Earnings Report Preview | PDD E-commerce Expected to Maintain Steady Growth, Short-term Impact on Profits Inevitable

PDD will release its Q2 earnings report this Tuesday (August 29th).

China Merchants Securities believes that PDD has a solid foundation and continues to promote brand development on its main platform. The rapid growth of Temu is expected to expand long-term growth opportunities, and the company's growth potential is highly regarded.

The potential for steady growth in PDD's domestic e-commerce business is still promising. In the short term, investment in the Temu platform may affect profits, but in the long term, it is expected to further expand the company's growth space.

Q2 Financial Expectations

China Merchants Securities predicts that PDD's GMV and revenue will maintain high-speed growth, with Q2 GMV expected to increase by approximately 35% YoY and revenue by approximately 55% YoY.

CICC estimates that PDD's Q2 revenue/profit will be 45.5 billion yuan/11.5 billion yuan, with a YoY increase of 45%/7%, surpassing market expectations of 43 billion yuan/10.7 billion yuan.

It is expected that the GMV/advertising revenue on the main platform will increase by 33%/37% YoY, and the advertising monetization rate will increase by 10 basis points to 4.1% YoY.

CICC predicts that the growth rate of advertising revenue in Q2 will be stronger than that of GMV revenue, and the performance of advertising revenue is expected to exceed market expectations.

Cross-border e-commerce Temu

TEMU is accelerating its global expansion, with rapid growth in GMV.

Since Q2, TEMU has accelerated its global expansion and has established sites in mainstream and emerging markets such as the United States, Canada, the United Kingdom, Germany, Australia, and Japan by July 2023.

In terms of marketing investment, TEMU has placed advertising on social platforms such as Facebook and TikTok, as well as large public events, to enhance overseas consumers' awareness of the platform.

CICC stated that TEMU's global GMV in the first half of the year was approximately 2.9 billion US dollars (1 billion US dollars in Q1 and 1.9 billion US dollars in Q2), with estimated commission income/loss of 2 billion yuan/6.2 billion yuan. TEMU is currently available in 27 countries and regions, including North America, Europe, and Japan and South Korea, and the pace of expanding into new markets is faster than previously expected. It is estimated that TEMU's GMV will reach 8 billion US dollars in 2023, with a loss of 22 billion yuan.

Investment Recommendations

CICC has raised its revenue expectations for PDD's domestic e-commerce and TEMU, but due to the increased loss forecast for TEMU, it has slightly lowered the overall profit forecast for the company. The target price remains at $107, corresponding to a P/E ratio of 19 times/15 times for the main platform in 2023/2024.

China Merchants Securities predicts that PDD's Non-GAAP net profit attributable to shareholders for 2023-2025 will be 40.02/63.29/89.23 billion yuan, with Non-GAAP net profit for domestic business at 64.97/86.58/104.95 billion yuan, and Non-GAAP net loss for cross-border business at -24.95/-23.29/-15.73 billion yuan. The "strongly recommended" rating is maintained.