On Thursday, HSBC has increased its price target for NASDAQ:PDD, Pinduoduo (NASDAQ:PDD) Inc., to $190 from the previous $186, while retaining a Buy rating for the stock. The revision follows Pinduoduo's reported stronger-than-expected growth for the fourth quarter of 2023, with both domestic and overseas markets exceeding forecasts.
Pinduoduo's growth has been attributed to an expanded selection of branded products, including national brands and imported beauty items. The company's successful RMB10 billion campaign has significantly contributed to the growth of gross merchandise volume (GMV) and advertising take rates. This momentum is expected to extend into 2024, prompting HSBC to increase its revenue estimates for 2024 and 2025 by approximately 4%.
The company also posted earnings that surpassed expectations, bolstered by reduced spending on research and development, sales and marketing, and a lower effective tax rate. These positive trends are anticipated to continue, leading to an upward revision of Pinduoduo's bottom-line forecasts for 2024 and 2025 by 7-9%.
Despite ongoing geopolitical and regulatory risks associated with overseas market expansion, HSBC has adjusted the regulatory risk premium in its weighted average cost of capital (WACC) calculation. After incorporating these changes and introducing estimates for 2026, the new target price suggests an approximate 49% upside potential for Pinduoduo's shares.
HSBC's analysis indicates that while Pinduoduo has a strong balance sheet, the company is prioritizing growth investments over shareholder returns at this stage of its development. The focus remains on leveraging the company's robust growth outlook, as it continues to invest in its future.
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