Pinduoduo Inc.

PDD Details

New CEO Appointed: Pinduoduo Inc. (NASDAQ: PDD) operates an innovative and fast-growing e-commerce platform that provides buyers with value-for-money merchandise and fun and interactive shopping experiences. On 1 July 2020, the company announced that it has appointed Mr. Lei Chen as Chief Executive Officer, with immediate effect. Mr. Chen is one of the founding members of the company and he has been instrumental to the company’s growth since inception. The company has also appointed Mr. Jianchong Zhu as General Counsel, and Mr. Jing Ma as Vice President of Finance.

Q1FY20 Results Highlights: For the quarter ended 31 March 2020, the company reported RMB6,541.1 million, up 44% on the pcp, driven by 39% growth in revenues from online marketing services and 76% revenue growth from transaction services. The total cost of revenue stood at RMB1,830.2 million, up 110% on the pcp, due to higher costs for cloud services, call center and merchant support services. For the March quarter, the company reported operating loss of RMB4,397.2 million, compared with operating loss of RMB2,120.5 million reported in pcp. Basic and diluted net loss per ADS stood at RMB3.54.

Revenue Trend (Source: Company Reports)

What to expect: The company is dedicated to investing in the future and will always focus on the long term. As part of the process to constantly meet users' needs, the company is highly aligned to be the driving force to improve the efficiency and quality of the supply chain. The company expects to release its June quarter results on 21 August 2020.

Key Risks: Currently, there are significant uncertainties surrounding the COVID-19 outbreak and its further development as a global pandemic. The company’s operating results are affected by the general factors affecting China’s retail industry, including China’s overall economic growth, the increase in per capita disposable income and the growth in consumer spending in China. The company’s operations are more directly affected by certain company-specific factors, including its ability to attract and retain buyers and increase buyer activities; its ability to establish and maintain relationships with merchants; and its ability to manage its costs and expenses by leveraging its scale of business.

Stock Recommendation: On a YTD basis, the stock of PDD has provided a return of 156.82%, and over the last three months, the stock has increased by 59.49%. Currently, the stock is trading closer to its 52-week high price. On a TTM basis, the stock has EV to sales multiple of 18.3x, higher than the industry median of 2.3x, and thus, seems overvalued.  On the face of expected June quarter results, current trading levels, and TTM valuation, we suggest investors to wait for further updates from the company and have a watch stance on the stock at the closing price of US$97.13, up by 1.24% on 20 August 2020.

PDD Daily Price Chart (Source: Refinitiv, Thompson Reuters)

Rackspace Technology, Inc.

RXT Details 

Commenced Trading on NASDAQ: Rackspace Technology, Inc. (NASDAQ: RXT) is a leading end-to-end multi-cloud solutions expert with a proven record of advising customers based on their business challenges and designing solutions. The company recently commenced trading on Nasdaq, following the pricing of its initial public offering of 33,500,000 shares of its common stock at an initial public offering price of $21.00 per share.

Integrating AIOps Platform with Rackspace Fabric: The company recently announced the release of Rackspace Fabric ™ which includes the Moogsoft AIOps Platform. The Moogsoft AIOps Platform uses artificial intelligence (AI) and machine learning (ML) to log, metric, trace and alert data to help resolve IT incidents faster and more effectively, which will provide customers increased uptime and fewer incident alerts.

Announce $600m Tender Offer: On 12 August 2020, the company announced that it is starting a tender offer to purchase for cash up to $600.0 million aggregate principal amount its ~$1,120.2 million outstanding 8.625% Senior Notes due 2024. The offer is expected to expire on 9 September 2020.

Terms of The Tender Offer (Source: Company Reports)

March Quarter Update: For the three months ended 31 March 2020, the company reported revenue of $652.7 million, compared to $606 million in pcp. For the period, the company reported a net loss per share of $3.50, an improvement over the loss of $4.18 per share in pcp. Net cash provided by operating activities stood at $24.8 million and at the end of the March quarter, the company had cash and cash equivalent of $125.2 million.

March Quarter Performance (Source: Company Reports)

Key Risks: The company’s ability to maintain or increase its revenues and profit may be impacted by a number of factors, including its ability to attract new customers, retain existing customers and sell additional services and comparable gross margin services to its customers. The company’s business is affected by general economic conditions and uncertainties affecting markets in which it operates.

Stock Recommendation: The company will release its June quarter results on 31 August 2020. Over the last five days, the stock of RXT has increased by 12.2%. For March 2020 Quarter, the company reported debt to equity multiple of 5.06x, higher than the industry median of 0.51x. On a TTM basis, the stock has a price to book value multiple of 4.6x, higher than the industry median (Software & IT Services) of 2.5x. Considering the company’s limited trading history and financials, and upcoming June quarter results, we suggest investors to keep a close eye on the stock and thus, have a watch stance on the stock at the closing price of $18.25, down by 0.38% on 20 August 2020. 

RXT Daily Price Chart (Source: Refinitiv, Thompson Reuters)

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