Market

Pinduoduo Turns A Profit In Q2

Pinduoduo Q2 Earnings Update

E-commerce company Pinduoduo reported Q2 financial results pre-market. Yes, the topline missed analyst expectations but more importantly the company turned a profit despite analysts predicting a loss. I love the headlines saying Pinduoduo “misses” expectations. Management did a great job keeping costs down as the cost of revenues declined in the quarter.

  • Revenue increased 89% to $13.569B/RMB 23.046B versus estimate of RMB 26.74B and Q2 2020’s RMB12.193B
  • Revenue breakdown: online marketing increased to 42.8B/RMB 18.080B from Q2 2020’s RMB 11.054B, Transaction Services $465mm/RMB 3.007B from RMB1.138B and merchandise sales $303mm/RMB 1.958B
  • Monthly active users increased +30% to 738mm
  • Active Buyers increased 24% to 849mm over the last twelve months
  • Operating loss became a profit $309mm/RMB 1.997B from Q2 2020’s loss of RMB 1.639
  • Adjusted loss became a profit of $639mm/RMB 4.125B from Q2 2020’s loss of RMB 7mm
  • Adjusted EPS loss became a profit of $0.44/RMB 2.85 from Q2 2020’s loss of RMB -0.06

Key News

Asian equities cheered the Pfizer vaccine approval as Hong Kong outperformed led by China internet stocks.

It is interesting to note the divergence between Asian and US investors concerning JD.com’s earnings release, which took place after the Hong Kong close yesterday. JD.com’s US shares rose a mere 3% while the Hong Kong share class rose +14.94%. There was a rumor that a prominent tech investor bought shares, which likely helped the performance of the Hong Kong share class. What a disparity though!

Chinese internet stocks absolutely ripped today with Alibaba Hong Kong +9.47%, NetEase Hong Kong +7.73%, Tencent +8.81%, Meituan +13.51%, Kuaishou +15.11%, etc. Hopefully, this price action feeds on itself and pulls more managers off the sidelines back into the names. As we have previously noted, active funds are underweight the space, which means if the rally gets legs they will underperform, which is never a good thing.

The SEC issued guidance on Chinese companies going public, saying that the need to provide more disclosure around the VIE structure, which makes sense to me.

The Mainland market had a good day as well, driven by the PBOC’s comments that they will support the economy via monetary policy. The statement, which mentioned helping new technology sectors, lifted all things electric vehicles and clean technology.

H-Shares Update

The Hang Seng opened higher and kept going gaining +2.46% while the Hang Sent TECH gained +7.06% on volumes +1.22% which is 102% of the 1-year average. The 209 Chinese companies listed in Hong Kong within the MSCI China All Shares gained +4.78% led by communication +8.67%, discretionary +7.57%, healthcare +4.51%, tech +3.43%, industrials +2.32%, staples +2.27%, real estate+2.28%, staples +2.27%, materials +1.42%, energy +0.83%, financials +0.44% and utilities -4.4%. Hong Kong’s most heavily traded by value were Tencent +8.81%, Meituan +13.51%, Alibaba Hong Kong +9.47%, Kuaishou Tech +15.11%, JD.com Hong Kong +14.94%, Xiaomi +3.7%, Wuxi Biologics +7.7%, BYD +1.6%, Geely -0.78%, and Hong Kong Exchanges +0.16%. Soutbound Stock Connect volumes were moderate/high as Mainland investors bought $279mm of Hong Kong stocks as Southbound trading accounted for 12.4% of Hong Kong turnover.

A-Shares Update

Shanghai, Shenzhen and STAR Board gained +1.07%, +0.77% and +0.89% on volumes +6.57% which is 152% of the 1-year average. The 522 Mainland stocks within the MSCI China All Shares gained +1.42% led by staples +2.51%, healthcare +2.35%, materials +2.35%, energy +1.17%, financials +1.03%, discretionary +0.95%, industrials +0.94%, tech +0.72%, utilities +0.39%, real estate +0.39% and communication +0.2%. China’s most heavily traded by value were Kweichow Moutai +3.5%, China Northern Rare Earth +0.96%, Longi Green Energy +4.2%, Qinghai Salt Lake -2.01%, Huayou Cobalt +8.67%, Tianqi Lithium +1.78%, Wuliangye Yibin +1.92%, broker East Money +2.03%, BYD +2.92%, and Inner Mongolia Baotou Steel +9.92%. Northbound Stock Connect volumes were moderate/high as foreign investors bought $820mm of Mainland stocks as Northbound trading accounted for 5.5% of Mainland turnover. 

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.48 versus 6.48 Monday
  • CNY/EUR 7.60 versus 7.60 Monday
  • Yield on 10-Year Government Bond 2.85% versus 2.87% Monday
  • Yield on 10-Year China Development Bank Bond 3.18% versus 3.20% Monday
  • Copper Price +1.36% overnight

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