Preview of US Stock Earnings Reports: Will Pinduoduo's stock price plunge on the day its earnings report is released?

Pinduoduo will release its Q4 2024 earnings report at 7:30 am Eastern Daylight Time on March 20.

 

According to a report issued by Goldman Sachs, Pinduoduo is expected to perform steadily in the fourth quarter of last year due to the strong consumption trend of goods and services.

The prediction of the bank shows that Pinduoduo's revenue growth will reach 24%. It is expected that 2024 will end on a strong note.

 

However, I think the focus of this earnings report lies more in the company's management's outlook for this year, as well as issues such as capital expenditure related to AI, the competitive landscape between the e-commerce and physical store markets, global investment strategies, and responses to changes in trade policies.

I've found an interesting thing about Pinduoduo. That is, whenever it releases its earnings report, its stock price will experience a sharp decline.

On August 26, Pinduoduo released its second-quarter earnings report.

 

The earnings report shows that Pinduoduo's revenue in this quarter was 97.06 billion yuan, an increase of 86% compared with the same period last year; the adjusted operating profit was 34.99 billion yuan, a year-on-year increase of 139%, exceeding expectations for six consecutive quarters. The adjusted net profit attributable to ordinary shareholders was 34.43 billion yuan, a year-on-year increase of 125%.

This performance is already very good, but the market didn't buy it. After the earnings report was released, Pinduoduo's US stocks plunged nearly 30% on the same day, breaking through the $100 mark, and its market value evaporated by more than $55 billion, setting a record for the largest single-day decline since its listing in the US stock market.

 

This is not an accident. On November 21, Pinduoduo disclosed its third-quarter earnings report. The report shows that Pinduoduo achieved revenue of 99.35 billion yuan in the third quarter, a year-on-year increase of 44.33%; and achieved a net profit of 24.98 billion yuan, a year-on-year increase of 60.78%.

After the performance was disclosed, Pinduoduo's stock price also experienced a sharp decline. On the day the earnings report was disclosed, Pinduoduo's stock price closed at $104.09 per share, down 10.64%, and its market value shrank by $15 billion.

 

So why did it decline? The reason, after all, is that the market still thinks its growth rate is too slow.

 

Although the overall performance is good, there is a significant gap between the growth rate and the market's expectations, especially in the two major aspects of revenue and core business growth.

 

At the same time, not paying dividends may also be one of the reasons for the selling of stocks. Chen Lei, Chairman and Co-CEO of Pinduoduo Group, also said: "I and other members of the management unanimously believe that it is not appropriate to carry out share buybacks or dividends at the capital level at present. In the next few years that we can foresee as management, we also think there is no need for this."

I believe that many investors who have long-term held Pinduoduo stocks are already afraid of the earnings report release date.

 

Pinduoduo's market in China has now tended to be saturated. The only thing that can bring a relatively large growth rate is its expansion overseas. However, Pinduoduo's overseas expansion is not going smoothly.

 

Due to fierce market competition and increasingly strict regulatory policies and risk control rules in the international market, although Pinduoduo has quickly seized overseas market share with its strong marketing and low-price strategy, on the one hand, its competitors, such as TikTok, AliExpress, and Shein, which are also known as the "Four Dragons of Overseas Expansion", as well as international veteran e-commerce platforms like Amazon and eBay, are not to be underestimated. Temu is still too "young" compared to them and needs more time to develop.

 

On the other hand, in response to Temu's overseas expansion strategy, other cross-border e-commerce players are also introducing different strategies to counter Pinduoduo. For example, Amazon's "Low-Price Store" directly targets Pinduoduo's low-price strategy, hoping to regain market share in this way.

 

Geopolitical challenges also hinder Temu's overseas expansion. The example of ByteDance serves as a warning. The US House of Representatives has required ByteDance to divest its TikTok within six months, or TikTok will be banned.

Temu has been jointly investigated by the attorneys general of multiple states in the US due to intellectual property issues and consumer data privacy issues, and Temu has also been included in the list of platforms subject to the highest-level digital review by the European Union.

 

All these reasons have led to the slowdown of Pinduoduo's growth rate.

In fact, in my opinion, in the long term, Pinduoduo is still worth buying. Its current price-to-earnings ratio is relatively low.

 

It has established a moat and barriers in the e-commerce field in China and has gained popularity. Globally, despite facing multiple difficulties, Pinduoduo can still secure a place relying on its unique "low-price strategy" and customer acquisition methods.

 

However, for short-term investors, it is recommended to be cautious about getting involved near the earnings report release time.$PDD