On Monday, Morgan Stanley reaffirmed its positive stance on Pinduoduo Inc. (NASDAQ:PDD), maintaining an Overweight rating with a price target of $181.00. The firm anticipates that the upcoming release of Pinduoduo's fourth-quarter financial results on Wednesday, March 20, could serve as a catalyst for the company's share price. The firm's analysis suggests that Pinduoduo's online marketing services (OMS) revenue could see a significant year-over-year increase of 47% for the fourth quarter of 2023.
The growth in OMS revenue is expected to reflect a 20% year-over-year growth in gross merchandise volume (GMV), which would surpass the broader e-commerce industry's growth rate of 7.3%. This outperformance is attributed to Pinduoduo's continued market share gains, bolstered by its strategy of offering low prices, which resonates with consumers' increasing sensitivity to price amid weaker overall consumption.
Despite potential higher-than-expected GMV and revenue growth from Pinduoduo's overseas platform, Temu, Morgan Stanley does not view this as the primary catalyst for the fourth quarter. Concerns have been raised by U.S. lawmakers over alleged use of forced labor among Temu's suppliers, leading to discussions of a shipment ban, as reported on February 23, 2024. Additionally, increased investment in Temu could negatively impact margins for the quarter.
Morgan Stanley outlined three potential scenarios for Pinduoduo's fourth-quarter OMS revenue growth: a base case scenario of 45-50% growth, an optimistic scenario above 50%, and a conservative scenario below 45%. The base case scenario, which the firm assigns a 50% probability, could lead to a 0-5% increase in PDD's share price.
A more optimistic outcome could result in a 5-15% share price increase, while a growth rate below expectations could cause the share price to decline by more than 10%. The financial results on March 20 will provide clarity on which scenario unfolds.
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