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Temu-Parent PDD Joins E-Commerce Party as Sales Blow Away Expectations

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E-commerce companies have much to be thankful for following the biggest shopping weekend of the year. Black Friday online sales jumped 7.5% year-over-year to a record of $9.8 billion. According to Mastercard SpendingPulse, U.S. retail sales for both online and physical storefronts rose 2.5% from last year’s Black Friday. Data from Adobe Analytics suggests that consumers spent another $12.4 billion yesterday during Cyber Monday.

Shopify (SHOP - Free Report) stock soared more than 4% yesterday, hitting a 52-week high after the e-commerce platform stated that merchants recorded $4.1 billion in sales on Black Friday. That marked an increase of more than 20% from last year. Amazon (AMZN - Free Report) stock was up more than 1%; analysts are expecting Amazon to deliver an 11.21% increase in sales during Q4 compared to the year-ago period. Both stocks were slightly lower in early trading Tuesday morning.

Overseas E-Commerce Platforms Join the Party

The celebration hasn’t been constricted to the U.S., as foreign companies also enjoyed stellar growth. PDD Holdings (PDD - Free Report) saw its shares soar nearly 20% Tuesday morning after delivering upbeat third-quarter results. The company operates Pinduoduo, an e-commerce platform which offers products in various categories such as agricultural produce, apparel, food and beverage, furniture and household goods, cosmetics, fitness items, and auto accessories.

PDD also operates cross-border platform Temu, its international e-commerce arm that is expected to generate more than $16 billion in revenue this year. Temu is seen as a possible contender to Amazon in the United States. Since its initial launch, Temu has rapidly grown its presence and is now available in 48 countries.

PDD reported Q3 adjusted earnings of $1.64/share on sales of $9.7 billion, well ahead of the $1.25/share and $7.7 billion respective estimates. Sales surged 94% year-over-year, while the bottom line increased 35%. The company has handily outpaced rival Alibaba (BABA - Free Report) and competing Chinese e-commerce firm (JD - Free Report) , with PDD shares surging more than 70% this year:

Image Source: StockCharts

PDD is a component of the Zacks Internet – Commerce industry group, which currently ranks in the top 15% out of approximately 250 industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.

Historical research studies suggest that approximately half of a stock’s future price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. By targeting stocks contained within the top industry groups, we can dramatically improve our odds of success.

Another stock within this group that has been outperforming lately is Latin-American e-commerce giant MercadoLibre (MELI - Free Report) . Yesterday, thecompany said sales are pacing ahead of last November’s total by 39%. One of the largest platforms in South America, MELI stock rose more than 4% yesterday and hit a new 52-week high. MELI shares have surged 88% this year thus far:

Image Source: StockCharts

A Zacks Rank #2 (Buy) stock, MercadoLibre has exceeded the earnings mark in each of the past four quarters, with a 33% average earnings surprise over that timeframe.

Analysts covering MELI have increased their earnings estimates across the board. For the fiscal fourth quarter, EPS estimates have been raised by 13.11% in the past 60 days. The Q4 Zacks Consensus Estimate stands at $7.16/share, translating to a 120.3% improvement versus the same quarter last year. Revenues are projected to jump 37.7% to $4.13 billion.

Zacks Investment Research
Image Source: Zacks Investment Research

Bottom Line

E-commerce stocks have done well this year amid resilient consumer spending. The outperformance is likely to continue as we saw, with these companies forecasting strong growth in the fourth quarter. 

It’s been a November to remember for stock market bulls. A fairly busy week lies ahead, highlighted by Thursday’s release of the October PCE inflation data. Make sure to take advantage of all that Zacks has to offer to uncover leading stocks like PDD and MELI.

Disclosure: MELI is a current holding in the Zacks Headline Trader portfolio.

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