Citi released a report on Pinduoduo (PDD.US)      , of which investment return cycle mismatch influenced its short-term profitability. As its international platform Temu continued to shift from a full-managed to semi-managed model, transaction service revenue growth in 1Q25 drastically slowed to a YoY increase of 6%, vs a 33% YoY elevation in 4Q24.

Meanwhile, merchant support investment initiatives were accounted for as expenses, leading to a mismatch between investment and return cycles, incurring higher costs and expenses this quarter and in the short term, while returns and revenue growth may be realized in the coming quarters.

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In 1Q25, tariff disputes that prompted pre-shipping of 3-5 months of inventory, coupled with additional subsidies from the national trade-in program, sales and marketing expenses grew by 44% YoY, while revenue only grew by 10% YoY, prompting 36% and 45% YoY decline in operating profit and net profit.

With forecast reset and a stock price decrease of over 15%, Citi forecast that opportunities for buying on dip are increasing, although the normalization of revenue and profit growth remains uncertain. The broker maintained a Buy rating for Pinduoduo, axing the target price from US$165 to US$152.
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