Pinduoduo delivered mixed 2Q20 results, with in-line revenue, upbeat margin but slower GMV (for high base and flat ARPU). Given high buy-side expectation, stock price might see short term pressure. However, we keep positive on its secular growth, and expect agricultural products to be its long-term driver. We slightly lifted its adj. net profit by 2%/3% in FY21/22E for its improving margin, with higher DCF-based TP of US$96.
- Mixed 2Q20 with slower GMV growth. 2Q20 revenue grew 67% YoY, in line with consensus. LTM GMV +79% YoY (quarter GMV +48%) was slightly slower than buy-side expectation (~85%), mainly on high base and soft ARPU. Non-GAAP net loss at -RMB77mn (vs. consensus at -RMB1,517mn; our estimate at -RMB720mn), mainly on higher GPM and lower S&M. Non GAAP OPM was -5.9%, with S&M/Rev ratio at -75% (better than our estimate).
- Prioritizing growth than profitability. 2Q20 revenue growth was driven by ramp-up of active buyers (683mn, + 41% YoY) and upbeat take rate (3.19%, vs. 1.8% in 1Q20). ARPU came in at RMB1,857, up 27% YoY but 1% QoQ, slightly below our expectation, mainly on dilution from net adds. However, we keep positive on its long-term ARPU upside, backed by rising purchase frequency and enhanced offerings. Moreover, we keep positive on its take rate upside, for: 1) better targeting with enhanced algorithm; and 2) live streaming initiatives (20% usage for merchants). By category, agricultural products would be its primary focus for still low online penetration rate (7%), and mgmt. reiterated its target at RMB1tn GMV of agricultural products in five years. 2Q20 margin beat on lighter-than-expected S&M. But mgmt. restated its priority on topline growth rather than profitability, thus we expect fluctuating net loss in 2H20E.
- Maintain BUY. Stock price might see short-term pressure given high market expectation, but we keep positive on its long term momentum, driven by its ASP upside and enhanced monetization. We raised its revenue by 1%/1% in FY21/22E, and adjusted earnings to -RMB 5.3bn/ +RMB4.9bn/ +RMB13.8bn. Our new DCF-based TP is revised from US$79 to US$96 (11x FY21E P/S). Maintain BUY.
