Morgan Stanley maintains Pinduoduo stock at overweight with $150 target

Morgan Stanley reiterated its Overweight rating on Pinduoduo (PDD), with a $150 price target, anticipating the upcoming Q1 2025 earnings release on May 27th as a potential catalyst; the firm projects 11% YoY growth in online marketing services (OMS) revenue driven by an 18% GMV increase, though at a slower rate due to increased merchant subsidies, and forecasts an 8% YoY decrease in non-GAAP net profit to RMB 28 billion due to a high prior-year base and increased subsidies. Citi also upgraded PDD to Buy with a $165 target, citing tariff reductions benefiting Temu's cross-border sales, while PDD Holdings shifts Temu to a local U.S. merchant model to mitigate tariff impacts and navigates regulatory changes in China regarding no-return refunds.

Analysis

Morgan Stanley has reiterated an Overweight rating on Pinduoduo Inc. (PDD) with a $150.00 price target, viewing the upcoming first-quarter 2025 financial results, expected on May 27, 2025, as a potential share price catalyst. The firm projects Pinduoduo's online marketing services (OMS) revenue to grow 11% year-over-year, driven by an 18% increase in gross merchandise volume (GMV), although this OMS growth is anticipated to be slower than GMV growth due to increased merchant support and subsidies impacting the take rate. This forecast follows a period of robust performance, with Pinduoduo achieving 59.04% revenue growth over the last twelve months and an industry-leading gross profit margin of 60.92%, significantly outpacing the industry's average 6% YoY growth. However, non-GAAP net profit for Q1 is forecasted at RMB 28 billion, an 8% YoY decrease, attributed to a high prior-year earnings base and heightened subsidies, potentially partially offset by reduced spending on its US operations, Temu. Morgan Stanley outlines a base case (60% probability) with 11-14% YoY OMS growth and RMB 27-28 billion non-GAAP net profit, potentially leading to a 0-5% share price increase. InvestingPro data suggests the stock, currently at $119.24, is undervalued, with analyst targets between $106.84 and $194.72, and reflects excellent financial health (4.0/5 score) with a P/E ratio of 10.61. Reinforcing a positive outlook, Citi upgraded PDD from Neutral to Buy, raising its price target to $165, citing anticipated benefits from tariff reductions on cross-border sales, particularly for Temu. PDD Holdings is also strategically transitioning Temu to a local U.S. merchant model to mitigate tariff impacts. Concurrently, Chinese authorities have mandated an end to no-return refunds by platforms like PDD, requiring merchants to initiate them, which may affect operational practices.

Key Decisions for Investors

• Investors should closely monitor Pinduoduo's Q1 2025 earnings on May 27th, particularly OMS revenue growth and non-GAAP net profit figures, comparing them against Morgan Stanley’s base, bull, and bear case scenarios to gauge near-term stock performance.
• Given the company's significant historical revenue growth, market share expansion, and InvestingPro's indication of undervaluation, consider the current share price as a potential entry or accumulation point, while being mindful of the projected short-term profit dip due to strategic investments and subsidies.
• Evaluate the impact of PDD's strategic shift for Temu to a U.S. local merchant model and new Chinese regulations on no-return refunds, as these factors could influence long-term profitability, operational efficiency, and competitive positioning.