PDD Holdings, the Chinese parent company of e-commerce platforms Pinduoduo and Temu, failed to meet third-quarter revenue and profit expectations, as consumer spending in China remains under pressure. Promotional discounts and low-cost offerings, while attracting some attention, fell short of driving the sales growth analysts had anticipated. The company's U.S.-listed shares dropped 8% in pre-market trading following the announcement.
The company reported a 44% revenue increase year-over-year to 99.35 billion yuan ($13.72 billion) for the three months ending September 30. Despite the growth, it missed the average analyst estimate of 102.65 billion yuan, compiled by LSEG. Adjusted earnings per American Depository Share also fell short, coming in at 18.59 yuan against expectations of 19.79 yuan. Net income rose to 24.98 billion yuan, up from 15.54 billion yuan in the same quarter a year earlier.
"Our topline growth further moderated quarter-on-quarter amid intensified competition and ongoing external challenges," said Jun Liu, PDD's Vice President of Finance. The company attributed the challenges to slowing consumer spending amid high unemployment rates among Chinese youth and a prolonged property sector crisis, which have dampened overall economic confidence.
PDD's domestic platform, Pinduoduo, which has become synonymous with deeply discounted goods, is under mounting pressure from rivals such as Alibaba and JD.com, both of which reported lackluster sales growth in the same quarter. The competitive landscape has intensified further as companies engage in a price war, fueled by heightened discounting and promotions.
Adding to the tension, Nongfu Spring founder Zhong Shanshan, China's second-richest person, publicly criticized Pinduoduo for its aggressive pricing strategy. In a speech widely covered by Chinese media, Zhong alleged that the platform's pricing system is "a huge harm for Chinese brands and Chinese industries," exacerbating the already fierce e-commerce price war. His remarks mark a rare instance of a high-profile entrepreneur openly denouncing a major e-commerce player.
"The internet platforms have brought down the prices, in particular the pricing system of Pinduoduo," Zhong said. His criticism comes as Beijing continues to scrutinize price wars among e-commerce platforms. Earlier this year, the Chinese Politburo issued a statement urging platforms to avoid "involution," a term used to describe diminishing opportunities in increasingly competitive environments. In response, some platforms, including Pinduoduo, have made efforts to moderate their operations and reduce reliance on cutthroat pricing.
In September, Pinduoduo began removing counterfeit sellers from its platform and announced plans to support merchants with innovative product and technology capabilities. Co-CEO Zhao Jiazhen stated the company would "significantly reduce transaction fees" and focus on long-term platform health over short-term profits.
While these changes aim to address criticisms, they have yet to yield significant results. PDD's earlier downbeat outlook for the year has spooked investors, with the company experiencing its largest single-day stock decline since its 2018 listing in August. That drop erased nearly $55 billion in market capitalization.
Pinduoduo's U.S. sibling, Temu, which follows a similar low-cost business model, faces its own set of challenges. Its steep discounts and aggressive marketing strategies in international markets have strained profitability, raising questions about the sustainability of its model.
The U.S. Securities and Exchange Commission (SEC) has also increased scrutiny of PDD, particularly regarding its financial transparency and governance practices. Critics argue that the company's focus on market expansion and aggressive tactics could come at the expense of long-term shareholder value.
Despite the setbacks, PDD remains a dominant force in China's e-commerce market, with over 700 million monthly active users on Pinduoduo. However, as economic pressures persist and competition intensifies, the company faces a challenging path ahead to regain investor confidence and sustain its growth trajectory.
