Although PDD’s third-quarter revenue and non-GAAP earnings per share grew by 44% and 60%, respectively, compared to a year earlier, 3% and 8% lower than market expectations, Nomura said in a research note.
However, Nomura still believes that PDD’s performance last quarter was relatively steady, especially considering that many other internet companies are still struggling to achieve growth.
Management revealed that the company will continue to invest in the next few quarters, which may affect its profit margins. Nomura noted that part of the third-quarter investment was related to the new penalty policy implemented by Temu in July, which caused dissatisfaction and complaints among merchants, and PDD is expected to offer temporary compensation to merchants.
Looking ahead, Nomura believes that after the situation stabilizes, PDD’s investment scale will likely gradually decrease from the third-quarter levels.
Nomura forecasts that PDD’s China business revenue will grow by 26% next year, with operating profit margins to rise to 40%, while for the overseas business, Temu’s focus is likely to shift towards improving profitability, with revenue expected to grow by 37% and operating profit margins to reach 2.6%.
Nomura lowered its earnings per share estimates for PDD for 2024 and 2025 by 5% and 12%, respectively, and cut its target price from HK$164 to HK$137 while maintaining a “Buy” rating.