Pinduoduo's Q1 Print Reinforces KeyBanc's Bull Thesis

Pinduoduo Inc PDD reported a first-quarter beat Monday, with both revenue and operating margin landing ahead of expectations.

The Chinese e-commerce company achieved better efficiency in user acquisition and maintenance in the quarter, according to KeyBanc Capital Markets.

The Analyst

Hans Chung maintained an Overweight rating on Pinduoduo with an unchanged $32 price target.

The Thesis

The e-commerce company that specializes in group buying deals reported first-quarter revenue of 4.5 billion yuan ($652 million), representing 228-percent year-on-year growth, Chung said in a Monday note. (See his track record here.) 

Revenue came in ahead of the consensus estimate of 4.1 billion yuan, propelled mainly by revenue growth in online marketing services, which was driven by higher-paying merchants and the ARPU of existing merchants, the analyst said. 

The gross margin of 80.9 percent was higher than the consensus estimate of 75.9 percent. The non-GAAP operating loss came in at 1.6 billion yuan, which was better than the consensus expectation of a loss of 2 billion yuan.

This was achieved on the back of lower-than-expected sales and marketing expenses, Chung said. 

Despite additional branding expenditures associated with the Chinese New Year in the first quarter, Pinduoduo's cost for customer acquisition and user engagement declined sequentially by 20 percent, the analyst said.

The company will benefit from industrywide lower channel costs going forward, but the positive impact on S&M expense may be offset by an increase in competition from Alibaba Group Holding Ltd BABA, according to KeyBanc. 

Price Action

Pinduoduo shares were trading up by 3.83 percent to $21.58 at the time of publication Tuesday. 

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Photo courtesy of Pinduoduo.