PDD(US:PDD)2025-05-29 04:58Investment Rating - The investment rating for Pinduoduo Holdings (PDD) has been downgraded from Buy to HOLD [1]. Core Insights - Pinduoduo's 1Q25 revenue increased by 10.2% year-over-year to RMB95.7 billion, which was below the Visible Alpha consensus of RMB103.9 billion. The non-GAAP attributable net profit was RMB16.9 billion, with a non-GAAP net profit margin (NPM) down 17.6 percentage points year-over-year to 17.7%, also below the consensus of 26.8% [1][2]. - The revenue miss is attributed to higher-than-expected investments in both domestic and overseas e-commerce arms, aimed at enhancing market share and merchant operations. The 'RMB100 billion Support Plan' launched in April 2025 is expected to continue impacting profitability in the short to medium term [1][2][3]. Summary by Sections Domestic E-commerce - In 1Q25, Pinduoduo's online marketplace services revenue grew by 14.8% year-over-year to RMB48.7 billion, surpassing the VA consensus of 13.5% [2]. - Transaction services revenue rose by 5.8% year-over-year to RMB47 billion, falling short of the VA consensus of RMB56 billion due to overspending on merchant support and commission waivers [2]. - Management has initiated support plans, including a 'RMB10 billion Waiver Plan' benefiting over 10 million merchants and the 'RMB100 billion Support Plan' aimed at stabilizing sales for small and medium-sized merchants [2][3]. Overseas E-commerce - Temu is transitioning from a fully-consignment to a semi-consignment merchant supply model to address tariff uncertainties, which may delay breakeven expectations [3]. - Continued investments are projected to be necessary for Temu to build overseas warehousing capabilities and expand into non-US markets, potentially impacting profitability [3]. Earnings Forecasts and Valuation - Non-GAAP net profit forecasts for 2025, 2026, and 2027 have been reduced by 37.2%, 25.3%, and 20.3% respectively, to RMB80.1 billion, RMB106.5 billion, and RMB127.7 billion [4][12][13]. - The target price has been updated to USD102.30 from USD144.50, reflecting a decrease in valuation multiples due to low profit visibility amid increased spending and competition [4][17]. - The valuation for the domestic e-commerce segment is now USD74.6 per ADS, down from USD110.7, based on an 8x 2025E PE [18]. Financial Performance - Revenue for 2025 is estimated at RMB431.7 billion, a decrease of 4.6% from previous estimates, with adjusted net profit also revised downwards [12][13]. - The company is expected to face persistent pressure on revenue growth and profit delivery in the short to medium term due to high base monetization rates and competitive pressures from major rivals [14]. SOTP Valuation - The SOTP-derived valuation indicates that the domestic e-commerce segment is valued at USD74.6 per ADS, Duoduo Grocery at USD4.9, and Temu at USD22.8, reflecting the challenges and competitive landscape in each segment [21][22].