PDD delivered mixed 4Q19 results, with revenue +91% YoY (3% below consensus) and non-GAAP net loss narrowed to RMB815mn (vs. consensus at RMB1,877mn). 1Q20E would see soft financial metrics for epidemic impact. We lowered its revenue by 12.2%/0.8% in FY20/21E, with slightly revised TP of US$40.5. Wait for more clear catalysts regarding ecommerce recovery.
- A mixed quarter. 4Q19 revenue grew 91% YoY, 3%/0% below consensus/ our estimates. Non-GAAP net loss came in at RMB815mn (vs. consensus at RMB1,877mn). Non-GAAP OPM narrowed to -12.4%, mainly on higher GPM and lower S&M/Rev ratio. We view this result as mixed, as its revenue and take rate were below expectation, while active buyers and S&M ratio beat.
- Focus on user engagement and category diversification. 4Q19 revenue growth was driven by ramp-up of active buyers (585mn, +40% YoY) and ARPU (RMB1,720, +53% YoY). Its blended take rate was 2.99% (vs. 2.98% in 3Q19), while online marketing take rate at 2.61% (vs. 2.69% in 3Q19). Take rate might see fluctuation in the short run, given preferential rates to merchants. In 2020, PDD will focus on: 1) user engagement, purchase frequency and ARPU; and 2) categories expansion. Quarterly GPM would still vary around at 70-80%, and its dynamic ROI-driven marketing continues.
- Multiple challenges from epidemic while long-term trend intact. Mgmt stated 1Q20E ecommerce would be suppressed by the epidemic, mainly on: 1) softer consumption from users; and 2) weaker ads demand from merchants. PDD has launched RMB1bn reserve to fund the delivery orders, RMB1.1bn subsidies for agricultural goods and epidemic supplies. Compared to JD & BABA, PDD might see more challenges from epidemic, for its logistics and agricultural goods. However, PDD has gradually seen recovery since Mar, as work resumption rate of courier reached 92.5%. Despite weak 1Q20E, mgmt keep positive on its long-term growth, mainly on: 1) subsidies to stimulate frequent purchaser; and 2) stronger agriculture goods/ fruits demand, coupled with higher DAU, Kuaituantuan’s launch, to capture opportunities from epidemic.
- Maintain BUY. We cut its revenue by 12.2%/0.8% in FY20/21E, and adjusted earnings to -RMB 2.5bn/ +RMB9.5bn. Our new TP is slightly revised to US$40.5, which is equivalent to 5.0x FY21E P/S. Despite quarterly fluctuation, we keep positive on its secular growth and operating leverage.
