Temu Owner PDD’s Sales Slow Sharply After China Market Sputters

PDD Holdings Inc.’s shares plunged after warning that its profitability will trend downward over time because of intensifying competition in its home market of China.

PDD, which competes with Alibaba Group Holding Ltd., said its team was struggling to catch up with unspecified rivals because of a lack of expertise. Executives also reiterated the company’s guidance from August that sales and profit growth will slow going forward. Its stock slid as much as 10 percent in early US trading.

That downbeat outlook emerged after PDD reported quarterly sales and profit that missed estimates, lending weight to fears that China’s slowdown is hurting its biggest tech companies more than anticipated. The disappointing results highlight how PDD, despite a thriving overseas business anchored by hot shopping app Temu, is grappling with anaemic Chinese consumer spending. A quarter ago, PDD issued a surprisingly strong warning about a slowdown in the world’s No. 2 economy and talked up challenges including uncertainties in the global environment.

“We will see greater financial impact as we will be disadvantaged against our competitors for some time to come,” PDD Co-Chief Executive Officer Zhao Jiazhen told analysts on a call on Thursday. “Our team of staff is now limited by their past experience and suffers from lack of certain capabilities.”

The Chinese-owned e-commerce platform reported revenue of 99.4 billion yuan ($13.7 billion) in the September quarter, versus the average analyst estimate of 102.8 billion yuan. Net income was 25 billion yuan, compared to a projected 26.6 billion yuan.

PDD’s been spending big on rural markets and Temu to drive its global presence, helping push growth well above that of rivals Alibaba and JD.com Inc. Temu became one of the most downloaded US apps after a splashy 2022 debut, and has begun challenging even Amazon.com Inc. in certain segments.

But Temu is also encountering growing scrutiny following its meteoric rise overseas.

The European Union has opened an investigation into the e-commerce platform, looking into whether the company is doing enough to combat sales of illegal products. The EU said it suspects the company is violating its new Digital Services Act, a law aimed at stamping out illegal content and disinformation online. It’s also unclear how a Trump administration will wield tariffs as a political tool, potentially disrupting the cross-border trade on which Temu depends.

“There’s uncertainty on potential tariff change and increasing pushback from more countries related to its ‘cheap’ prices,” Citigroup analyst Alicia Yap wrote ahead of the results. “While still growing robustly, Temu is also facing multiple headwinds.”

At home, the company in past years has combined low prices with aggressive rural expansion and game-like elements on its platform to grab market share from Alibaba and JD. Those two rivals have recently begun to team up on logistics and payments.

It’s also grappling with a consumer and merchant backlash. Sellers are pushing back against PDD’s low-pricing strategy, as well as policies that allow shoppers to get refunds without returning goods. Over the summer, hundreds of merchants staged a rally outside its offices in southern China, protesting what they called unfair penalties on their businesses.

Nongfu Spring’s founder Zhong Shanshan, China’s richest man, this week publicly called out PDD’s pricing system. PDD’s shares have tumbled since peaking in August, when founder Colin Huang briefly surpassed Zhong to become China’s richest person.

By Bloomberg News

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Temu Owner PDD Plunges 18% After Revenue, Outlook Disappoint

The company reported second-quarter revenue of 97.1 billion yuan, below estimates, and highlighted intensified competition and potential profitability challenges.