Temu Owner PDD Holdings Misses Revenue Expectations

PDD Holdings, the owner of Temu, reported disappointing quarterly revenue, resulting in a share price drop of over 28%. This represents the largest decline since its U.S. listing in 2018, erasing nearly $55 billion in market capitalization.

The company operates discount-focused platforms, including Pinduoduo in China and Temu internationally. Co-CEO Chen Lei highlighted challenges such as changing consumer demand and increased competition during an earnings call.

Second-quarter revenue was 97.06 billion yuan ($13.64 billion), below the 100 billion yuan analysts expected. Operating expenses rose by 48% due to heightened marketing and promotional spending.

While Pinduoduo’s low prices attract budget-conscious shoppers, major competitors like Alibaba and JD.com are intensifying their promotional efforts, leading to increased competition. Economic headwinds, including weak property markets and high youth unemployment, are also impacting spending in the retail and e-commerce sectors.

Analysts’ Reactions

Downgrades

Following the earnings report, Macquarie downgraded PDD shares to Neutral, citing decreasing earnings visibility and conservative management comments regarding competitive dynamics. Citi also reduced its rating due to limited investor communication and cautious outlook.

Positive Perspectives

Despite the challenges, some analysts like JPMorgan and Benchmark are optimistic, believing the company’s fundamentals remain intact. They suggest that continued market share gains and profitability at Temu may offset current concerns. Bernstein noted that while the stock’s guidance for lower profits triggered a sell-off, the valuation remains attractive compared to competitors.

Overall, PDD’s stock performance reflects investor apprehensions, but strategic investments could potentially bolster recovery and growth in the future.