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Author | Huang Yu
Editor | Zhou Zhiyu
A year ago, catalyzed by better-than-expected performance, Pinduoduo's stock price surpassed that of the e-commerce giant Alibaba for the first time, becoming the highest market cap Chinese concept stock in the U.S. Founder Huang Zheng's wealth also soared, briefly making him the richest man in China.
However, in the ever-changing internet industry, there is no eternal king. At the end of August this year, seen as the &#34;pride of Chinese concept stocks,&#34; Pinduoduo took the initiative to &#34;cut itself,&#34; causing its stock price to drop by nearly 30%, falling far behind Alibaba.
Just when the market thought Pinduoduo's stock price would linger at a low level for a long time, a sudden reevaluation of Chinese assets brought Pinduoduo back swiftly. From September 24th to October 7th, Pinduoduo's stock price surged by over 50%, becoming one of the leaders among Chinese concept stocks.
As of the close on October 16th, Pinduoduo's market value rebounded by $53 billion (approximately RMB 377.44 billion) from the sharp decline in the mid-year report.
Behind the roller-coaster ride of Pinduoduo's stock price is the expectation of favorable policies stimulating the market's belief that Chinese concept stocks may usher in a new development cycle, especially with the e-commerce industry being an important sector for reevaluation. Institutions like Goldman Sachs even directly stated that there is significant room for revaluation of Chinese e-commerce value, much lower than similar companies in the U.S.
Of course, Pinduoduo has already gone through a period of rapid development, and Alibaba and JD.com are gradually finding their footing again. In the short term, for Pinduoduo to surpass Alibaba in market value again and reach new heights, it faces significant challenges.
Whether it's the management's forecast of declining profitability, the increasingly fierce competition in the e-commerce industry, or the uncertainties in overseas expansion, these are all mountains weighing on Pinduoduo's shoulders.
Standing at the starting point of a new cycle, a new round of offensive and defensive battles in the e-commerce industry has begun, and Pinduoduo still has a long way to go.
Rebound
In this round of significant rise in Chinese assets, Pinduoduo's stock price brushed off the gloom after the mid-term performance announcement and saw a substantial increase, reaching a peak of $154.27 per share on October 4th, surpassing the price before the mid-term performance announcement.
During this market surge, Pinduoduo's highest increase was about 50.4%, slightly lower than JD.com (over 60%), but still impressive among Chinese concept stocks. From September 24th to October 7th, Alibaba, Meituan, and Baidu saw increases of 30.4%, 60.5%, and 26.7% respectively, while the Hang Seng Tech Index rose by 45.6%, and the Chinese concept internet ETF (SH:513050) rose by 26% until October 8th.
Although there was a slight pullback in stock prices after October 7th, as of the close on October 16th, Pinduoduo's stock price was around $127.4 per share, up by 24.5% from September 23rd.
Furthermore, investors remain strongly bullish on Pinduoduo's short-term stock price. On October 15th, Pinduoduo options were actively traded, with a total of 199,200 contracts traded, of which 47.69% were put options and 52.31% were call options
Even in the bullish options market, there was a large transaction of call options, with a trading volume of 16,000 contracts ranking first on the list, involving $7.1793 million. The exercise price of the option is $138, with a maturity date of November 22, 2024.
Institutions are also optimistic about Pinduoduo's future. Among all 47 institutions participating in the rating, 94% of brokerages have given a buy recommendation.
At the end of August, due to dim profit prospects for Pinduoduo, Macquarie downgraded its rating from &#34;outperform&#34; to &#34;neutral&#34;. Recently, they have upgraded Pinduoduo's rating to &#34;outperform&#34; and adjusted the target price from $126 to $224.
The reason Pinduoduo is regaining favor in the capital market is that they are generally believed to be undervalued in the e-commerce sector, which can have greater flexibility in this round of Chinese asset revaluation.
Macquarie's reason is that there is upside potential in the Chinese internet sector. Compared to early 2023, the fundamentals of Chinese internet stocks are currently stronger, but the valuation level has only been half of early 2023. Major players in e-commerce, tourism, and local services will benefit from China's economic stimulus policies and operational efficiency improvements.
Nomura also stated that China's series of stimulus policies launched at the end of September focus on stabilizing real estate and revitalizing consumer demand. If consumer sentiment improves, it is expected that the Chinese e-commerce sector has the potential to outperform the market in the short term. The top picks for the short term are JD.com, Pinduoduo, and Alibaba.
Goldman Sachs points out that based on stronger-than-expected growth on the mainland and loose policies, the market share of major e-commerce platforms is stabilizing, and the e-commerce industry will become one of the most important areas for revaluation in the Chinese internet sector. At the same time, Goldman Sachs believes that the market may underestimate the growth potential of Pinduoduo's domestic business.
