On Wednesday, Citi updated its outlook on Pinduoduo Inc. (NASDAQ:PDD), raising the price target to $185 from the previous $170, while reiterating a Buy rating on the stock. The adjustment follows Pinduoduo's robust fourth-quarter performance for the fiscal year 2023, where the company reported significant year-over-year growth in both revenue and non-GAAP net profit.
Pinduoduo's total revenue and non-GAAP net profit soared by 123% and 110% respectively, reaching Rmb88.9 billion and Rmb25.5 billion. These figures surpassed consensus expectations by 11% and 52%. The growth was primarily driven by a 57% increase in online marketing revenue and a 357% surge in transaction services revenue year-over-year. The firm attributes part of this success to Temu, Pinduoduo's platform, which they estimate contributed Rmb27.7 billion in revenue, accounting for a substantial portion of the company's total transaction revenue.
The report highlights that domestic Gross Merchandise Volume (GMV) likely saw a 32% year-over-year increase in the fourth quarter, bolstered by strong Singles Day promotional activity. Looking forward into 2024, Citi forecasts that Temu's GMV will grow by 113% year-over-year to $33.8 billion, with net revenues expected to hit $15.67 billion, representing 32% of Pinduoduo's total revenues.
Despite Pinduoduo's strong cash flow and a cash balance accumulation of $30 billion, management's hesitation to reallocate capital to shareholders may have left some investors wanting. After revising estimates, Citi has set a new price target based on a 20 times multiple of the projected 2024 earnings per share of $9.27, down from the previous 22 times multiple, citing increasing regulatory risks as the reason for the more conservative valuation. The firm maintains its Buy rating but notes the investment comes with a high risk due to the regulatory uncertainties.
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