Company / Analytics

Analytics, 12 November 2020

Chinese stocks rise: Pinduoduo and Tencent

Pinduoduo, Сhina’s third-largest e-commerce player after Alibaba and JD.com reported its first-ever profit while internet giant Tencent exceeded analyst expectations in their latest earnings reports. The two e-commerce giants reported earnings on the heels of the huge 11.11 Singles Day shopping event in China. Pinduoduo’s better-than-expected earnings have key implications for Alibaba and JD.com, which are facing scrutiny by Chinese regulators. All three Chinese e-commerce giants rose early Thursday after falling earlier in the week. Read more into the earnings and what analysts are saying.

Pinduoduo earnings

Pinduoduo Inc.’s revenue rose a better-than-expected 89% as the shift toward online shopping continued in post-Covid China, benefiting the e-commerce upstart. Pinduoduo earnings came in at 5 cents per American depositary shares, a first-ever non-GAAP profit, and defying views for a 22 cent loss.

Average monthly active users shot up 50% vs. a year earlier to 643.4 million. Pinduoduo Inc. is the third-largest online marketplace in China by the number of users and the number of orders, behind Alibaba and JD.com. The Shanghai-based company logged sales of 14.2 billion yuan ($2.14 billion) in the September quarter, surpassing the 12.2 billion yuan average of estimates. Its net loss attributable to ordinary shareholders narrowed to 784.7 million yuan from 2.3 billion yuan a year earlier, though it remained in the red largely due to the hefty subsidies Pinduoduo spent to acquire new shoppers as well as keep existing ones. Gross merchandise value rose 73%, the slowest pace since the company went public in 2018.

How did the stock move?

Shares surged roughly 21% in the premarket on Thursday morning, trading at $136.00. On Wednesday, shares jumped 8.1% to 111.46, surging back out of the buy zone from a 98.30 entry. Shares sold off Monday and Tuesday morning, briefly undercutting the buy point before rallying well off lows Tuesday. Pinduoduo’s strong results helped to reassure investors after Beijing this week unveiled new antitrust guidelines governing the internet sector, sparking a $290 billion sell-off in tech stocks. The stocks have since recouped some of their losses.

What analysts are saying?

According to Bloomberg Intelligence, Pinduoduo’s operating losses may widen sequentially as it steps up marketing and promotion activities to acquire more customers and to drive more purchases from their existing base. Sales growth may stay very strong as the company continues to increase the monetization of its new users.

The current consensus among 38 polled investment analysts is to Buy stock in Pinduoduo Inc. This rating has held steady since October, according to CNN Money. The 34 analysts offering 12-month price forecasts for Pinduoduo Inc have a median target of 641.40, with a high estimate of 1,036.92 and a low estimate of 276.54. The median estimate represents a +475.35% increase from the last price of 111.48.

Tencent earnings

Tencent is a messaging, gaming, and payments giant, with a big stake in JD.com. Tencent earnings came in at 38.5 billion yuan ($5.8 billion), up 89% in local currency terms. That easily beat expectations of 30.81 billion yuan. Revenue rose 29% to 125.4 billion yuan ($18.93 billion), also beating expectations.

Shares in top shareholder Naspers Ltd. and its unit Prosus NV climbed roughly 4%. Similar to Pinduoduo, Tencent’s strong results should help reassure investors scrambling to assess the fallout from Beijing’s broadest attempt yet to rein in the country’s giant internet sector.

How did the stock move?

Tencent’s stock climbed 4.7% on Thursday, recovering partially from a $290 billion selloff among Chinese tech titans led by Alibaba Group Holding Ltd. The WeChat-operator’s main business of video games is perceived as less vulnerable in any potential crackdown versus its e-commerce and fintech peers.

Shares dipped 0.5% to 73.44 on Wednesday, finding support at its 50-day line and closing just above the 73.05 buy point, according to MarketSmith chart analysis. Shares sold off hard Monday and Tuesday after Chinese regulators unveiled detailed guidelines to curtail monopolistic practices among digital platforms, just a week after new restrictions on digital lending triggered the shock suspension of Ant Group Co.’s $35 billion initial public offering.

What analysts are saying?

According to Bloomberg Intelligence, mobile game growth may continue to slow further through 4Q and into 2021, as the boost to engagement and spending from social distancing that peaked in 2Q and faded modestly in 3Q keeps waning.

Though tech stocks are still rising, they remain volatile amid a seeming market rotation as positive news in vaccine development fuels a rush into “real economy” stocks while triggering sell-offs in stay-at-home stocks that benefitted from the pandemic.

The current consensus among 52 polled investment analysts is to Buy stock in Tencent Holdings Ltd. This rating has held steady since October, according to CNN Money.

The 49 analysts offering 12-month price forecasts for Tencent Holdings Ltd have a median target of 80.51, with a high estimate of 105.12 and a low estimate of 51.61. The median estimate represents a +9.63% increase from the last price of 73.44, according to CNN Money.

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