PDD(US:PDD) Goldman Sachs·2025-05-28 05:45Investment Rating - The report assigns a "Buy" rating for PDD Holdings (PDD) [1] Core Insights - The report highlights a profit miss in 1Q25 due to increased user and merchant investments, despite a healthy online marketing revenue growth of 15%, which outperformed domestic peers [1][20] - The domestic platform's GMV profit margin decreased to 1.9% in 1Q25 from 2.6% in 4Q24, influenced by a Rmb100 billion three-year support plan for users and merchants [2][20] - The revised net profit forecasts for 2025E, 2026E, and 2027E are adjusted downwards by -24%, -13%, and -8% respectively, reflecting the company's commitment to reinvest in its ecosystem [2][22] - The target price is revised to US$131 from US$152, indicating a favorable risk-reward scenario at 11X 2025E and 8X 2026E P/Es compared to the median of 17X/15X for China Internet coverage [2][22] Summary by Sections Financial Performance - Online marketing revenue growth of 15% indicates continued market share gains, outperforming competitors like Kuaishou and Alibaba [20] - The report anticipates online marketing services revenue growth of 14% for 2Q25 and FY25E, driven by domestic GMV growth of 16% [20] - The company's significant ecosystem investments are attributed to one-time costs related to a trade-in program and a commitment to support SMEs [20] Profitability Outlook - The report expects domestic main platform EBIT to decline by 20% this year due to reinvestments in the ecosystem [20] - The overall adjusted net profit estimates for FY25E and FY26E are Rmb96 billion and Rmb140 billion, reflecting -22% and +46% year-over-year growth respectively [22] Valuation Metrics - The revised 12-month target price is US$131, with a focus on valuation re-rating potential as earnings growth is expected to improve in 2H25 [2][22] - The report notes that the current market cap implies no valuation ascribed to Temu, indicating potential upside as concerns around geopolitical impacts lessen [2][22]