PDD Fails To Shield Itself From The Weakened Chinese E-Commerce Trend

Before August came to a close, Temu-parent PDD Holdings Inc PDD issued its second quarter results after which its shares plunged almost 29%. This was the biggest one-day share fall for PDD since it listed in the U.S. six years ago, erasing almost $55 billion from its market capitalization. Its rival, Alibaba Group Holding Limited BABA also missed revenue estimates earlier in August due to weaker domestic e-commerce sales. 

Although second quarter financials were still impressive, the report did reflect the saturated Chinese e-commerce sector, with PDD now facing the same wall its domestic competitors have been struggling with, including as JD.com JD, Alibaba, and Shein as well as its global rival, Amazon.com Inc AMZN. 

Second Quarter Highlights

For the June quarter, PDD posted revenue grew 86% YoY to 97.06 billion yuan, which is about $13.6 billion. Its rival, JD.com also posted revenue growth but of only 1.2%. PDD reported revenues from online marketing services and others rose 29% while revenues from transaction services surged as much as 235%.

For the quarter ended on June 30th, PDD reported operating profit surged 156% YoY to 32.56 billion yuan. But general and administrative costs more than tripled to 1.84 billion yuan due to staff expenses. On the other hand, attributable net income still rose 144% YoY to 32.01 billion yuan.

The earnings miss shows significant bumps on the road.

After a rapid rise that showed no signs of slowing down, the Temu parent is facing significant bumps on the road with the retail commerce and e-commerce sectors both being weighed down by the fragile economy in China. While Pinduoduo's low prices and steep discounts on pretty much everything are doing a good job at luring in price-conscious consumers, rivals like Alibaba and JD.com opted for the same heavy discounting strategy, increasing the competitive pressure. Therefore, PDD’s latest report shows both competitive and external challenges that its rivals like Alibaba and JD.com are facing. Unlike its rivals like Amazon, PDD tried to shield itself from the slowdown with cheap offerings, but the latest results show that this only worked short-term. Co-CEO Lei Chen also spoke of a consumer trend that favors spending on experiences rather than goods that add the pressure next to rational consumption. Despite a strong second quarter, PDD undoubtedly warned of slowing growth, raising concerns that the giant is losing momentum due to both macroeconomic challenges and intensified competitive pressures. 

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