Last Wednesday, Titan Offshore holding Pinduoduo (PDD) reported solid Q1 results and extended its lead over other ecommerce giants, with revenues coming in +12% above expectations and active buyers growing nearly +31% Y/Y.
While the stock initially traded down on weaker-than-anticipated gross margins, the earnings call indicated to us that PDD is improving its value proposition among merchants and farmers, as the company extends its social commerce lead in China.
Increased value to suppliers is important for PDD, increasing monetization rates and enabling the company to bring popular brands like Adidas and Unilever onto the platform, in turn attracting more active buyers.
To date, PDD has rapidly acquired active ecommerce buyers through its unique blend of social commerce and community group buying. As the platform expands into new brands and product categories, we expect this trend will only improve further.
Stepping back, although PDD stock declined post-earnings, as investors reacted to the gross margin print, we believe PDD’s competitive advantage continues to increase. In our view, PDD’s ability to aggregate consumer demand via its unique social shopping model is driving economies of scale among merchants, signalling a long runway for revenue growth and cash flow generation.