PDD delivered strong 1Q20 results, with revenue +44% YoY (32% above consensus) and non-GAAP net loss at –RMB3,170mn (vs. consensus at –RMB2,670mn, our estimate at -RMB3,288mn). We are impressed by its upbeat revenue in such challenging quarter, and turn more confident on its recovery path and long-term momentum. We raised its revenue by 4.2%/4.5%/5.8% in FY20/21/22E, with revised DCF-based TP of US$79.
- 1Q20 beat on topline. 1Q20 revenue grew 44% YoY, 32% above consensus. Non-GAAP net loss came in at –RMB3,170mn (vs. consensus at – RMB2,670mn; our estimate at –RMB3,288mn), mainly on lower GPM and heavier S&M (S&M/Rev ratio at -112% (slightly above our estimate). We view this quarter as positive, for its upbeat user expansion, ARPU and topline.
- Bullish on user expansion and ARPU upside in recovery period. 1Q20 revenue growth was driven by ramp-up of active buyers (628mn, + 42% YoY) and ARPU (RMB1,842, +47% YoY). Its blended take rate was 2.78% (vs. 2.99% in 4Q19), while online marketing take rate at 1.82% (vs. 2.61% in 4Q19), mainly on preferential rates to merchants. Looking ahead, mgmt. expect take rate to pick up from 2Q20E in recovery period. We forecast GMV to accelerate from 2Q20E, and achieve RMB1.6trn GMV in FY20E, with higher purchase frequency and ARPU. Mgmt expect deeper cooperation with GOME, C2M initiatives to promote faster online-offline integration and closer connection with merchants.
- Continuous investment ahead. 2020 would be another investment year, with dynamic ROI-driven S&M strategy. In 2020, PDD will focus more on: 1) user expansion and engagement; and 2) offerings categories expansion. On the one hand, “RMB10bn subsidy” will continue to strengthen user loyalty and engagement. On the other hand, PDD would explore diversified opportunities through livestreaming, online-offline integration and exporters cooperation.
- Maintain BUY. Given its largely-above-industry topline growth, we turn more confident on PDD’s long-term momentum, driven by higher user engagement and ARPU upside. We raised its revenue by 4.2%/4.5%/5.8% in FY20/21/22E, and adjusted earnings to -RMB 4.8bn/ +RMB9.1bn/ +RMB18.7bn. Our new DCF-based TP is revised from US$50 to US$79 (9.0x FY21E P/S), to reflect its higher long-term topline upside and competitive advantage.
