Summary
PDD Holdings' impressive revenue and earnings growth, driven by its discount e-Commerce platform Temu, supports a bullish investment case.
The company's valuation is attractive, trading at a lower price-to-earnings ratio compared to Alibaba and JD.com, despite strong top line growth.
Risks include fierce competition in the Chinese e-Commerce market and a potential future slowdown in revenue growth.
PDD Holdings remains an appealing investment for 2025, given its top line momentum and significant profitability.
PDD Holdings, also known as Pinduoduo, is a leading e-Commerce platform in China and is seeing impressive top line growth, in part because of its highly successful discount e-Commerce platform Temu, which is targeting markets outside of China. The strong upsurge in revenue and earnings is key to the bullish investment case for PDD Holdings, and I believe Pinduoduo is going to see sustained growth momentum in the years ahead. The Chinese e-Commerce enterprise has seen a rapid increase in its market valuation in September, related to optimism about Beijing's stimulus package, but shares have dropped lately, creating an engagement opportunity for long-term-oriented growth investors.
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Previous Rating
I rated shares of PDD Holdings a strong buy in my last work on the e-Commerce company in July – 9X P/E, Strong Growth, High Safety Margin – because I liked the company’s long-term growth prospects in the Chinese e-Commerce industry. PDD Holdings is one of the largest e-Commerce platforms in China and therefore primed to benefit from the growth of the Chinese e-Commerce sector. Pinduoduo's major financial metrics point upward, and shares are trading at an attractive earnings multiplier again.
Pinduoduo Crushes the e-Commerce Competition in China in Terms of Growth
PDD Holdings is one of the three largest e-Commerce companies in China, next to Alibaba (BABA) and JD.com (JD). PDD Holdings has been chiefly focused on the Chinese market but has made an aggressive push overseas by launching Temu, a wildly popular discount-oriented shopping platform.
PDD Holdings generated 99.4B Chinese Yuan ($14.1B) in revenue in the September quarter, showing a massive 44% revenue surge. At the same time, PDD Holdings’ operating profit increased 46% year-over-year to 24.3B Chinese Yuan ($3.5B). Pinduoduo also is widely profitable, generating 24.9B Chinese Yuan ($3.6B) in earnings just in the third fiscal quarter.
Temu, which is focused on buyers outside of China, is responsible for this significant growth boost, with the e-Commerce platform experiencing a surge in its gross merchandise value since its launch in 2022.
PDD Holdings
Temu was launched with the express purpose to expand PDD Holdings’ e-Commerce model and cut into the turf of other online retailers outside of China, like Amazon (AMZN). Temu has seen a rapid upsurge in its gross merchandise volume, a key metric for e-Commerce companies that measures the gross dollar amount that has passed through the platform in terms of commerce transactions.
ECommerceDB
Temu is key to Pinduoduo's growth ambitions outside of China and the company has made considerable progress to grow its financial metrics: revenues, operating income and net income have surged in the last three years, and PDD Holdings has left both Alibaba and JD.com in the dust in terms of all three figures. Going forward, growth in Temu-related gross merchandise volume as well as organic Chinese e-Commerce platform growth will be critical in order to drive an upside revaluation of Pinduoduo's valuation factor and share price.
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PDD Holdings’ Valuation
The e-Commerce platform has seen rapid expansion in 2024 which is mostly due to the surging popularity of Temu. Further, China announced a major stimulus package in September that would see the country relax borrowing restrictions in order to promote economic growth. Other measures included the relaxation of reserve requirements in order to take pressure off of China's struggling property sector. I have discussed China's stimulus package in my work on Alibaba: China Stimulus Plan Is A Game Changer.
After initial excitement about China's stimulus program in September, shares of e-Commerce companies dropped again, which I believe creates an exciting engagement opportunity for investors that seek a cheap e-Commerce growth play. PDD Holdings is currently valued at a price-to-earnings ratio – based off of 2025 estimated earnings – of 7.7x, while Alibaba and JD.com trade at forward earnings multipliers of 8.8X and 8.1X.
The industry group average price-to-earnings ratio is 8.2X, so Pinduoduo is still the cheapest amongst the large-scale e-Commerce players in China and trades about 18% below the historical 3-year average P/E ratio. I believe PDD could easily revalue to a 10-11X P/E ratio, assuming that the company can remain as profitable as it is now. A 10-11X earnings multiplier implies a fair value range of $127 to $140 per share.
Since Pinduoduo is both cheaper than its e-Commerce rivals in China and putting up by far the strongest performance numbers in terms of top line and earnings growth, I believe Pinduoduo currently represents the best value in the industry group. Further, Temu-driven growth is not expected to slow either, with PDD also having by far the strongest annual EPS growth prospects (see below).
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Risks with PDD Holdings
There are a couple of risks with regard to PDD Holdings. First, competition in the Chinese e-Commerce market is fierce and cut-throat. The emergence of discount-focused e-Commerce platforms like Temu suggests that e-Commerce companies are going to see pressure on their margins going forward, which could prevent an upside revaluation. PDD is also likely, given its past surge in revenues, to grow much slower in the future, as current top line growth rates are hard to maintain long-term. What would change my mind about Pinduoduo is if the e-Commerce company were to see weakening earnings growth.
Closing Thoughts
PDD Holdings is an attractive China-based e-Commerce play for investors in 2025 given the massive upsurge in revenues, operating income and earnings. Temu is obviously a core asset for Pinduoduo at this point and is responsible for the massive upsurge in revenues and operating income in the last several quarters. PDD Holdings' main advantage, in my opinion, is the company's unreasonably low valuation based off of earnings, especially when compared against its rivals. With a forward P/E ratio of only 7.7X, Pinduoduo is even cheaper than e-Commerce competitors such as Alibaba... which are not expensive either. I see a ton of potential for PDD Holdings to grow inside and outside of China (via Temu) as well as a highly favorable risk profile for long-term investors.
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