Thesis
Most investors are scared away from Pinduoduo's (NASDAQ:PDD) high P/S multiple. Despite its share price increasing 40% on the first trading day, Pinduoduo's valuation is not expensive looking at it from its revenue run rate and comparable company perspectives. Although the company may face the same counterfeit problems as Taobao did in its early days, management's strong execution capability and its long-term vision will generate meaningful returns for investors in the coming years.
Management & Investor Base
Most media referred Pingduoduo's founder Colin Huang as a former Google (GOOG) (GOOGL) engineer, but people don't know about Colin's mentor Duan Yongping, who advised Colin to give up his return offer from Microsoft (MSFT) and choose Google (which had not gone public at that time). There are three things you should know about Colin's mentor Duan: His mentees currently own 1/3rd of the smartphone market in China (Oppo and Vivo are the second and third smartphone manufacturers in China); he invested in NetEase (NTES) in early 2000 when the stock was traded at $0.47 per share; he brought Colin with him to have lunch with Warren Buffett when Colin was 26 years old. When investors are impressed by the fact that Pinduoduo was founded by such a young entrepreneur, they don't realize that Colin has already had a successful career at an early age.
Pinduoduo has gathered the best financial investors (Sequoia, IDG, and Banyan) and strategic investors [Tencent (OTCPK:TCEHY), NetEase, SF Express] which could potentially add lots of value to the company. SF Express is one of the largest parcel delivery companies in China. Tencent offers Pinduoduo enormous traffic support through Wechat.
Market and Competition
Two factors mainly contributed to the success of Pinduoduo: its capability to leverage 1B user traffic from Wechat, and its strategic targeting on the lower-end market especially
