Earnings preview: How will Q2 turn out for Pinduoduo?

Pinduoduo Inc. (NASDAQ: PDD) is scheduled to report second quarter 2019 earnings results on Wednesday, August 21, before the opening bell. Analysts expect the company to report a loss of $0.25 per share on revenue of $865 million.

Pinduoduo’s strong revenue growth along with the double-digit increases in the number of annual active buyers and average monthly active users have given optimism to its supporters. The company’s business model which offers low prices has also helped drive growth. However, the firm’s skyrocketing expenses and continuing losses remain a concern.

Pinduoduo has a large number of suppliers and the company faced allegations on the availability of counterfeit products on its platform which raised questions on the issue of effective quality control. The company refuted these allegations.

Pinduoduo also faces tough competition from Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD) and the company will have to refine its strategy to keep up with its fast-growing rivals. Despite this, Pinduoduo might see the growth in revenue and user metrics continue in the second quarter.

In the first quarter of 2019, Pinduoduo surpassed market expectations for revenue, which rose 228% year-over-year to RMB4.5 billion, or $677 million. The revenue results were driven by momentum in online marketing services. Adjusted loss per ADS widened year-over-year to RMB1.20, or $0.20, but were narrower than Street estimates.

Also see: Pinduoduo Q1 2019 Earnings Conference Call Transcript

Average monthly active users increased 74% to 289.7 million during the quarter. Annual active buyers increased 50% to 443.3 million. Annual spending per active buyer rose 87% to RMB1,257.3, or $187.3. Annual GMV increased 181% to RMB557.4 billion, or $83.1 billion.

The company’s operating expenses jumped 339% year-over-year, with a 302% increase in sales and marketing expenses.

Pinduoduo’s shares have gained 12% year-to-date and 28% in the past one month. The majority of analysts have rated it Buy and the average 12-month price target is $26.70.

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