PDD shares shoot up 16% on Q3 beat despite China turmoil

  • November 28, 2022
  • PDD stock rallied 16% in Monday premarket.
  • Pinduoduo announced Q3 earnings that trounced Wall Street expectations.
  • Chinese unrest due to covid restrictions is pushing Nasdaq, other stock markets lower.
  • Adjusted EPS for Pinduoduo in Q3 rose 256% YoY.

One thing is for sure on Monday morning – the market is not letting the protests in China distract it from at least one piece of good news coming out of Shanghai. That would be e-commerce competitor Pinduoduo’s (PDD) confident third quarter results. The rival of Alibaba (BABA) and JD.com (JD) is seeing its American depository shares (ADS) surge 15.8% in the premarket to $76.12 on the back of sizable beats on both top and bottom lines. Due to widespread anti-covid protests unleashed across China, markets are generally selling off across the board. Nasdaq Futures are currently trading down 0.8% in the premarket, and the Hang Seng fell 1.6% in Monday’s session.

Pinduoduo stock earnings news: Big beat on top and bottom lines

After the close of the Asian session, Pinduoduo reported adjusted earnings per share (EPS) of $1.21. These results beat Wall Street consensus by a mile. Analysts on average had predicted adjusted EPS of $0.72. Non-GAAP diluted EPS rose a heady 256% YoY.

Revenue also outperformed expectations, coming in just under $5 billion. This was almost $700 million ahead of expectations and up a whopping 65% YoY. Management said the outstanding sales figures stemmed from growth in online marketing and transaction services since Pinduoduo has a healthy third-party seller cohort.

Revenue from merchandise sales, Pinduoduo’s smallest segment, fell 31% YoY to $7.9 million. This was more than made up for by a 58% surge in online marketing services to just under $4 billion and a 102% explosion in transaction services to $987 million. These boosted revenue were partially offset by a 40% increase in sales and marketing spend, as well as a 171% rise in general and administrative costs. PDD’s management blamed this last figure on increased salary costs and extensive hiring. Research and development rose just 11% YoY.

“Investment in certain projects was affected in the third quarter,” said Jun Liu, Pinduoduo’s vice-president of finance. “We will continue to step up our investment in R&D and create long-term value through innovations.”

Jun Liu is likely using corporate speak to single out coronavirus lockdowns, which have frequently upset commercial operations throughout China in 2022. Chinese authorities have strictly enforced stay-at-home orders in a number of geographies within the world’s biggest population (the United Nations predicts that India will overtake China’s population in 2023). Over the weekend, these restrictions have been met with heavy protests from citizens exhausted with constant regulations and testing. Some have even called for President Xi Jinping to step down as leader of the Chinese Communist Party.

Chinese covid protests could weigh on future PDD results

The protests seem to have begun last week at a Foxconn factory that produced Apple (AAPL) products, but over the weekend they spread nationwide. Bloomberg reported early Monday that Apple iPhone production may fall by as much as 6 million units behind schedule due to the protests and other lockdown measures. Reuters separately reported last week that iPhone production might come in 30% behind schedule in November due to the protests. While Pinduoduo has not directly mentioned the protests, they could severely impact Q4 operations depending on how long they last. 

American depository shares of competitors Alibaba and JD.com did not react to PDD earnings. Instead, they sank alongside the general market’s clearcut concerns over what the Chinese protests could do to corporate profits and worries that other investors might exit the market over the headlines. BABA stock is down 1% in the premarket, while JD shares are off 0.4%.

Pinduoduo stock forecast

Pinduoduo stock has already leapt through the $70 to $73 resistance zone. This area may turn into support further along, but for now the market appears unusually bullish on this name. Of course, if the Chinese protests continue, then expect investors to book profits later in the week. Straight ahead is an obvious price target for bulls. Back on November 26, 2021, PDD stock gapped down. The low from the previous session was $79.06, and markets love to fill gaps. It is one of the strange rules of securities trading. Mark my words: PDD will hit $79.06 before bulls let up.

After that, any continued soft buying into December will have bulls eyeing the next supply zone that stretches from $95 to $101. There is plenty of volume all the way up to $110, but this first region held up at different times between August and November 2021. There will likely be plenty of profit-taking in this region once again.

Besides that, the Moving Average Convergence Divergence (MACD) indicator was about ready to roll over just before these earnings hit. Now, the MACD will likely remain crossed over until it reaches at least 4.0 as it did in June and September. With another higher high, we can now confidently say that PDD is one of the rare stocks that has been in a broad bull rally since May 12.

This rally may likely last awhile. Bank of America just released its top 10 list of trading ideas for 2023. One was being long Chinese stocks. Bank of America analysts wrote, “COVID reopening was v[ery] bullish for US/EAFE stocks, China has high ‘excess savings’ and China stocks remain v[ery] contrarian long trade.”

PDD 1-day chart