Pinduoduo, Inc.(PDD,HOLD)

Strong Marketplace Drives 1Q Beat, butFacingNear Term Challenges
Maintain HOLD and$50 PT

We are maintaining our HOLD rating and$50 price target after PDD beat 1Q revenue and profit estimates but implies potential revenue deceleration and a step up in expenses due to COVID. Active buyers reached 882M, adding 13Mq/q, improvingfrom+1M in 4Q, with MAUs also growing18M q/q to751M, after decreasing 8M in 4Q. But mgmt. notes that with the current scale, active buyer growth should inevitably slow down. Revenue, excluding 1P sales, increased39% y/y, accelerating10pts from 4Q,driven by 29% y/y growth of online marketing revenue (vs. +19% in 4Q) and 91% growth of transaction services revenue(vs. +108% in 4Q). 1Q Non-GAAP operating margin was 15.5%, lower than the all-time high of 30.8% in 4Q(note that 4Q profit benefited from a one-off rebate from a cloud service provider, which loweredGOGS and R&D expenses), but improved significantly from (-14.3%)in 1Q:21, primarily due to operating leverage from sales and marketing, while R&D increased modestly.The company reiterates plans to invest in agricultural, primarily in R&Dbut indicates it will take time to identify good projects and financial metrics are not KPIs. As usual, the company does not provide guidance for 2Q, but points out COVID lockdowns in cities including Shanghai, which should weigh on 2Q growth and might incur additional costs. Overall, PDD delivered a solid 1Q, with 3P revenue re-accelerating despite COVID disruptions since late March. However, we expect COVIDlockdowns to have a larger impact onPDD in 2Q given peers have more established logistics networks.