PDD Holdings will see accelerating growth with a 74% price target increase

Executive Summary

Based on exceptional recent execution and accelerating growth metrics, we revise our 12-month price target for PDD Holdings to $165.00, representing approximately 74% upside from the current price of $94.68.

Recent Performance Highlights

Q3 2024 demonstrated remarkable acceleration across key metrics:

• Transaction services revenue surged 72% year-over-year, significantly outpacing expectations
• Operating profit increased 46% to RMB 24.3 billion with expanding margins
• Net income growth accelerated to 61% year-over-year
• Cash position strengthened to $44 billion, providing substantial strategic flexibility

Key Growth Catalysts

International Expansion:

• Temu's semi-entrusted model showing stronger-than-anticipated margin improvement
• Geographic footprint expanded to 70+ countries with robust user acquisition metrics
• Customer acquisition costs decreased 22% quarter-over-quarter

Platform Economics:

• Take rate expanded to 3.8%, demonstrating pricing power
• Monthly active users exceeded 900 million in Q4 2024
• Merchant retention rate stable at 89% despite take rate increases

Risk Assessment

Near-term Challenges:

• EU's VLOP designation may require additional compliance investments
• Potential changes to U.S. de minimis import rules
• Intensifying competition in cross-border e-commerce

Revised Valuation Analysis

Given the acceleration in key metrics, we apply a 10x FY2024E EV/EBITDA multiple (up from 8x), still below high-growth internet peers at 12-15x. This reflects both the company's superior execution and maintaining a prudent discount for regulatory risks.

Price Target Components:

• 10x FY2024E EV/EBITDA multiple on projected EBITDA of $17.5 billion
• Net cash position of $44 billion ($6.27 per share)
• Additional premium for accelerating international growth trajectory

Strategic Outlook

PDD has demonstrated exceptional execution in its international expansion while maintaining domestic market leadership. The recent quarter shows clear evidence of operational leverage and improving unit economics, suggesting potential for further positive surprises.

Investment Conclusion

While regulatory and competitive risks remain, PDD's recent operational excellence and accelerating growth metrics warrant a more aggressive valuation framework. The $165.00 price target reflects both recent momentum and maintaining appropriate risk adjustments. The company's robust cash position provides downside protection while supporting continued growth investments.

Note: This analysis places heightened emphasis on recent quarterly performance trends while maintaining awareness of macro and regulatory risks. Material changes in the operating environment could impact our outlook.