Ticker Symbol: PDD
While Alibaba remains the king of internet shopping in China, one smaller competitor has been catching up quickly. And after reporting very strong second-quarter results, shares in the Nasdaq listed Pinduoduo are surging by over 20% this morning. The company is now up around 21.5% on a year-to-date basis, well ahead of the 14.2% decline in the Nasdaq Golden Dragon China Index and the 16.8% decline in Alibaba. Since its initial public offering in 2018, shares in the e-tailer have gained 270%, versus the 50% decline in Alibaba.
The company reported second quarter revenue of 31.44 yuan, up 36% year over year, and well ahead of the estimated 23.6 billion yuan. Revenue from online marketing services were up to 25.7 billion yuan, a 39% surge from the same time in 2021. The average Wall Street estimate was for revenue of 18.6 billion yuan. Transaction services were up a more tepid 3% year over year, but about a billion yuan ahead of the expected 5.23 billion yuan. The second quarter also included the annual 618 shopping festival, where online retailers entice customers with discounts in China.
Adjusted earning per American depositary receipt grew to 7.54 yuan, crushing the Street’s expectations of 2.75 yuan. The company said net income for the quarter was $8.9 billion yuan, representing a more than three-fold increase over the figure reported in 2021. Management pointed to recovering consumer sentiment in China following months of upheaval brought about by rising cases of COVID in the country. The subsequent lockdowns and quarantining of major cities have weighed on the Chinese economy and reduced consumer spending significantly.
The Chinese government has also been stepping up supervision of the Chinese technology sector, which has weighed on investor outlook. Beijing has recently promised to relax its regulatory crackdown on the technology sector, after nearly 2 years of strict supervision, reviews, and mandatory changes soured investor sentiment. Another positive for the company in the near future would be its announced expansion into the North American market for the first time. The growth into the U.S. and Canada could also represent a huge opportunity for Pinduoduo, especially as the Chinese economy slows.
Despite the environment, Pinduoduo reported a net income margin of 28.3%, the highest in the company’s history. Vice President of Finance for the company, Jun Liu, said that the postponement of certain projects and certain business-related expenses during the quarter allowed the company to post high profitability. Research and development expenses, for example, were up 12% year over year to 2.61 billion yuan, but much lower than the 3 billion yuan analysts were expecting.
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