Research published by Blue Lotus Research on March 22, 2022

 

(6 Pages, 6 graphs and tables)
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• PDD reported its 4Q21 revenue/non-GAAP NI (9%)/184% vs. consensus. While annual active customer remained flattish and led to slowed revenue growth of 19% YoY, cautious S&M spending helped PDD to reach net margin of 32%.
• Despite negative factors such as lockdowns in 1Q22 and macro uncertainties, short video could be a catalyst which improves user retention.
• We UG PDD to HOLD rating for the priced-in revenue slow down and higher-than-expected margin improvement. Our TP of US$ 43 implies 19X PE in FY2022.

User was almost flattish
PDD reported its revenue to increase 19% YoY, missing our est./cons by 4%/9%. We estimate that GMV growth in 4Q21 was about 18%-20% YoY. We see three reasons for such results: 1) Annual active users increased only 1.4mn from last quarter. We believe that as a platform with 870mn active buyers, PDD has limited upside for user volume. 2) Weak national consumption in 4Q21. According to NBS, online physical goods sold only increased ~5% YoY in 4Q21. 3) Limited take rate upside. Since its launch of automatic ads(放心推) and starting to charge commission to 10bn subsidy merchants in 1H21, its take rate has gradually improved from 3.7% to 4.0%, identical to BABA’s level.
 
Core eCommerce margin reached 40%+
PDD reported its 4Q21 non-GAAP net profit to reach 8.5bn, beating consensus by 184%. This is mainly attributable to: 1) Lower promotional costs. We estimate that PDD’s 10bn subsidy program contributes about ~8% of total GMV in 4Q21, vs previous 10-12%. This has caused PDD’s S&M expense to decrease 23% YoY 2) Narrowed loss from Community Group Buying business. PDD’s CGB order volume is estimated to be about ~42mn in 4Q21 vs ~10mn of 4Q20, while operating loss margin (per GMV) narrowed from ~30% to ~10%. We estimate that this figure could be improved to 5-8% by the end of 2022 3) one-off fee rebate from service provider. If excluding loss from CGB, PDD’s profit margin of eCommerce services already reached 40%+, similar to BABA’s China commerce margin. (TBC)

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