Temu Parent Company PDD Holdings Posts 2Q Miss, Analysts Say Long-Term Investments Hurt Short-Term Profitability

Shares of PDD Holdings Inc PDD tanked in early trading on Friday, after the company reported downbeat fourth-quarter revenues.

The company, which owns Temu, reported its results amid an exciting earnings season. Here are some key analyst takeaways.

• Benchmark analyst Fawne Jiang reiterated a Buy rating and price target of $160.
• Goldman Sachs analyst Ronald Keung maintained a Buy rating and price target of $157.

Check out other analyst stock ratings.

Benchmark: PDD reported quarterly revenues of RMB 111 billion ($15.3 billion), up 24% year-on-year, missing consensus expectations by RMB 6 billion ($827 million), Jiang said in a note. Online marketing services grew 17% year-on-year, in-line with expectations, he added.

Transaction revenues grew by 33% year-on-year, "driven by primarily by international expansion/Temu," but came in short of consensus by RMB 6 billion. "While we acknowledge the high-risk profile of Temu, we remain positive about domestic growth in the mid-teens," he further wrote.

Goldman Sachs: PDD's online marketing revenue implies "still healthy" high-teens gross merchandize value (GMV) over the quarter, Keung said. Transaction commission revenue fell significantly short of expectations, "as Temu continues its business model shift from full-entrusted model to semi-entrusted (local warehouse)/3P local merchants (which has a smaller revenue mark-up)," he wrote.

Investors remain concerned about the company's investments, which are focused on building a healthy ecosystem and growth longer-term but have a negative impact on short-term profitability, the analyst stated. PDD is focusing on building the platform ecosystem and adapting to domestic competition, he added.

PDD Price Action: Shares of PDD had declined by 2.90% to $127.12 at the time of publication on Friday.

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