Why did Temu-owner PDD’s shares plunge?

What happened PDD Holdings, owner of online retailers Pinduoduo and Temu, yesterday reported mixed earnings for the quarter ending September 30. Revenue climbed to 99.35 billion RMB ($13.7 billion) but missed analyst expectations of 102.8 billion RMB ($14.2 billion), its second consecutive quarterly shortfall. Adjusted earnings rose 122% YoY, but growth decelerated significantly compared to earlier this year, underlining the challenges posed by China’s slowing economy. Heightened competition, economic uncertainty, and flagging consumer confidence, worsened by youth unemployment and property sector instability, have weighed on PDD’s domestic platform. A price war, sparked when rivals adopted Pinduoduo’s discount-driven strategies, added to the strain. Overseas, Temu faces mounting regulatory hurdles, including an illegal product probe in the EU, a demand by Vietnam’s government to formally register, and an app store ban in Indonesia. With shares plunging a significant 11% post-results, analysts point to PDD’s uphill battle if it is to maintain growth amid shifting market dynamics and geopolitical pressures, including potential tariffs when US president-elect Donald Trump takes office in January. While China’s e-commerce sector remains resilient, a broader recovery will likely depend on macroeconomic stabilization and strategic adaptation. The Jing Take “Our topline growth further moderated quarter-on-quarter amid intensified competition and ongoing external challenges,” PDD Vice President of Finance Jun Liu said in a press release. “In our pursuit of high-quality development, we will continue to invest resolutely in building a healthy and sustainable ecosystem, which will be reflected in our results.” The competition Jun refers to comprises the likes of Fidelity National Information Services, Visa, Mastercard, Accenture, Alibaba Group, Uber Technologies, Fiserv, MercadoLibre, PayPal, and Relx. Among those, the most direct competitor is Alibaba Group. Yesterday’s announcement from PDD Holdings arrived a week after JD.com and Alibaba posted revenue growth of 5.1% and 5%, respectively, in the last quarter. A major factor that sets PDD’s Temu apart from Alibaba and JD.com is its reliance on low-price products, which sometimes skimp on quality. Alibaba’s empowerment of small businesses is also a differentiator. Furthermore, Alibaba’s ecosystem connecting influencers, buyers, sellers, and advertisers via seamless technology has reinvented Chinese e-commerce — the conglomerate operates the largest B2B (Alibaba.com), C2C (Taobao), and B2C (Tmall) marketplaces in the world. On the other hand, JD.com has long been one of the mainland’s most successful retail platforms, often compared to Amazon. Despite being a latecomer, the Chinese version of Temu, bargain-king Pinduoduo has risen to rival these retail giants. Its dominance has spurred other platforms like Douyin and Kuaishou to attempt ultra-low pricing, too, yet without being able to sustain it. The latest news begs the question as to whether a low pricing strategy is sustainable going into 2025. Following a US debut in 2022, Temu entered Europe in April last year, quickly making headway. Yet, concerns around data privacy are mounting. The popular fast-fashion retailer is facing expanding regulatory challenges as it continues this rapid expansion. According to Bloomberg, the EU is developing a proposal aimed at closing a tax loophole that benefits low-cost online imports, a measure that would affect Chinese platforms like Temu and Shein.

Why did Temu-owner PDD’s shares plunge?

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Published November 22, 2024

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Why did Temu-owner PDD’s shares plunge?