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PDD Q3 Results Beat Expectations

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Wise Shark wrote a column · Nov 29, 2022 03:26
$PDD Holdings (PDD.US)$ released its 2022Q3 financial results on Nov. 28. 22Q3 revenue growth was strong, with operating income of 35.504 billion yuan, up 65.1% year-over-year; earnings growth exceeded expectations, with Non-GAAP net income attributable to parents of 12.447 billion yuan, up 295.1% year-over-year. With solid consumer mindset, obvious competitive advantage in agricultural products, continued branding upgrade and rapid development of international business, Q3 profitability again raises long-term earnings space. China Merchants Securities has given the company a 23-year price target of $$$$109.4 (current price of $$$$74), with 49% upside, and maintains a Strongly Recommended rating.
(1) Revenue side: strong growth in marketing services and commission income
In terms of revenue, the company achieved total revenue of 35.504 billion yuan, +65.1% year-on-year, with high growth in platform revenue, marketing service revenue of 28.426 billion yuan, +58.4% year-on-year, and commission revenue of 7.022 billion yuan, +102.0% year-on-year.
In terms of platform operation, the branding upgrade of Pando further advanced in Q3, merchant structure continued to be optimized, while user demand for quality goods grew, driving platform revenue to increase significantly.
In terms of earnings, the company achieved Non-GAAP net profit of 12.45 billion yuan in Q3, +295.1 pct year-on-year, and Non-GAAP net margin of 35.1%, +20.4 pct year-on-year, showing the resilience of the company's operation under the epidemic and exceeding earnings growth expectations.
(2) Gross profit margin and expense side: Gross profit margin increased and selling expense ratio improved significantly
The gross margin in 22Q3 was 79.1%, +9.6pct year-over-year; in terms of expenses, the company still achieved remarkable results in reducing costs and increasing efficiency this quarter, with Non-GAAP sales expense ratio of 37.9%, -7.1pct year-over-year, Non-GAAP administrative expense ratio of 0.6%, -0.2pct year-over-year, and Non-GAAP R&D expense ratio of 6.0%, -2.6pct year-over-year. In the long run, the company will firmly invest in the long term, and the expense ratio may rise in the future.
(3) New business: persistently promoting the strategy of focusing on agriculture and rapid development of international business
The company has always been committed to strengthening its core strengths in agricultural products, continuing to further research and develop agricultural technology, implementing digital transformation and effectively improving supply chain efficiency; in addition, the company held a series of agricultural promotion activities such as the Harvest Festival in Q3 to help farmers broaden their markets and further consolidate the business barriers in the agricultural products sector. In terms of international business, Temu was launched in North America in September and achieved rapid growth in user scale and GMV in Q3. With the experience of main site operation and supply chain resources, Temu is expected to achieve leapfrog growth in the future.
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