Temu Parent PDD Holdings Stock Plummets 28% Despite Strong Q2 Earnings Growth

PDD Holdings' 86% revenue growth fell short of analysts' expectations leading PDD stock to sell off in dramatic fashion today.

Ryan Troup August 26, 2024Last Updated: August 26, 2024

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Temu parent company PDD Holdings stock chart declines on Q2 earnings. — Source: Shutterstock and Temu

PDD Holdings (NASDAQ: PDD) saw its stock decline 28% today, despite the parent company of popular e-commerce platforms Temu and Pinduoduo reporting solid growth in its Q2 2024 earnings. As PDD continued grappling with intensifying competition, the company posted an impressive 86% year-over-year increase in revenue to $13.36 billion (97.06 billion yuan) but fell short of market expectations, triggering a sharp decline in its stock price. PDD stock dropped 28.4% following the earnings report, driven by concerns over increasing market challenges and a potential growth slowdown.

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The company’s recent success has been fueled by both domestic and international operations, with its international shopping site, Temu, emerging as a fierce competitor to Amazon (NASDAQ: AMZN). However, management has issued a cautious outlook for the future, signaling that PDD’s rapid growth may face hurdles due to mounting competition and regulatory challenges.

Growing Challenges in the Market

Co-CEO Lei Chen acknowledged these difficulties, emphasizing the need for continued investment, even at the cost of short-term profitability.

Chen stated:

“We are committed to transitioning toward high-quality development and fostering a sustainable ecosystem. We will invest heavily in the platform’s trust and safety, support high-quality merchants, and relentlessly improve the merchant ecosystem.”

Chen also hinted at potential “short-term sacrifices” to ensure long-term stability.

PDD Holdings’ challenges come as other Chinese e-commerce giants like Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD) also struggle with slower consumer spending in China. Both companies have focused heavily on discounts and promotions to attract shoppers, adding pressure to an already competitive marketplace.

Moreover, PDD is also contending with international rivals, including Shein and TikTok’s parent company ByteDance, which have expanded into e-commerce. In particular, Alibaba’s AliExpress business and a rumored move by Amazon to directly sell Chinese goods mirror Temu’s discount-driven model, further intensifying competition.

Regulatory Scrutiny

On top of competitive pressures, PDD faces potential regulatory changes that could impact its cost structure. Both U.S. and European lawmakers are scrutinizing the “de minimis” trade provision, which currently allows parcels valued under $800 to enter duty-free. Any revision to this policy could raise costs for Temu, which relies on this exemption to keep prices low for consumers.

PDD acknowledged in its earnings call that these external factors are increasingly affecting its operations.

Jun Liu, Vice President of Finance at PDD, warned:

“Looking ahead, revenue growth will inevitably face pressure due to intensified competition and external challenges. Profitability will also likely be impacted as we continue to invest resolutely.”

PDD Outlook

Despite the headwinds, PDD remains a significant player in the global e-commerce market, operating in over 70 countries and maintaining substantial financial resources with $39.2 billion in cash reserves. However, as competition escalates and profitability becomes uncertain, PDD’s future will largely depend on its ability to navigate both market and regulatory challenges effectively.

For now, while PDD’s stock may appear undervalued with a price-to-earnings ratio of under 10, investor caution reflects concerns about the broader Chinese e-commerce sector and the company’s future growth trajectory.

PDD Stock Price Action

Shares of PDD Holdings stock closed today’s trading session at $100 per share, down 28.51% today. YTD, PDD stock is down 31.34%. All time, PDD stock is up 306.5%.