PDD Holdings Inc, the parent company of the popular online marketplace Temu, saw its shares take a dramatic dip after releasing its second-quarter earnings report. The stock plunged nearly 29%, marking the largest single-day decline since the company’s US listing six years ago. This drop wiped out almost $55 billion from PDD’s market capitalization. The decline comes amidst a challenging environment for Chinese e-commerce companies. PDD’s rival, Alibaba Group Holding, also reported missing revenue estimates earlier in August due to weakened domestic e-commerce sales.
While PDD’s second-quarter financials were still impressive, the report highlighted the saturation of the Chinese e-commerce sector. The company now faces the same obstacles that have been hindering its domestic competitors, including JD.com, Alibaba, Shein, and global giant Amazon.com. During the June quarter, PDD’s revenue surged 86% year-over-year, reaching 97.06 billion yuan (approximately $13.6 billion). In contrast, its rival JD.com saw a more modest revenue increase of just 1.2%. PDD reported significant growth in online marketing services and other revenue streams, up 29%, while transaction services revenues skyrocketed by 235%.
The company also reported a 156% year-over-year increase in operating profit, reaching 32.56 billion yuan. However, general and administrative costs more than tripled to 1.84 billion yuan due to staff expenses. Despite this, PDD’s attributable net income still rose by 144% year-over-year to 32.01 billion yuan. Despite these strong numbers, the earnings report revealed significant roadblocks for PDD. After a period of rapid growth, the company is facing headwinds as both the retail commerce and e-commerce sectors are weighed down by the fragile Chinese economy. While Pinduoduo’s strategy of offering low prices and steep discounts on a wide range of products has been successful in attracting price-conscious consumers, rivals like Alibaba and JD.com have adopted similar heavy discounting strategies, increasing competitive pressure.
The latest report highlights both competitive and external challenges facing PDD and its rivals like Alibaba and JD.com. Unlike its competitors like Amazon, PDD attempted to weather the economic slowdown through its cheap offerings, but the latest results show this strategy has only provided short-term benefits. PDD’s co-CEO, Lei Chen, has also noted a consumer trend towards spending on experiences rather than goods, adding further pressure on the company’s focus on rational consumption. Despite a strong second quarter, PDD’s recent warnings of slowing growth have raised concerns about the company’s ability to maintain momentum in the face of macroeconomic challenges and intensified competition.
