PDD Holdings, the parent company of the popular e-commerce platform Pinduoduo and cross-border retailer Temu, saw its shares plunge by 25% on Monday following the release of its second-quarter earnings. Despite reporting record revenue for the quarter, the company missed market expectations, and issued warnings about future profit margins, leading to a sharp sell-off in its stock.
The company reported revenue of 97.06 billion yuan (approximately $13.64 billion) for the quarter ending June 30, marking an 86% increase year-over-year. However, this figure fell short of the analysts' consensus estimate of 100 billion yuan. While PDD's net profit soared by 144% to 32 billion yuan, surpassing forecasts, the company's cautious outlook on future profitability rattled investors.
PDD's stock, listed on the Nasdaq, opened at $105.68 on Monday, down 24.93% from the previous close, as the market reacted to the company's profit warnings and concerns over its ability to sustain growth in a challenging economic environment. The drop reflects investor anxiety over PDD's ability to navigate the competitive pressures and economic uncertainties that have increasingly weighed on China's e-commerce sector.
During the earnings call, PDD's chairman and co-CEO Chen Lei highlighted the company's plans to withhold share buybacks or dividend payments in the near future, citing the need to conserve cash for continued investments. "We are prepared to accept short-term sacrifices and potential decline in profitability," Chen stated, emphasizing the company's long-term commitment to strengthening its platform ecosystem despite the current headwinds.
PDD's struggle to maintain its growth trajectory comes against the backdrop of a broader slowdown in consumer spending in China. A fragile economy, persistent weakness in the property sector, and high unemployment rates have led Chinese consumers to cut back on discretionary purchases, hurting the retail and e-commerce sectors. Pinduoduo, known for its low prices and deep discounts, has attracted cost-conscious shoppers but faces intensified competition as rivals also ramp up their promotional activities.
"Looking ahead, revenue growth will inevitably face pressure due to intensified competition and external challenges," Jun Liu, PDD's vice president of finance, noted during the earnings call. The company has pledged to invest heavily in trust and safety initiatives, as well as in supporting high-quality merchants on its platforms while cracking down on lower-quality sellers.
Despite the challenges, PDD remains committed to its strategy of long-term investment. Zhao Jiazhen, co-CEO of PDD Holdings, announced plans to waive 10 billion yuan in transaction fees for high-quality merchants over the next year, as part of efforts to bolster the platform's value proposition for both sellers and consumers. "We will strongly support merchants with product and technology innovation capabilities," Zhao said, adding that the platform will continue to tighten controls to protect consumer rights.
The cautious outlook from PDD follows a similar narrative from other Chinese e-commerce giants. Earlier this month, Alibaba reported weaker-than-expected revenue growth, while JD.com's quarterly revenue increased by a mere 1.2%. The entire sector is grappling with the dual pressures of an economic slowdown at home and regulatory scrutiny abroad, particularly as platforms like Temu expand into international markets.
M Science analyst Vinci Zhang expressed surprise at PDD's performance, noting that the company's budget-friendly offerings were expected to fare better amid the consumer spending slowdown. "There was hope that maybe PDD, being the budget product platform with cheaper offerings, could capture this slowdown, but it turns out that they are also losing," Zhang said.
