PDD's rating reiterated at J.P. Morgan; Chinese internet stocks in red despite Baidu's clarification

PDD's (NASDAQ:PDD) shares fell about 3% on Tuesday despite J.P. Morgan noting that it expects the company to remain a top outperformer in the China Internet sector in 2024, in spite of the stock's outperformance last year.

Chinese internet stocks were in the red on Tuesday. Baidu (BIDU) lead with a 4% decline despite Citi analysts noting that market likely overreacted to a Jan. 12 news report linking the use of the company's AI platform Ernie by a research laboratory affiliated with the Chinese military.

Alibaba (BABA) and JD.com (JD) and Weibo (WB) fell about 3% each, while Bilibili (BILI) was down about 4%.

The firm reiterated its Overweight rating on PDD's shares with new price target of $195.

The analysts said the main concerns on PDD now are the sustainability of high revenue growth in China and the risk that online marketplace Temu's loss will drag overall profit to decline.

However, the analysts noted that, their discussions with industry experts indicate that these concerns are likely overdone as — consensus still underestimates China revenue/profit growth, which should be helped by monetization measures rolled out in the second half of 2023; and Temu's Gross merchandises value, or GMV/revenue growth may also surpass already-high expectations in the market, as its investments will turn more aggressive in non-U.S. markets, with support from higher profit in China, and Temu's widening loss won't derail solid profit growth at the group level.

The analysts now forecast PDD's group profit to grow at 30% in 2024, despite a RMB25B+ loss from Temu, whose GMV of US$40B+ will be more than doubled year-over-year, leading to their estimates 2024E revenue to be 15% above consensus, with inline EPS.

PDD (PDD) has a Hold rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors' average rating is more positive with a Buy and so is the average Wall Street analysts' rating, with a Strong Buy.