operating income was still 4% and 5% below Tiger Securities and Street estimates, respectively.
Looking forward, Pinduoduo plans to continue investing in merchant fee reductions, logistics improvements, and platform ecosystem enhancements, which are expected to impact profit margins in the near term. Despite past successes in navigating investment cycles that led to market share gains and increased absolute profits, current competitive challenges from major players like Alibaba (NYSE:BABA), JD.com, and Douyin e-commerce, coupled with regulatory uncertainties, are creating pressure on short-term margins.
Pinduoduo’s stock is currently valued at 11.0 times its estimated 2025 non-GAAP earnings per share, which Tiger Securities considers reasonable given the slowing growth and aforementioned risks. Current InvestingPro analysis suggests the stock is trading below its Fair Value, with a strong analyst consensus rating of 1.49 (where 1 is Strong Buy). Subscribers can access the comprehensive Pro Research Report, which provides detailed analysis of PDD’s valuation metrics, growth prospects, and competitive position among 1,400+ top US stocks. However, the firm has chosen to downgrade the stock to a Hold rating, citing the need for clearer signs of profitability stabilization, regulatory clarity, and sustainable growth in international operations before reconsidering its stance.
In other recent news, Pinduoduo Inc. reported its fourth-quarter earnings for the fiscal year 2024, with revenues increasing by 24% year-over-year to RMB110.6 billion. However, this figure fell short of the consensus estimates of RMB116.0 billion. Despite the revenue miss, Pinduoduo’s non-GAAP net profit attributable to ordinary shareholders exceeded expectations, reaching RMB29.9 billion, a 17% increase year-over-year. The company’s earnings per share (EPS) were 20.15 RMB, surpassing the forecast of 19.84 RMB. In terms of analyst actions, Jefferies adjusted the price target for Pinduoduo to $156 from $171, maintaining a Buy rating, while Citi held a Neutral rating with a $125 price target. Jefferies highlighted the company’s commitment to high-quality development and strategic investments in its platform ecosystem. Pinduoduo’s initiatives, such as a significant fee reduction program, aim to support merchants and enhance logistics, reflecting its focus on long-term growth over short-term financial metrics.
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