PDD Holdings Inc.’s shares dived 18 percent after the Temu owner posted disappointing revenue and warned of declining growth, highlighting the challenges of sustaining its pace of expansion against intense competition.
The stock slid during pre-market trading in New York after the Chinese-owned e-commerce platform reported revenue of 97.1 billion yuan ($13.6 billion) in the June quarter, versus the average analyst estimate of 100 billion yuan. Net income was 32 billion yuan, compared to a projected 27.5 billion yuan.
Co-founder Chen Lei, who also serves as chairman and co-chief executive officer, repeatedly highlighted growing competition in the global e-commerce market in a post-earnings call. He warned the company’s profitability will be hurt as it invests more in supporting its merchants.
“Competition is here to stay and is expected to intensify in our industry,” Chen told analysts. “High revenue growth is not sustainable, and a downward trend in profitability is inevitable.”
“Going forward PDD will face fierce competition in China, with merchants going through a hard time,” said Wang Xiaoyan, a Shanghai-based analyst with 86Research. “PDD will likely invest more in China, and that means we’ll see downside for the group in the Chinese market.”
PDD has been spending big on e-commerce business Temu to drive its global presence and escape an ailing Chinese economy that’s dragged down by a prolonged real estate slump and high youth unemployment. But executives have kept a lid on Temu’s performance as the competition is becoming cutthroat.
PDD faced a backlash in July when hundreds of merchants staged a rally outsides of its offices in southern China. They protested what they called unfair penalties that Temu’s owner was increasingly levying as they felt PDD was squeezing them for profit.
Temu is also encountering growing regulatory scrutiny following its meteoric rise. The European Union is working on a proposal to close an import tax loophole for cheap goods bought online, a move that would primarily target Chinese retailers including Temu, Bloomberg News has reported.
Still, PDD’s global expansion strategy has started to pay off in some ways. Temu has quickly became one of the most downloaded US apps after a splashy debut in 2022. It’s since begun to challenge fellow Chinese online shopping giant Shein, and even Amazon.com Inc. in certain segments. PDD founder Colin Huang this year has also become China’s richest person with a $49.3 billion fortune, according to the Bloomberg Billionaires Index.
In China, PDD has gained ground in recent years against traditional retailers like Alibaba and JD.com Inc. with its low-pricing strategy, while adopting aggressive promotional campaigns to fend off upstarts such as ByteDance Ltd.’s Douyin and Kuaishou Technology.
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Op-Ed | Let Temu Keep the Cheap Stuff. Amazon Should Go Luxe
Amazon will struggle to beat Temu and Shein at their own game, and in the process, it risks devaluing what has become its core proposition: convenience.
