Citi Research commented in a report that PDD (PDD.US) has once again impressed with its 1FQ24 results. Total revenues hiked 131% YoY, beating market expectations by 13%, while non-GAAP profits rocketed 202% YoY, trumping market expectations by 97%. The performance was driven by online marketing and transaction services revenues, which grew 56% and 327% YoY, respectively.
Temu, a subsidiary of PDD, may have reached a GMV of about US$10 billion, and its operating revenue grew 28% QoQ, the broker said. In addition, Temu's gross margin improved from 60.5% to 62.3% in 1FQ24, ending a five-quarter downward trend, implying that Temu's cost of goods sold (COGS) may start to show considerable improvement this quarter. The broker expected Temu's GMV to soar 196% YoY to US$46.9 billion in FY24, while operating revenue will spike 205% YoY to US$22.8 billion.
With peers such as Alibaba and JD increasing their competitive pricing of premium products, Citi believed that PDD would need to ensure comparable high-quality products by strengthening its customer service in rural communities. The broker estimated the company's online marketing revenue to grow 35% YoY in FY24. The broker also believed that PDD will offer popular products through its RMB10 billion subsidy programme, meaning pricing pressure on many household items will intensify in 2H.
Citi raised its revenue forecasts on PDD for 2024/25/26 by 18.4%, 20% and 21.2% respectively, and its non-GAAP net profit forecasts by 48%, 36.7% and 28.7% respectively. The broker also expected PDD's total revenue to grow 68% YoY to RMB416.8 billion in FY24, while non-GAAP net profit is predicted at RMB143.9 billion, representing a profit margin of 35%.
Considering the above factors, Citi raised its target price on PDD from US$185 to US$198 and maintained its Buy rating.
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