Shares of PDD Holdings Inc., the parent company of the popular online retailer Temu, plummeted nearly 29% on Monday, marking the company's most significant one-day decline since its Nasdaq debut. The stock crash wiped out approximately $55 billion of market value, igniting concerns about the broader health of China's economy and its impact on the e-commerce sector.
The precipitous drop followed the release of PDD Holdings' second-quarter earnings report, which revealed that the company's revenue fell short of Wall Street's expectations. The firm reported a revenue of 97.06 billion yuan ($13.6 billion), reflecting an impressive 86% year-over-year increase. However, this figure lagged behind analyst forecasts of $14.034 billion, or 99.98 billion yuan, according to FactSet.
Despite reporting a substantial operating profit of 32.56 billion yuan-a 156% increase from the previous year-and a 144% rise in attributable income, the company's cautious outlook and failure to meet market expectations triggered a severe sell-off. "The panic was overblown last night," said Shaun Rein, founder and managing director of the China Market Research Group. Rein described the 30% drop as an excessive reaction and suggested it might present a buying opportunity for investors.
PDD Holdings' CEO Lei Chen offered a sobering perspective during the earnings briefing, repeatedly mentioning the inevitability of revenue and profit declines due to ongoing economic challenges. Chen highlighted the company's preparedness for potential short-term sacrifices as it invests heavily in enhancing trust and safety measures, as well as expanding its merchant ecosystem. "We are seeing many new challenges ahead, from changing consumer demand, intensifying competition, and uncertainties in the global environment," Chen stated.
Ben Harburg, portfolio manager at CoreValues Alpha, attributed the stock's downturn to broader issues within the Chinese e-commerce sector rather than just the latest financial results. He noted that PDD's domestic competitors, including JD.com, Alibaba, and Shein, along with global players like Amazon, pose significant challenges. The e-commerce landscape in China has become increasingly saturated, and recent weak earnings from major players like JD.com and Alibaba suggest a broader sector slowdown.
The unexpected decline in PDD Holdings' stock also underscores broader economic issues in China. Despite initially thriving by offering low-priced goods through its Pinduoduo platform and Temu, PDD has been adversely affected by a sluggish economy and changing consumer behaviors. Recent reports highlight a slowdown in retail sales growth and declining consumer confidence, with notable examples including Starbucks and Din Tai Fung, both of which reported disappointing performance.
Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd., emphasized the broader implications of PDD's stock plunge. "The big issue is weakness in the Chinese consumer," he said, pointing out that even aggressive price-cutting strategies are struggling to address the underlying economic malaise.
PDD Holdings, which had previously enjoyed remarkable growth, particularly during the economic downturn, faces new realities as consumer spending shifts and competition intensifies. Analysts like Morgan Stanley's Eddy Wang and Kathy Zhu remain cautiously optimistic, suggesting that despite the current turbulence, PDD may still outperform its industry peers in the long term. "PDD is the only Chinese e-commerce player that will outperform industry growth," they wrote.
