PDD delivered eye-catching 3Q20 results, with revenue +89% YoY (16% above consensus) and adj. net profit at +RMB466mn (vs. consensus at –RMB1,308mn). We are surprised to see that PDD achieved first quarterly profit, earlier than market expectation. We reiterate our confidence on its secular growth, driven by stronger user engagement, ROI-driven marketing, agricultural products potential and new initiatives (e.g. Duo Duo Mai Cai). We lifted its topline by 11%/10%/9% in FY21/22/23E for better GMV outlook, with higher DCF-based TP of US$160.
- 3Q20 all-around beat, with first quarterly profit since IPO. 3Q20 revenue surged 89% YoY, 16% above consensus. LTM GMV +73% YoY (quarter GMV +76%) was significantly above buy-side expectation (55%-60%), mainly on stronger ARPU growth. Non-GAAP net profit came in at +RMB466mn (vs. consensus at –RMB1,308mn), mainly due to higher GPM and lower S&M. S&M/Rev ratio continued to decrease to -70% in 3Q20 (vs. -75% in 2Q20, better than our estimate of -80%). Mgmt. reiterate its priority on topline growth and investment on DDMC(多多买菜), rather than targeting profit each quarter.
- Stepping-up fruits from stronger user engagement. 3Q20 revenue grew 89% YoY, driven by ramp-up of active buyers (731mn, + 36% YoY) and higher ARPU (RMB1,993, +7% QoQ). PDD prioritizes user engagement and offerings categories expansion this year, and it began to see stepping-up fruits from higher purchase frequency and ARPU. Looking ahead, we see high visibility for PDD to continuously gain share with higher time spent, merchants livestreaming (20% usage), enhanced supply structure and DDMC initiatives.
- DDMC to bring further upside. After launch in Aug, DDMC gained tractions with rising penetration and time spent. Looking ahead, PDD would strategically invest in infrastructure and logistics to build its next-day fulfillment capability, and then enhance cold chain logistics and algorithmic recommendation. We are bullish on fresh food group-buying industry potential, and we believe PDD is well positioned to capture the tailwinds by leveraging its agricultural products advantage, sizable user coverage and natural synergies with PDD portal.
- Maintain BUY. We raised its revenue by 11%/10%/9% in FY21/22/23E, and adjusted earnings to -RMB 4.7bn/ +RMB4.9bn/ +RMB14.0bn. Our new DCF-based TP is revised from US$96 to US$160 (17x/13x FY21/22E P/S).
