Thanks to the strong performance of trading service revenue, PDD delivered a Q4 performance far exceeding Wall Street expectations.
On Wednesday, March 20th, before the U.S. stock market opened, PDD released its fourth-quarter and full-year financial report as of the end of last year. The report showed that the company's revenue in the last quarter was RMB 88.88 billion, far exceeding the market's expected RMB 79.87 billion, a year-on-year increase of 123%; operating profit was RMB 22.395 billion, a year-on-year increase of 146%; adjusted net profit was RMB 25.477 billion, a year-on-year increase of 110%; adjusted earnings per ADS were RMB 17.32, well above the expected RMB 11.28, compared to RMB 8.34 in the same period last year.
At the time of publication, PDD surged more than 17% in pre-market trading.
<h2>Total Revenue Doubled, Trading Service Revenue Soared 357% Year-on-Year</h2>
In the last quarter, PDD's profit performance was stunning, with an operating profit of RMB 22.395 billion in the fourth quarter, a sharp increase of 146% year-on-year; Non-GAAP operating profit was RMB 24.58 billion, a 112% increase year-on-year. Net profit attributable to common shareholders was RMB 23.28 billion, a significant increase of 146% year-on-year; non-GAAP net profit was RMB 25.477 billion, a 110% increase year-on-year.
In the total revenue that doubled year-on-year in Q4, revenue from online marketing services and other income was RMB 48.676 billion, a 57% increase year-on-year; revenue from trading services was RMB 40.205 billion, a 357% increase year-on-year.
Although specific details were not disclosed in PDD's financial report, institutions believe that PDD's outstanding performance is inseparable from the support of the overseas e-commerce platform Temu. HSBC believes that with a full-line low-price strategy from clothing to children's toys and active marketing methods, Temu's expected growth rate is the fastest among Chinese overseas e-commerce platforms, expected to achieve a GMV of $140 billion by 2027.
According to HSBC's estimation, Temu is expected to gain a market share of 3-6% in developed markets in the United States, Europe, and Asia. In 2023, Temu contributed 23% of PDD's total revenue, a figure that is expected to rise to 43% in 2024 and exceed 50% in 2025.
The bank pointed out:
<blockquote>
Although it only started operating in September 2022, Temu has maintained exponential growth. In just one year, it has expanded from the United States to 49 countries, becoming the most downloaded shopping app globally.
We expect it to achieve a global GMV of $16.5 billion in 2023, and our estimates indicate that after just one year of operation, it has already gained a 1% market share in the United States
Its strong growth is expected to continue until 2024, with Temu's GMV expected to double this year to around $48 billion. Under the basic assumption, Temu's GMV is projected to reach $140 billion by 2027.
</blockquote>
Furthermore, given Temu's high delivery rate (estimated at 48% by HSBC), Temu's contribution to PDD's total revenue may increase from 23% in 2023 to 43% in 2024, becoming a major driver of PDD's revenue growth.
<h2>Marketing expenses increase by 50% year-on-year</h2>
While revenue doubled, operating expenses at PDD in the last quarter also increased significantly, with operating costs rising from RMB 8.927 billion in the same period last year to RMB 35.078 billion, a 293% increase, mainly due to increased fulfillment costs, payment processing fees, maintenance costs, and call center expenses. Total operating expenses increased by 44% year-on-year, reaching RMB 31.408 billion, mainly due to the increase in sales and marketing expenses:
<blockquote>
Sales and marketing expenses were RMB 26.638 billion, a 50% increase year-on-year, mainly due to increased spending on promotions and advertising activities;
General and administrative expenses were RMB 1.9048 billion, compared to RMB 1.6405 billion in the same period in 2022;
Research and development expenses were RMB 2.8644 billion, compared to RMB 2.4067 billion in the same period in 2022.
</blockquote>
In addition, PDD also emphasized in the research report that the company's research and development expenses exceeded RMB 10 billion for the second consecutive year in 2023, highlighting the company's commitment to technology and agricultural progress. CFO Liu Jun stated that the company's strategic focus remains on creating lasting value through sustainable and positively impactful strategic initiatives.
PDD's cash flow also remained strong, with net cash flow generated from operating activities in the fourth quarter amounting to RMB 36.891 billion, a 39% increase compared to the same period last year. As of December 31, 2023, PDD's total cash, cash equivalents, and short-term investments amounted to RMB 217.2 billion, an increase from RMB 149.4 billion at the end of 2022.
Overall, PDD's fourth-quarter financial report demonstrates the company's strong growth in revenue and profit, as well as its continued investment in research and technological innovation. Despite facing increased costs and expenses, PDD continues to show its strong competitiveness and growth potential in the e-commerce sector.
Reflecting on the performance in 2023, PDD's Chairman and Co-CEO Chen Lei commented:
<blockquote>
As we transition towards high-quality development, 2023 marks a crucial chapter in our company's history. In 2024, we remain committed to further improving consumer experience, enhancing technological innovation, and making a positive impact in our community
</blockquote>

Pinduoduo's quarterly revenue reached 88.88 billion yuan, far exceeding the market's expected 79.87 billion yuan, with a year-on-year growth of 123%; adjusted earnings per ADS were 17.32 yuan, significantly higher than the expected 11.28 yuan, compared to 8.34 yuan in the same period last year

Pinduoduo surges 17% pre-market, Q4 adjusted net profit doubles to 25.5 billion RMB | Financial Report Insights