PDD: Strong Business Growth Thanks To Temu, Trading At Just 12x Earnings

Core Thesis - PDD Holdings Inc. is experiencing explosive business growth exceeding 100% annually, largely driven by its successful Temu shopping app, while trading at a low valuation of 12x expected net profits [3][8] Company Overview - PDD Holdings, based in Dublin and Shanghai, has a market capitalization of approximately $200 billion, making it one of the largest e-commerce companies globally, yet it remains underfollowed in Western markets [4][9] - The company, previously known as PinDuoDuo, has seen its revenue grow from $73 million in 2016 to $35 billion by the end of 2023, representing a staggering increase of around 49,000% over seven years [5][9] Business Growth - Revenue growth has accelerated every quarter since Q4 2022, with revenues nearly doubling from close to $20 billion between 2022 and 2023 [5][9] - The Temu app, launched in the US in 2022, has significantly contributed to this growth, becoming a top download in the App Store and gaining attention through marketing campaigns [5][9] Financial Performance - PDD Holdings reported a 191% year-over-year increase in earnings per share in the most recent quarter, following a 100% increase in the previous quarter, indicating strong earnings growth alongside revenue gains [5][8] - The company has a robust balance sheet with cash and equivalents exceeding $30 billion and long-term debt under $800 million, resulting in a net cash position of over $33 billion, approximately 17% of its market capitalization [7][8] Valuation - PDD Holdings trades at a forward earnings multiple of 12x, translating to an earnings yield of around 8%, which is significantly lower than the broader market average of 21x and peers like Amazon and MercadoLibre [8][9] - The low valuation may be attributed to regulatory and geopolitical risks associated with its China exposure, as well as potential regulatory challenges in Western markets for its Temu app [8][9]