Chinese e-commerce stocks are very well known in America. Everyone has heard of Alibaba (NYSE:BABA), often referred to as the “Amazon of China.” Then there’s JD.Com (NASDAQ:JD) — the first major Chinese e-commerce firm to get a Nasdaq listing. You may not be as familiar with Pinduoduo (NASDAQ:PDD). Now’s the time to learn more, because this Chinese e-commerce company with a twist is growing fast. After a stellar first-quarter performance in pandemic-stricken China, PDD stock has now more than doubled in value in 2020.
Like Alibaba and JD.Com, Pinduoduo is an e-commerce platform. However, the way Pinduoduo goes about it is significantly different from traditional online retailers. The company describes its approach as a “virtual bazaar.”
While shoppers can buy items online as with its rivals’ platforms, Pinduoduo doesn’t just offer the usual brands, it also features emerging brands and a direct connection to farmers. Where things get interesting is the option of group buying to drive down the cost of purchase. Shoppers interact with each other, share links to items, and try to leverage their group buying power to result in a lower cost. Pinduoduo primarily makes its money through a cut of sales, and by charging for advertising.
Unlike Alibaba and JD.Com, Pinduoduo remains focused on e-commerce. There is no cloud computing division, gaming or streaming video service.
Immunity to Effect of Holding Foreign Companies Accountable Act?
On May 20, the Senate passed legislation that would ban Chinese stocks from having an American listing without submitting to U.S. audits. It’s not a law yet — the House must pass it as well — but it spooked investors. Both JD and BABA stock dropped 8% in the days immediately after.
PDD stock slipped slightly the day after the news broke, but quickly turned that around the following day for a 14.5% gain. That market reaction wasn’t a reflection that investors thought Pinduoduo would be immune. Rather, it was in response to Pinduoduo’s first-quarter earnings, which were released with perfect timing.
In other words, be aware that if the Holding Foreign Companies Accountable Act becomes law, there will be repercussions for Pinduoduo and PDD stock. However, it would take three straight years of non-compliance for a stock to be de-listed. So any impact is considerably in the future.
Strong Performance in a Pandemic
Pinduoduo’s first quarter ended at the end of March. That means it was hammered by the full effects of the novel coronavirus pandemic in China.
The company’s business model proved extremely well-suited to what happened, though. Shoppers abandoned brick and mortar stores to shop online. Bulk buying is even better. Combining online shopping, bulk buying and the ability to socialize? That proved to be a recipe for success for Pinduoduo. The company reported first-quarter earnings on May 22, just as the market was reacting to the Holding Foreign Companies Accountable Act.
The company’s revenue for the quarter experienced a steep drop compared to the holiday quarter, but the company explained that was because it cut rates to help the farmers and small businesses on its platform get through the tough times: While sequential performance, was down, year-over-year it was firing on all cylinders.
The company smashed analyst expectations, delivering quarterly revenue of $916.63 million, up 44% year over year. The number of active buyers on the platform increased 42% YOY. Its 628 million (in just five years) active buyers total is rapidly gaining on Alibaba’s 728 million. In addition, the company noted that in May its average daily orders numbered 65 million versus roughly 50 million before the pandemic. So shoppers are sticking around even though they can now go back to stores.
Given that performance, it’s little wonder PDD stock went in the opposite direction of most Chinese stocks.
Bottom Line on PDD Stock
Alibaba and JD.Com are successful Chinese e-commerce companies — after record 618 sales, Alibaba in particular remains a strong pick.
But Pinduoduo is growing at a rapid clip, and even the worst of the pandemic wasn’t able to slow that. Since it went public three years ago, PDD stock is up 249%. Even in 2020, it has put together a 108% gain, so far. Based on that rapid increase in the stock’s value, founder Colin Huang recently passed Alibaba’s Jack Ma as China’s second-richest person.
Pinduoduo is an e-commerce company that does things differently, but its formula is clearly working. This ‘A’-rated stock definitely deserves consideration for your portfolio.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.