Chinese e-commerce giant PDD Holdings Inc. (NASDAQ: PDD), formerly known as Pinduoduo, reported earnings early Tuesday morning that blew the doors off consensus estimates and sent ‌its stock price soaring, up more than 18% in the premarket session. Since its IPO in the summer of 2018, PDD’s stock price has jumped to an all-time high of almost $210 per ADS, has dropped to around $25, and then risen again to trade at around $136 Tuesday morning.

First, the numbers

For the third consecutive quarter, PDD has obliterated consensus revenue and earnings estimates. Fiscal third-quarter revenue totaled $9.44 billion, a jump of 94% year over year and 31.5% sequentially. Net income rose 37% year over year to $1.45 billion while falling short of second-quarter net income of $1.81 billion.

Operating profit rose 47% year over year to $2.48 billion and a sequential increase of 41.7%. Adjusted earnings per American depositary share (equal to four ordinary shares) rose to $1.55, up from $1.03 in the year-ago quarter and up from $1.24 in the second quarter of this year.

Operating expenses rose 44% year over year and 21.4% sequentially to $3.48 billion. PDD noted that the bulk of the increase was down to “increased spending in promotion and advertising activities.”

PDD’s special sauce

PDD’s market cap of $156.4 billion as of Monday’s closing bell is second only to Alibaba’s $192.2 billion valuation among China’s e-commerce giants. The other giant, JD.com, has a market cap of around $44.6 billion. Instead of pulling its two largest competitors along with it to a higher price Tuesday morning, PDD is burying both of them deeper. Alibaba traded down about 0.8% and JD.com traded down around 1.2% early Tuesday.

What Pinduoduo did early in its life was recognize that putting “social” into e-commerce was a winning idea. Shoppers can build and nurture their own virtual garden (PDD originally focused on being a digital farmers’ market) and earn tangible prizes. Those virtual gardens keep users on the site, just a click away from the site’s shopping mall.

Co-founder Colin Huang honed his chops at Google before founding the company in 2016. Co-founder and current board chair and CEO Chen Lei told The Wall Street Journal in 2021 that PDD did one thing very well: “We grasped the shift from searching to browsing.” The company made browsing fun and rewarding. Rock-bottom pricing didn’t hurt either.

Aiming at the U.S. market

Just over a year ago, PDD launched its Temu shopping site in the United States and other countries. This is where the company’s operating expenses are going as PDD builds its presence in global markets. Acquiring new customers is not easy and never cheap, but Temu has added more than 100 million U.S. users to its roster and monthly app downloads topped 40 million globally in September. (How nine imports from China threaten U.S. national security.)

According to BusinessofApps, Temu’s gross merchandise value (GVM) exploded from just $3 million in September 2022 to $1 billion this past June.

PDD stock traded up about 15.2% an hour before Tuesday’s opening bell at $135.52. The stock’s current 52-week high of $120.31 was posted last Friday.

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