PDD delivered soft 3Q19 results, with revenue +123% YoY (2% below consensus) and non-GAAP net loss widened at -RMB1,660mn (vs. consensus at -RMB785mn). We think this mixed quarter will raise market concern on competition landscape and “11.11” S&M budget. Given PDD’s intensified competition in low-tier cities and merchants, we slightly lowered its revenue by 3.6%/1.3%/1.6% in FY19/20/21E, with unchanged TP of US$35. Stock price would bear short-term pressure. Wait for more clear catalysts regarding 4Q19E momentum.
- 3Q19 results missed. 3Q19 revenue grew 123% YoY, 2% below consensus. Non-GAAP net loss came in at RMB1,660mn (vs. consensus at -RMB785mn). Topline missed on GMV& take rate, while margin was soft on lower GPM and heavier opex. Given rising concern on competition and margin fluctuation, we expect PDD’s stock price to bear pressure in the short run.
- Topline soft on GMV& take rate. 3Q19 revenue grew 123% YoY, driven by ramp-up of active buyers (536mn, + 39% YoY; vs. our estimate 506mn) and ARPU (RMB1,567, +75% YoY; vs. our estimate RMB1,646). 3Q19 GMV came in at RMB249bn (+111% YoY, +7% QoQ), in line with sell-side estimates but well below buy-side expectation (+15% QoQ). Take rate was soft at 3.0% (vs. 3.1% in 2Q19). Quarterly take rate might see fluctuation, but annual take rate expectation remains intact. In terms of ARPU, we keep positive on its long-term ARPU upside from higher mix of top tier users, as its ARPU from top tier buyers was RMB5,000, as mgmt stated.
- Margin fluctuated quarterly, while long-term improvement remains intact. 3Q19 adj. net margin was -22%, 12ppts weaker than consensus, primarily dragged by higher opex. S&M/G&A/R&D ratios were 89%/3.1%/12%, higher than our estimates of 83%/2.0%/10%. Market concern lies in “11.11” marketing efforts. Mgmt restated dynamic and ROI-driven marketing efforts to continue. We expect its 4Q19E net loss to widen for seasonality.
- Maintain BUY. We cut its revenue by 3.6%/1.3%/1.6% in FY19/20/21E, and adjusted earnings to -RMB 5.3bn/ +RMB2.9bn/ +RMB9.6bn. Our TP of US$35 barely changed, which is equivalent to 5.9x FY20E P/S. Despite quarterly fluctuation, we keep positive on its long-term user expansion and margin enhancement.
