On Wednesday, Barclays adjusted its outlook on Pinduoduo Inc. (NASDAQ:PDD), raising the price target to $178 from $164, while maintaining an Overweight rating on the company's stock. The adjustment follows Pinduoduo's fourth-quarter earnings, which surpassed both Barclays' and Wall Street's expectations.
The analyst noted that Pinduoduo's revenues and profits in the fourth quarter were significantly higher than anticipated. This performance was attributed to robust growth in both the Chinese market and its international expansion through Temu. Despite the expansion, Pinduoduo managed to keep costs and expenses under control, leading to improved margins.
According to the analyst's estimates, which are not based on company disclosures, Temu's fourth-quarter revenues saw a nearly 50% quarter-over-quarter increase. Gross margins for Temu are believed to have potentially reached 10%, while sales and marketing expenses rose by approximately 20%.
Consequently, the operating losses for Temu are estimated to have declined by 40% quarter-over-quarter in the fourth quarter.
The analyst also projected the possibility of Temu reaching a break-even point or nearing it by the end of 2024, given the strong revenue growth and effective cost management. This projection is based on the anticipation of continued revenue growth and well-controlled costs and expenses.
For Pinduoduo's business in China, the analyst estimated that the fourth-quarter Gross Merchandise Volume (GMV) increased by roughly 30% year-over-year, driving revenues up by over 50% compared to the previous year. In light of the strong fourth-quarter results, Barclays has revised its estimates and price target for Pinduoduo.
Despite the positive outlook, the analyst acknowledged that investor concerns regarding tariffs, US regulations, and other issues may persist throughout the election year. Nonetheless, the recent financial performance of Pinduoduo has led to a more bullish stance from Barclays.
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