PDD Holdings Earnings: Strong Revenue and Earnings Beat; Fair Value Estimate Maintained

PDD Holdings’ fourth-quarter revenue and non-GAAP operating profit beat LSEG consensus estimates as of March 20 by 12% and 41%, respectively. Revenue surged 123% year on year, mainly driven by the 357% jump in transaction services revenue thanks to overseas e-commerce platform Temu. Online marketing services revenue registered strong year-on-year growth of 57%, boosted by an estimated nearly 30% surge in gross merchandise volume and a higher monetization rate. We were surprised by the cost-control measures amid Temu’s expansion. Total non-GAAP operating expense as a percentage of total revenue was 33% in the fourth quarter, compared with 48% a year ago. We believe this is mainly driven by the 1,300-basis-point year-on-year reduction in non-GAAP sales and marketing expenses. This might explain the 12.5% month-on-month drop in observed sales for Temu in December 2023 published by Bloomberg Second Measure, which tracks a subset of US credit and debit card transactions.