PDD Holdings Inc. as a Top E-commerce Pick

Investing.com — PDD Holdings Inc DRC (NASDAQ:PDD) is now highlighted as a top e-commerce choice by Morgan Stanley (NYSE:MS), as stated in a Monday note. The report emphasizes the company's potential for sustained growth and market share increase in 2025 and 2026.

> “Even in our bear case scenario, we believe its value-for-money positioning will be more resilient in a weak consumption environment,” said analysts led by Eddy Wang.

PDD, a Chinese online retailer known for the Temu marketplace, is focused on creating a healthier merchant ecosystem. Since launching its Rmb10 billion Fee Reduction campaign in August, Temu has helped merchants by reducing transaction fees and providing refunds.

> “We expect such endeavors to help merchants lower their operating costs and improve ROI (return on investment), making them more likely to prioritize advertising and promotional efforts on PDD,” the analysts noted.

Morgan Stanley observes an evolution in the company’s strategy, transitioning from a focus on 'Value for Money' to providing 'More and Better' products. This shift is particularly significant as competitors such as Taobao and Douyin have reverted to a growth strategy centered on gross merchandise volume (GMV), potentially boosting Temu's attractiveness to consumers.

Wang and his team argue that an enhanced merchant ecosystem will lead to a broader range of products and brands available on Temu, enhancing user engagement and facilitating long-term GMV growth.

On valuation, analysts have set a price target for Temu based on discounted cash flow at $150, reflecting an 11.7x price-to-earnings (P/E) ratio for 2025. In a more optimistic outlook, they predict an increase in Temu's GMV by 20% and 15% in 2025 and 2026, respectively, surpassing the overall e-commerce sector growth of 9% and 7%. The bull case valuation for Temu is set at $205.