Can earnings report boost Pinduoduo’s share price?

Pinduoduo’s [PDD] share price fell 56.5% year-to-date in 2021 to its close on 20 August. The signs earlier in the year looked positive as the Pinduoduo share price gained 14.2% between the start of the year and 17 February, when it closed at $202.82. However, the Pinduoduo share price then saw a steep decline, and from this peak tumbled 38.8% by 24 March, when it closed at $124.18.

Pinduoduo’s share price has trended downwards ever since. Particularly large falls occurred in late June through early July, when the Pinduoduo share price reduced 18.6% over six sessions, and also between 22 July and 27 July, when it fell 24.2% in a week. The Pinduoduo share price’s 20 August close of $77.29 is 20.4% below its level 12 months earlier.

Regulatory changes by the Chinese government, which launched a sequence of antitrust probes and regulatory measures against large tech platforms over recent months, have weighed heavily on the Pinduoduo share price. 

US-listed Chinese firms, such as Pinduoduo, have faced a double squeeze as President Joe Biden’s government picked up where Trump’s left off with a clampdown on Chinese firms listed in the country. The latest rumblings from Washington indicate that these could lead to de-listings. According to Therese Poletti, writing in MarketWatch, “typical American investors could be left holding the bag when the music ends.”

Regulatory risk remains

As a result, Pinduoduo could be seen as a risky stock at present. However, the battering the company’s share price has taken over recent months could also mean that now is a good time to buy the stock — provided that investors can see a path to a change of stance in the US foreign policy and Chinese curbs.

In this context, Pinduoduo’s upcoming second-quarter 2021 earnings announcement — expected before markets open on 24 August — will be pivotal. Above-average performance in tough circumstances will encourage bulls, while underperformance will vindicate those with a bearish stance.

Growth not top concern

According to Zacks Equity Research, analysts offered a consensus sales estimate of $4.20bn, which would represent year-over-year growth of 143.1%. However, loss per share is expected to come in at $0.15, a 36.4% slip from the -earning of $0.11 reported a year ago. 

Such figures may not concern investors who take an optimistic long-term view of Pinduoduo’s prospects. 

“Its business fundamentals are stellar — the company remains the largest Chinese e-commerce platform, with over 820 million annual active users (surpassing Alibaba and JD.com), while revenue growth increased by 239% over the previous year” - Baillie Gifford

UK investment management firm Baillie Gifford said, “Pinduoduo appears well placed to navigate such regulatory scrutiny in the long-term… Its business fundamentals are stellar — the company remains the largest Chinese e-commerce platform, with over 820 million annual active users (surpassing Alibaba and JD.com), while revenue growth increased by 239% over the previous year," as reported on Yahoo Finance.

If revenue doubles since Q2 2020, as predicted by analysts, this positive view on Pinduoduo share price is likely to thrive.

Track record to exceed expectation

Pinduoduo could turn heads with its earnings figures as well. For the last quarter, analysts predicted a loss of $0.68 per share, but the reported loss of $0.36 was 47.1% better than expected. 

“We continued to deliver strong results in the first quarter and remain disciplined,” said Tony Ma, vice president of finance, after the results were announced. “Our total revenues, excluding contribution from merchandise sales, for the first quarter 2021 increased 161% from the prior year, while our non-GAAP operating and net losses narrowed at the same time.”

“Our total revenues, excluding contribution from merchandise sales, for the first quarter 2021 increased 161% from the prior year, while our non-GAAP operating and net losses narrowed at the same time” - Tony Ma

Could the discipline Ma described see net losses disappear completely this quarter? The most optimistic forecast from Zacks sees the company breaking even, a shock result that would surely prompt an upswing for the Pinduoduo share price.

ETFs to watch

Pinduoduo is the fifth-largest holding in the KraneShares CSI China Internet ETF [KWEB], with 7.01% of net assets as of 20 August. The HanETF EMQQ Emerging Markets Internet and Ecommerce UCITS ETF [EMQQ] is also highly exposed to changes in the Pinduoduo share price, with the company its third-largest holding at 6.56% of the fund as of 31 July.

KWEB tumbled 42.6% in the year to 20 August as Chinese tech stocks were hammered. EMQQ also saw losses, but its fall of 24.5% indicate that, in general, emerging markets have fared relatively better than the Chinese technology sector in the year so far. In the past 12 months, KWEB fell 35.2% while EMQQ fell 8.7%.