PDD Holdings, the parent company of the Chinese online discount retailer Pinduoduo and the cross-border platform Temu, has reported a substantial rise in its third-quarter revenue, exceeding market expectations. The surge, marking a nearly 14% increase in premarket trading of its U.S.-listed shares, is attributed to the aggressive discounting strategy and the growing popularity of Temu, its international e-commerce arm.
The financial results, showcasing a 94% year-on-year revenue increase to 68.84 billion yuan ($9.62 billion), significantly surpassed the average analyst estimate of 54.59 billion yuan. This remarkable performance is even more notable considering the global tech stock struggles in 2022. Analysts have credited Temu, which launched in September 2021 and is now available in 48 countries, including Europe, the Middle East, South East Asia, and Australia, as a key driver of this growth. The platform, known for its affordable goods like $4 earphones and $15 hoodies, is projected to generate over $16 billion in revenue this year.
Temu's success reflects a broader trend in consumer behavior, with a rising demand for low-cost, Chinese-made products amid a global cost-of-living crisis. This trend has also benefited Temu's rival Shein, which is reportedly preparing for a U.S. IPO. PDD's domestic revenue in China also notably outpaced that of its competitors Alibaba and JD.com by a significant margin.
PDD's success story comes at a time when China's e-commerce giants are increasingly targeting the value-driven sector, historically dominated by Pinduoduo. The company's deep discounts during the Singles Day shopping event in China played a crucial role in attracting more value-conscious consumers in the world's second-largest economy. Co-CEO Zhao Jiazhen emphasized the company's continued focus on delivering value to consumers while also concentrating on high-quality offerings to build trust in PDD's platforms.
Despite initial expectations of a strong retail market rebound in China post-COVID-19 curbs, consumers have remained cautious amidst various economic challenges, including a downturn in the property market and record youth unemployment. This cautiousness was reflected in the modest 5.5% growth in Chinese retail sales in September.
PDD's net income attributable to ordinary shareholders also saw a significant rise, reaching 15.54 billion yuan in the third quarter compared to 10.59 billion yuan a year earlier. The company's aggressive marketing strategy for Temu, especially in the U.S., resulted in a 44% increase in total operating expenses, amounting to $3.5 billion for the quarter. This investment is part of PDD's broader strategy to deepen user engagement and strengthen its position in the highly competitive global e-commerce market.
As PDD continues to evolve and expand its reach, its performance in the third quarter of 2023 stands as a testament to the company's successful adaptation to changing market dynamics and consumer preferences, positioning it as a formidable contender in the global e-commerce landscape.