PDD: Grizzly Research Is Wrong That the Firm Is Dying; Waiting for a Pullback for Better Entry

Grizzly Research, or Grizzly, released a short-selling report on narrow-moat PDD Holdings, or PDD, leading to a 5% stock price drop on Sept. 7. We think the conclusion that PDD is a dying company lacks merit. PDD continued to outperform Alibaba and JD.com in its second-quarter revenue and bottom line by a wide margin. We keep our fair value estimate at USD 117. We believe PDD is the best positioned amid value-for-money consumption trends given its strong network of merchants providing such products and consumers’ identification with PDD as such a platform. That said, we think the short report may negatively affect sentiment and share price in the near term. We recommend waiting for a pullback to buy the shares.

Grizzly claimed PDD’s Chinese e-commerce Pinduoduo and overseas e-commerce Temu apps have major security concerns. We have not seen major regulatory action against PDD, and consumers continue to embrace PDD’s apps after Google Play suspended the Pinduoduo app over security concerns on March 21. Furthermore, we continue to see both apps in Apple’s App Store. Should there be major concerns by regulators and consumers, we think PDD will improve the security standard of its apps to match its peers. Over the long run, PDD’s provision of value-for-money products will continue to attract consumers.

PDD continued to deliver strong top- and bottom-line growth in the second quarter despite the expansion of loss-making Temu. We don’t see the need for Temu to sell data of western country customers to make a profit as suggested by Grizzly. We believe PDD could terminate or sell Temu if it underperforms.

Grizzly highlights corporate governance concerns for PDD that we think are valid, including limited disclosure, potential conflict of interests on the provision of an interest-free loan to its executives to acquire Shanghai Fufeitong, a payment service company that provides payment services to PDD, and why the firm did not purchase Shanghai Fufeitong directly.