Story Stocks^®

Pinduoduo (PDD +17%) is surging today after the Chinese ecommerce giant reported strong upside results for Q3. After a miss in Q4 of last year, PDD has now posted three consecutive huge EPS beats. Just as impressive, Q3 revenue rose 93.9% yr/yr to RMB 68.84 bln (US$9.44 bln), well ahead of analyst expectations.

• The strongest growth was generated by transaction services, which surged 315% yr/yr to US$3.99 bln. Online marketing services revenue rose a solid 39% yr/yr to US$5.44 bln. Last quarter, PDD said it saw a positive shift in consumer sentiment in Q2, leading to a rise in demand across various product sectors.
• The top line strength continued in Q3. PDD said that revenue growth in Q3 was mainly driven by the continued recovery in consumer sentiment. As one of the largest e-commerce platforms in China, PDD said it clearly felt the continuous recovery of the economy and the resilience of its consumption market.
• PDD noted that it introduced a number of policies to support consumption and it is now seeing robust demand for consumption upgrades. Consumer behavior is telling PDD that the consumption upgrade is not just about quality, but equally about price. It's the balance of quality and price that the consumers care most about. The company describes 2023 as a year of recovery and also a year of a heightened competition.
• Of note, while PDD operates primarily in China, it has been starting to branch out into international markets. In September 2022, PDD launched Temu in the US, which it hopes can compete with Amazon across a number of categories including clothing, shoes, appliances, beauty, automotive etc.
• Unfortunately, PDD was a little cautious, basically saying that the Temu business is still in its early stage and it will face uncertainties. With a year in the books, we would have liked to hear a more upbeat outlook. Briefing.com thinks it is going to be a heavy lift to make deep inroads in the US quickly as most Americans are unfamiliar with the Temu brand and AMZN already has a dominant presence. And it has played out that way thus far, but we will keep an eye on Temu in future quarters.

Overall, investors are clearly impressed with PDD's Q3 results, which bodes well for the holiday Q4 period as well. We were surprised to see PDD perform so well given the problems in China's real estate market. Also, China's Q2 GDP was short of expectations. However, on CNN.com today, an article quoted Pan Gongsheng, the governor of the People's Bank of China, as saying that China "is moving away from manufacturing and real estate, its traditional drivers of growth, towards a newer economic model driven by consumption and services." That seems to have played out with PDD's strong Q3 results.