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Earnings First Take: 3Q21 revenue below market consensus

• Revenue increased by 51% y-o-y to Rmb21,506m, below consensus of c.80% growth 
• Non-GAAP net profit was Rmb3,150m in 3Q21, above market expectations of net loss c.Rm360m due to marketing costs shrink.
• Yet, management reiterated to allocate future profits to “10 billion Agri initiative”, which could be negative to shareholder’s profit in short-mid term  
• Maintain HOLD with TP of HK$99 under review

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What’s New
– Pinduoduo (PDD US) announced its 3Q21 results last Friday before US market open.

– Total revenue increased by 51% y-o-y to Rmb21,506m, below consensus of c.80% growth. 

– Segment-wise, online marketing increased by 39% to Rmb17,946m; transaction services rose 161% to Rmb3,477m.

– Selling and marketing expenses decreased 0.2% to c.RMB10bn. R&D expenses increased by 34% to RMB2.4bn.

– Non-GAAP net profit was Rmb3,150m in 3Q21, above market expectations of net loss of c.Rm360m due to marketing costs shrink.

– Selling and marketing expenses decreased 0.2%. R&D expensed increased by 34%

– Average MAU increased by 15% to 741.5m. 

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Our View:
– The unsatisfactory revenue performance was mainly due to lower-than-expected advertising income amid macro slowdown.

– Yet, management reiterated to allocate all potential future profits to “10 billion Agri initiative”, and shrift investment focus from marketing to R&D in next five years.

– The initiative will be negative to shareholders’ profit in short-mid-term as it’s not profit driven decision. It could be good for PDD to strengthen agriculture supply chain and increase operating efficiency. But as it’s still at very early stage, we expect short-term profitability clouded. 

– We currently rate HOLD with TP of HK$99 under review.