Market Overview

Goldman Sachs: Buy Shares Of The Fastest-Growing Internet Company In The World

Goldman Sachs: Buy Shares Of The Fastest-Growing Internet Company In The World

China-based Pinduoduo Inc (NASDAQ: PDD), an e-commerce platform that leverages social networks for buyer acquisition and engagement, is the fastest-growing internet company in the world in revenue terms and should be bought by investors, according to Goldman Sachs.

The Analyst

Goldman Sachs' Piyush Mubayi initiated coverage of Pinduoduo with a Buy rating and $31.90 price target.

The Thesis

Pinduoduo boasts 344 million annual active buyers on its platform, 195 million of whom use the platform at least once a month, Mubayi said in the initiation note. (See the analyst's track record here.) 

The unique "team purchase model" of the e-commerce platform leverages Chinese social media platforms to incentivize purchases. As a result, expectations for 73-percent revenue compounded annual growth through 2021 and 60-percent CAGR in gross merchandise value makes it the fastest-growing online business in the world, the analyst said. 

The company's business model is sustainable over the long-term, as it represents a compelling option for merchants by targeting multiple people in one transaction, Mubayi said. Users benefit from competitive pricing and a more fun shopping experience compared to rival e-commerce platforms, he said. 

Much larger Chinese e-commerce platforms attempted to duplicate Pinduoduo's "team purchase model" but failed due to a different customer profile, the analyst said. For example, JD.Com Inc(ADR) (NASDAQ: JD) customers are typically within a higher income bracket and focus more on computers and other electronic products rather than Pinduoduo's "more fun" items, he said. 

Goldman Sachs expects Pinduoduo to become profitable in 2019 with a 0.3-percent non-GAAP net margin. In the long run, sales and marketing expense as a percentage of revenue should fall from an estimated 102 percent in 2018 to 44 percent in 2020 and continue trending toward the level of other e-commerce companies beyond 2020, in the sell-side firm's view. 

Price Action

Pinduoduo shares were rallying 15.69 percent to $26.66 at the time of publication Thursday afternoon. 

Related Links: 

Alibaba Could 'Redefine The Future Of Commerce,' Says Jefferies Analyst

Chinese Tech Stocks Extend Slide On Earnings, Macro Worries


Latest Ratings for PDD

Nov 2020Nomura InstinetUpgradesNeutralBuy
Nov 2020JP MorganUpgradesNeutralOverweight
Nov 2020B of A SecuritiesUpgradesNeutralBuy

View More Analyst Ratings for PDD
View the Latest Analyst Ratings


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