After this round of gains, the three giants of Chinese e-commerce have seen significant increases, with Alibaba still leading in market value at approximately $237.8 billion, Pinduoduo at around $176.9 billion, roughly three times that of JD.com ($59.351 billion). However, compared to Amazon's nearly $2 trillion market value, Chinese e-commerce still has a long way to go.
Moreover, in terms of PE and other indicators, the valuations of the three giants Alibaba, Pinduoduo, and JD.com have only returned to the median level of the Chinese internet industry (13-14 times), still at a significant discount compared to global e-commerce giants.
Sprint
Nine years ago, no one would have believed that Pinduoduo, a latecomer labeled with &#34;low prices,&#34; would become Alibaba's biggest competitor. However, this dark horse, Pinduoduo, not only tore open a crack in the e-commerce market dominated by Alibaba and JD.com, achieving a miraculous comeback, but also surpassed Alibaba in market value for the first time last November.
Affected by the overall environment, Chinese concept stocks in the internet sector experienced significant declines in 2021 and 2022. However, in last year's rebound, Pinduoduo, due to its strong performance, became the &#34;Chinese concept star&#34; in the eyes of many investors, with a nearly 80% increase in stock price for the whole year.
Witnessing Pinduoduo's rise, Alibaba's founder Jack Ma also rarely made a statement on the company's intranet, saying, &#34;Congratulations to Pinduoduo for its decisions, execution, and efforts over the past few years. Anyone can be great, but it is the organization that reforms for a greater future and is willing to make any sacrifices that deserves respect.&#34;
&#34;Pinduoduo also hopes to go further. In the second quarter performance report this year, Pinduoduo's management not only stated that the high revenue growth of Pinduoduo is not sustainable, and the future trend will be a decrease in revenue and net profit growth in the next few quarters. They also mentioned that they will not consider stock repurchases or dividend plans, but will instead invest resources in supporting merchant growth and improving platform ecosystem construction, planning to invest billions in the next year.
In other words, Pinduoduo is prepared to sacrifice short-term profits for long-term investment. These statements undoubtedly raised concerns among investors about Pinduoduo's future profitability, affecting market sentiment, leading to a heart-stopping plunge in Pinduoduo's stock price on August 26, with an intraday drop of nearly 30% and ultimately closing down 28.51%, setting a record for its largest single-day decline since its listing.
Although institutions still have a positive outlook on Pinduoduo's future, the market consensus was broken after the second quarter performance briefing.
Analysts at Guotai Junan International stated that both optimistic and pessimistic investors are confused by Pinduoduo's unclear guidance and investment strategy, and are concerned about the increasingly fierce competition in the e-commerce industry. Compared to Pinduoduo, investors have more confidence in Alibaba and JD.com because these two companies have a more shareholder-friendly attitude and receive support from southbound funds.
JP Morgan also believes that Alibaba and JD.com's stock prices can outperform Pinduoduo in the short term, considering that Pinduoduo's short-term cash impact from the group's reduction of some overly aggressive measures is slightly greater than expected.
However, JP Morgan also pointed out that these measures have little impact on the competitive landscape of China's e-commerce industry. With the continuous increase in market share in China and the rapid growth of the international platform TEMU, it is believed that the planned investment scale in the next few quarters will not deviate Pinduoduo's profit growth from double-digit levels.
Furthermore, after the drastic reforms over the past year, Alibaba and JD.com are both moving in a better direction and gaining favor from investors by continuously improving their performance.
Next, the biggest focus for Pinduoduo lies in TEMU, which is Pinduoduo's hope to break free from intense domestic competition, make breakthroughs in overseas markets, and recreate a presence like Pinduoduo. It is also their biggest hope to expand valuation space.
According to Sensor Tower data, in August, TEMU APP's user base ranked third among major e-commerce platforms, reaching 91% of Amazon's user base. At this rate, TEMU's user base is expected to surpass Amazon, which has been established for 30 years, within the year. However, TEMU also faces geopolitical risks, which to some extent limit its progress.
The e-commerce landscape is changing, and the era of AI e-commerce is just beginning. After experiencing rapid growth by riding the wave of consumer downgrading, Pinduoduo must once again become the &#34;Chinese concept stock gem&#34; in the eyes of investors by firmly establishing itself overseas and making TEMU an important component for reevaluating Pinduoduo.
The era of who will prevail is yet to be determined

Still standing tall under the great mountain

- Pinduoduo's stock price experienced significant fluctuations, initially surpassing Alibaba's market value before a sharp decline in August.  
- Following a revaluation of Chinese assets, Pinduoduo's stock rebounded, gaining over 50% from late September to early October, with analysts optimistic about its future despite challenges in profitability and competition.  
- The company's focus on long-term growth through investments in merchant support and its international expansion via TEMU may determine its future success in the competitive e-commerce landscape.

Pinduoduo rebounds crazily, reaching 380 billion yuan