Temu owner PDD is a new China e-commerce Top Pick at Morgan Stanley

Investing.com -- PDD Holdings Inc DRC (NASDAQ:PDD) is a new top e-commerce pick at Morgan Stanley (NYSE:MS), the Wall Street firm revealed in a Monday note, citing the company's potential to sustain higher growth and gain market share in 2025 and 2026.

“Even in our bear case scenario, we believe its value-for-money positioning will be more resilient in a weak consumption environment,” analysts led by Eddy Wang said in a note.

PDD, a Chinese online retailer that owns the popular Temu marketplace, has been actively working on building a healthier merchant ecosystem.

Since the launch of its Rmb10 billion Fee Reduction campaign in August, Temu has supported merchants with transaction fee reductions and refunds.

“We expect such endeavors to help merchants lower their operating costs and improve ROI (return on investment), in turn making them more likely to focus their advertising and promotional efforts on PDD,” analysts noted.

“We believe this approach will also attract more high-quality merchants and brands and increase the number of SKUs offered on PDD,” they added.

Morgan Stanley highlights how the company's strategy has evolved from focusing on 'Value for Money' to offering 'More and Better' products. This shift, particularly after competitors Taobao and Douyin reverted to a gross merchandise volume (GMV)-driven growth strategy, is expected to strengthen Temu's appeal to consumers.

Wang and his team believe that an improved merchant ecosystem will lead to a wider selection of products and brands on Temu, boosting user engagement and driving long-term GMV growth.

On valuation, analysts have set a discounted cash flow-based price target for Temu at $150, which corresponds to an 11.7x price-to-earnings (P/E) ratio for the year 2025.

In a more optimistic scenario, they forecast Temu's GMV to grow by 20% and 15% in 2025 and 2026, outpacing the overall e-commerce sector's growth of 9% and 7%, respectively. The bull case valuation for Temu stands at $205.