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As China’s e-commerce giants gear up for the world’s largest shopping event, experts believe that PDD Holdings Inc., the parent company of Temu, is well-positioned to outperform its competitors. PDD’s US-listed shares have surged by 22% since July, while rivals Alibaba Group Holding Ltd. and JD.com Inc. have faced declines. PDD’s strong performance is attributed to its robust sales in the domestic market and its growing popularity among US consumers.
The upcoming Singles’ Day, a weeks-long online shopping festival centered around November 11, presents a significant catalyst for the e-commerce sector. In addition, quarterly results for the industry are expected in the coming weeks.
Despite concerns about profitability due to fierce competition and high promotional spending, the market remains bullish on PDD. The stock’s put-to-call ratio has decreased, indicating growing optimism among options traders, and short interest has reached a record low as bearish sentiment wanes.
PDD’s Temu is increasingly seen as a disruptive force in the global e-commerce landscape, following its high-profile ads during the US Super Bowl earlier this year. The platform, which adopts a cut-rate pricing strategy similar to Pinduoduo’s domestic app, has recorded strong sales growth and expanded its operations to 47 countries.
In the domestic market, Singles’ Day promotions have brought traditionally higher-end platforms like Alibaba and JD.com into PDD’s discount space. PDD is also introducing special cashback programs for Singles’ Day, along with other initiatives to attract more users.
Citigroup Inc. expects PDD’s Singles’ Day gross merchandise value to see significant growth, outperforming Alibaba and JD.com. The brokerage initiated a 30-day “upside catalyst watch” on PDD on October 26.
Investors are eagerly awaiting PDD’s third-quarter results, which are set to be released later this month. Analysts will scrutinize Temu’s losses and assess the sustainability of its cash-burning business model, regulatory challenges, and its potential value.
Despite PDD’s higher forward earnings estimate multiples, some believe the premium is justified, given the expected 57% sales growth this year, which surpasses the gains anticipated for its competitors.
Goldman Sachs Group Inc. predicts a “strong top-line beat” in the third quarter, although it warns of a potentially larger loss for Temu. Nevertheless, investors are increasingly willing to assign value to the Temu business based on its rapid gross merchandise value (GMV) expansion.
Access to PDD’s management may pose challenges in obtaining up-to-date information and insights into the company’s strategy. However, PDD is expected to continue gaining market share in China, Temu shows positive momentum, and the stock is considered “very cheap” if PDD can continue offsetting losses overseas to maintain overall earnings growth.
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