Should You Buy, Hold, or Sell PDD Holdings Stock Before Q1 Earnings?

Core Viewpoint - PDD Holdings is expected to report first-quarter 2025 results on May 27, with revenue estimates at $14.17 billion, reflecting a 17.82% year-over-year growth, while earnings per share are projected at $2.49, indicating a 12.01% decline from the previous year [1]. Financial Performance - The Zacks Consensus Estimate for earnings per share (EPS) for the current quarter is $2.49, with no changes in estimates over the past 30, 60, and 90 days [2]. - PDD has a history of earnings surprises, with a 7.81% surprise in the last quarter and an average surprise of 22.35% over the last four quarters [3]. Earnings Expectations - The current Earnings ESP for PDD is 0.00%, and it holds a Zacks Rank of 3 (Hold), indicating uncertainty regarding an earnings beat this time [4]. Strategic Factors - PDD is navigating strategic transitions and competitive pressures, with a notable deceleration in revenue growth to 24% year-over-year in Q4 2024, down from 59% for the full year [5]. - The company has intensified investments in its "high-quality development strategy," including a 10 billion RMB fee reduction program and merchant support initiatives [6]. - These strategic investments are expected to create near-term pressure on profitability margins and revenue growth [7]. Competitive Landscape - The competitive dynamics in China's e-commerce market have intensified, leading PDD to increase marketing expenditures to maintain its market position against competitors like Amazon, eBay, and Alibaba [8]. - Sales and marketing expenses accounted for 28% of revenues in Q4 2024, suggesting continued elevated spending levels into Q1 2025 [9]. Global Operations - PDD's global business segment faces complexities due to external environment changes and potential macro policy shifts, which may have impacted overseas performance [10]. Overall Outlook - The combination of strategic investments, competitive intensity, and external uncertainties suggests that PDD's first-quarter results may show continued revenue growth moderation and margin fluctuations [11]. - PDD shares have increased by 22.9% year-to-date, outperforming the industry growth of 0.5% and the S&P 500 index's decline of 1.8% [12]. - Currently, PDD is trading at a forward 12-month P/E of 9.46X, significantly lower than the industry average of 22.79X, indicating a potential investment opportunity [15]. Investment Thesis - PDD presents a compelling risk-reward proposition with discounted valuations amid strategic transformation challenges, although competitive pressures and investment uncertainties suggest careful timing for entry points [18]. - Current shareholders are advised to maintain positions due to ecosystem investments, while prospective investors may benefit from waiting for clearer execution evidence [19].