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3 Charts Showing Why Pinduoduo Should be on Your Stock Watchlist

Pinduoduo Inc (NASDAQ: PDD), or PDD, is the third-largest e-commerce company in China by gross merchandise value (GMV), behind Alibaba Group Holding Ltd (NYSE: BABA) and JD.Com Inc (NASDAQ: JD). My Foolish colleague Jay Yao wrote previously on the company’s undoubted potential.

Yet, despite being the “smallest” of the triumvirate, PDD is also the fastest-growing among the trio. In this article, I’ll look at three charts to give readers a quick overview of PDD’s growth profile and why investors looking at China growth stocks should have it on their watchlist.

GMV track record

To start with, let’s have a quick overview of the key metric that all Chinese e-commerce companies track closely as an indicator of their performance; GMV.

For starters, PDD defines GMV as the total value of all orders for products and services placed on its Pinduoduo mobile platform, regardless of whether the products and services are actually sold, delivered or returned.

Source: PDD Investor Presentation

From the above, we can see that PDD has been growing its 12-month GMV (tracked on a quarterly basis) at extremely high rates. In fact, the 12-month growth rate for the latest quarter ended 30 June 2019 was at a mindboggling 171%!

Such a high growth rate was achieved as a result of growth in two important metrics, which I’ll explore in more detail below.

Active buyers

Source: PDD Investor Presentation

Active buyers represent users that have placed an order with PDD in the last 12 months. Here, we can see that this metric has grown by leaps and bounds over the last two years. Such growth rates have contributed significantly towards PDD’s GMV growth over that period.

In addition, the active buyers have become “more active” as they become more used to the platform. This will be evident in the last chart.

Annual spending per active buyer

Source: PDD Investor Presentation

The above chart is a simple illustration of how customers have become more active on the platform – by buying more things over time. From the chart, we can infer that customers find PDD’s offerings to be appealing and are voting with their wallets by buying more items over time.

Conclusion

Pinduoduo has done great job in growing its business, which is clearly evident from the charts above. Though its past record is no guarantee of future performance, growth investors who want to have China exposure might want to study the company further given its impressive track record.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.