An E-Commerce Stock Most People Likely Haven’t Considered
It’s no secret that e-commerce has been one of the fastest-growing industries. And investors are loving it. Just take a look at the long-term stock charts of Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) and you’ll see what I mean.
Over the past 10 years, both Amazon and eBay have delivered astronomical returns to investors. But those two are not the only e-commerce plays in the market.
For instance, Pinduoduo Inc (NASDAQ:PDD) is a Chinese e-commerce company that features more attractively priced merchandise compared to its competitors. It went public in July 2018 on the Nasdaq at a price of $19.00 per share.
On the first day of trading, PDD stock skyrocketed more than 40%.
Not long after the company’s initial public offering (IPO), the stock market entered a major sell-off period. And then the increased trade tension between the U.S. and China only made investors more cautious about putting their money in this foreign stock.
For the past several months, shares of PDD stock have been trading sideways.
It should be noted that Pinduoduo is not the biggest e-commerce company in China. That title goes to Alibaba Group Holding Ltd (NYSE:BABA), which commands a market capitalization of over $460.0 billion.
To put this in perspective, Pinduoduo Inc has a market cap of less than $30.0 billion.
Still, there is one major reason why PDD stock deserves investors’ attention: growth.
A Fast-Growing E-Commerce Business
In my opinion, there are two critical metrics that measure the performance of an e-commerce platform: gross merchandise volume (GMV) and monthly active users (MAU).
GMV represents the total value of all orders for products and services placed on an e-commerce platform. MAU represents the number of user accounts that visited the platform in a given month (MAU also happens to be a key metric for social media platforms).
On those two fronts, Pinduoduo Inc is absolutely firing on all cylinders.
In 2018, Pinduoduo’s GMV totaled $68.6 billion, marking a 234% increase from 2017. Average MAU during the fourth quarter was 272.6 million, up 93% from the year-ago period. (Source: “Pinduoduo Announces Fourth Quarter and Fiscal Year 2018 Results,” Pinduoduo Inc, March 13, 2019.)
Moreover, there were more buyers who, on average, spent more money on this platform. In the 12-month period ended December 31, 2018, Pinduoduo had 418.5-million active buyers, up 71% from the prior year. The annual spending per active buyer came in at $163.9 for the year, representing a 95% increase from 2017.
The company also managed to turn this growth in shopping activities on its platform into more revenue. In the fourth quarter, Pinduoduod’s total revenue grew 379% year-over-year to $822.3 million. This was driven by a 470% growth in online marketing services revenue and a 103% increase in transaction services revenue.
In full-year 2018, the company’s revenue totaled $1.9 billion, marking a staggering 652% increase from 2017.
Even by e-commerce standards, where double-digit growth seems to be the norm, Pinduoduo’s triple-digit growth rates in multiple key metrics still make it stand out.
Not a Hot Ticker at the Moment
But as we know very well by now, “Mr. Market” is hard to predict. On the day that the company reported those numbers, its shares plunged 17.4%.
Well, because while the e-commerce business helped Pinduoduo grow its top line, its bottom line result was much less impressive.
For the fourth quarter, the company reported an adjusted net loss of $0.24 per share, which was wider than Wall Street’s expectation of a net loss of $0.22 per share. Also worth noting is that in the year-ago period, the company actually made a profit.
Pinduoduo Inc Stock Chart
Chart courtesy of StockCharts.com
At the end of the day, keep in mind that volatility is not uncommon in the e-commerce industry. Even Amazon, which is by far the biggest player in the business by market cap, is down 15% since the beginning of September.
Therefore, it shouldn’t be a surprise that Pinduoduo stock, which is a much smaller and lesser-known e-commerce name, could see some major swings in its share price whenever new information comes out.
No doubt, the company delivers top-notch growth in the industry. However, its bottom line results could use some improvement.
As it stands, I wouldn’t call PDD stock a slam dunk. But if you are interested in profiting from the booming e-commerce industry, you should definitely add this ticker to your watch list.