PDD Holdings Inc. - Operator of the e-commerce platforms Pinduoduo and Temu

Brief summary for investors: PDD Holdings is a multinational e-commerce group with the main platforms Pinduoduo in China and the global marketplace Temu. The company is experiencing strong growth and has developed from initial losses to high profitability.

Development The share price experienced a strong rally from 2020 to the beginning of 2021 (from approximately €62 to over €150), driven by the pandemic-related e-commerce boom and the successful expansion of Pinduoduo. A significant correction followed in mid-2021 (low point of approximately €42 in 2022), influenced by increasing regulatory pressures in the Chinese tech sector and macroeconomic concerns. Since 2023, the share price has shown a significant recovery, driven by convincing financial results and Temu's promising international growth. The recent volatility (2024/25) reflects the uncertainties regarding the profitability of Temu's aggressive expansion.

Opportunities:

• International Expansion: Temu has rapidly become a major global e-commerce player and is tapping into enormous new growth markets outside of China.
• Strong Profitability: The company generates high and increasing profits (annual report: RMB 30.8 billion last quarter) and substantial free cash flows to finance expansion.
• Scalable Business Model: The asset-light marketplace structure enables high margins (EBITDA margin of 34.2% last quarter) and efficient growth.

Risks:

• Geopolitical Tensions: As a Chinese company, PDD is subject to trade and regulatory risks, particularly in its key international markets such as the US and the EU.
• Aggressive Marketing Costs: Temu's intensive growth is driven by high marketing expenditures, which must be sustainably profitable over the long term.
• Cyclical Sensitivity: The business is cyclical and vulnerable to macroeconomic fluctuations that can impact consumer spending.

Additional Notes: The balance sheet is solid (current ratio: 2.36), and debt is moderate (debt-to-equity: 0.57). A US politician recently completed both purchase and sale transactions of a similar size, which does not indicate a clear direction.

Conclusion: PDD has differentiated itself from its Chinese peer group through strong operational performance and successful internationalization. Its fundamental strength is undisputed, but its future share price performance will depend significantly on its ability to profitably expand Temu and navigate geopolitical risks.

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