PDD Holdings Inc’s (拼多多) shares fell the most on record after Temu’s owner warned that revenue growth would inevitably dwindle, highlighting the challenges of sustaining its pace of expansion against aggressive rivals like ByteDance Ltd (字節跳動).
Cofounder Chen Lei (陳磊) repeatedly stressed that PDD’s current trajectory was not sustainable, at a time competitors such as ByteDance’s TikTok and Alibaba Group Holding Ltd (阿里巴巴) are vying for budget-conscious shoppers.
PDD’s American depositary receipts on Monday tumbled 29 percent in New York, the stock’s worst loss since its initial public offering in 2018 and wiping out US$55 billion of market value.
Photo: Bloomberg
PDD has spent big on e-commerce business Temu to drive its global presence and escape an ailing Chinese economy.
However, executives have kept a lid on the overseas unit’s performance as competition turns cutthroat.
On Monday, Chen said PDD needed to invest more in supporting merchants — at a time rivals are trying to woo them away.
“Competition is here to stay and is expected to intensify in our industry,” Chen told analysts during a post-results briefing. “High revenue growth is not sustainable, and a downward trend in profitability is inevitable.”
The Chinese e-commerce platform, which became a market darling with low-priced goods that helped propel sales and profits during China’s economic downturn, reported revenue of 97.1 billion yuan (US$13.6 billion) for the April-to-June quarter, missing the average estimate of 100 billion yuan.
Its net income was 32 billion yuan, compared with a projected 27.5 billion yuan.
“Going forward, PDD will face fierce competition in China, with merchants going through a hard time,” said Wang Xiaoyan (王曉燕), 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,” Wang said.
The company’s disappointing results were the latest in a series of red flags about the Chinese economy. This week, popular restaurant chain Din Tai Fung (鼎泰豐) said it was shutting 14 outlets in northern China. Last month, Starbucks Corp disclosed a 14 percent plunge in Chinese revenue in the June quarter.
“The big issue is weakness in China consumer,” Robeco Hong Kong Ltd’s head of Asia Pacific equities Joshua Crabb said. “The read-across for competition and a weak consumer will be negative for sure.”
Consumption, a main driver of the economy, weakened this year after a rebound in post-COVID-19 reopening spending last year. Against the backdrop of widespread job and salary cuts, as well as plunging property prices, Chinese consumers have become more cautious with their spending, leading to intense price wars in sectors such as cars.
Retail sales expanded just a little more than 3 percent in the first seven months of this year, far worse than the 8 percent-plus growth recorded in pre-pandemic times.
Residents’ confidence in future income plunged to the worst level since the end of 2022, a central bank survey conducted in the second quarter showed.
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