PDD Holdings (Pinduoduo Inc.), Parent Company of Pinduoduo and Temu, loses $55 Billion in Market Cap After Missed Revenue Targets
Fiona Nanna, ForeMedia News
7 minutes read. Updated 10:19AM GMT Tues, 27August, 2024
China’s PDD Holdings (PDD.O), the parent company of discount e-commerce platforms Pinduoduo and Temu, saw its market capitalization plummet by nearly $55 billion on Monday following disappointing quarterly revenue results and a pessimistic outlook from company executives. This marked the steepest single-day share decline for PDD since its 2018 listing on the U.S. stock exchange, with shares dropping by over 28%.
The revenue miss, combined with warnings from PDD’s Co-Chief Executive Chen Lei about escalating domestic e-commerce competition and uncertainties in the global market, triggered the sell-off. During an earnings call, Chen highlighted the challenges the company faces, including shifting consumer demand, intensifying competition, and the unpredictable global environment. He also indicated that PDD’s profitability would be impacted as the company shifts towards a phase of “high-quality development,” necessitating increased investments.
China’s e-commerce sector is grappling with broader economic challenges, including a fragile economy, persistent weakness in the property sector, and high youth unemployment rates. These factors have led consumers to tighten their spending, exacerbating the competitive landscape for market share among e-commerce giants.
Pinduoduo, known for its low prices and deep discounts on a wide range of products, has attracted cost-conscious shoppers. However, it faces stiff competition from major rivals like Alibaba (9988.HK) and JD.com (9618.HK), both of which have ramped up their promotional efforts to capture a larger share of the market. This intensifying competition is expected to put pressure on PDD’s revenue growth moving forward, according to Jun Liu, PDD’s Vice President of Finance.
Analysts have noted the uncertain tone of PDD’s management regarding the company’s future prospects. Huatai Securities analysts pointed out that PDD’s comments appeared to target Alibaba, which has gained momentum recently with its low-price strategy. UBS analyst Kenneth Fong remarked that while Pinduoduo continues to perform well with solid growth and profitability, the cautious outlook presented by management has left investors uncertain. Fong suggested that there may be factors at play that Pinduoduo is cautious about, or it could be a case of the company being overly conservative in a challenging macroeconomic environment.
Despite the challenges, Pinduoduo’s international platform, Temu, is showing signs of improvement. Fong mentioned that Temu’s margins are looking more positive, with the platform likely to break even by the fourth quarter. However, Vinci Zhang, an analyst at M Science, described PDD management’s outlook as “very bearish,” expressing concerns that even a budget-focused platform like Pinduoduo is struggling in the current environment.
The shift in consumer behavior, with more people opting to spend on experiences rather than material goods, and the growing trend towards “rational consumption,” were also noted by Co-CEO Chen. This shift further complicates the outlook for e-commerce platforms like Pinduoduo.
Adding to the pressure, Alibaba and JD.com have also faced challenges, with Alibaba missing market estimates for revenue earlier this month due to weaker domestic e-commerce sales, and JD.com reporting only a 1.2% growth in quarterly revenue. Both companies saw their U.S.-listed shares decline following PDD’s earnings miss.
PDD’s reported revenue for the second quarter was 97.06 billion yuan ($13.64 billion), falling short of analysts’ average estimate of 100 billion yuan, according to LSEG data. The company’s operating expenses surged by 48% during the quarter as it increased investments in marketing, advertising, and promotions to attract shoppers. Additionally, general and administrative costs more than tripled to 1.84 billion yuan due to staff-related expenses.
