PDD:The Next eCommerce King,Entered Bargain Hunting Territory

While the two rivals were barely maintaining growth, PDD’s revenue and profits continued to soar in the first quarter, and online marketing services revenues were equivalent to 62% of Ali’s during the same period.

PDD’s revenue in the first quarter was 37.637 billion yuan, a year-on-year increase of 58%;

Online marketing services and other revenues were 27.244 billion yuan, a year-on-year increase of 50%, accounting for 73%;

Transaction service revenue was 10.392 billion yuan, a year-on-year increase of 86%, accounting for 27%;

During the same period, Alibaba China's CMR was 60.27 billion yuan, and PDD was equivalent to 62% of Ali's domestic e-commerce business revenue,which was the smallest quarterly gap between the two companies according to statistics.

The market expects PDD's revenue growth in the first quarter to be only 36%, which is a significant slowdown compared to the 46% growth rate in the fourth quarter.In the case of an improvement in the growth rate of the domestic online market, it is quite conservative and pessimistic to expect a decline in the growth rate of PDD.But in fact, the revenue of core e-commerce advertising this quarter was 27.2 billion yuan, far exceeding the market expectation of 23.2 billion yuan, and the year-on-year growth rate was as high as 50%, which not only far exceeded expectations,but more importantly, it was significantly faster than the fourth quarter.

In addition, the company’s transaction service income (includingTEMU) this quarter’s revenue was 10.4 billion yuan, and the year-on-year growth rate remained at a high level of 86%. , It also significantly exceeded the market's expectations of 8.2 billion. In the case of a slight decline in the demand for online fresh food retail, the growth rate of transaction service income can still be stabilized.It can be inferred that the growth of the main station, grocery shopping and Temu businesses has not slowed down.

Although the gross profit margin has declined, the profit is still considerable

Due to revenue far exceeding expectations, although PDD's gross profit margin fell significantly by 7pct to only 70.4% this quarter, which was also lower than market expectations of 73.8%, the final gross profit reached 26.5 billion yuan, which was still higher than the expected 238% 100 million.

The main reason is that the proportion of transactional income continues to rise.Because the gross profit margin of the grocery shopping business is only about 10% at most. Temu in particular should have lower gross margins, possibly even negative gross margins after including fulfillment costs.

In terms of expenses, the "10 billion subsidy" war launched by JD.com in the first quarter and the investment in Temu did not lead to a significant increase in the company's marketing expenditure as the market worried.The company’s marketing expenses this quarter were 16.3 billion, with an expense ratio of 43.2%, which was a marginal decline from 44.5% in the previous quarter (of course, 4Q is the 11th promotion season), and it was also significantly lower than the market’s expected 48.6% expense ratio.

As for PDD's management expenses, after the abnormal expansion due to large equity incentives in the last quarter, this quarter also returned to the regular single-digit 100 million level, a slight increase of 200 million compared with last year. R&D expenditures have remained stable, with expenditures of 2.5 billion this quarter, basically flat compared to the previous quarter.

The growth acceleration can be said to have shattered the market's concerns about the sustainability of the company's growth.Although the recovery of the domestic online market is weak, PDD's alpha advantage is still there.

At the level of competition pattern, although JD.com and Ali are vigorously promoting activities such as "10 billion subsidies", cost-effective consumption seems to have become the main battlefield of competition, but judging from PDD's marketing investment and final profit, the company has not really feel threatened by competition.

At the same time, the fast-growing Temu has not significantly dragged down the company's overall performance,and the company's cost-sharing measures with merchants are still effective.

After the last quarter’s financial report, the market’s two core concerns about PDD have been falsified. However, the company's stock price has dropped significantly by nearly 40% from the high point, corresponding to a 2023 forward PE below 20x. Therefore, after proving its own strength again, it is reasonable for the valuation to usher in a restoration.