PDD Holdings’ stock plunged 25 per cent on Monday after it warned of uncertainty ahead and downward pressure on profits amid increasing competition, despite reporting record revenue for the second quarter.
The parent company of domestic online e-commerce platform Pinduoduo and cross-border retailer platform Temu saw its revenue reach a record 97 billion yuan (US$13.6 billion) in the June quarter, up 86 per cent year on year, but lower than the consensus analysts’ forecast of 99.9 billion yuan compiled by Bloomberg.
Net profit soared 144 per cent to 32 billion yuan, beating the forecast of 27.5 billion yuan.
PDD’s Nasdaq-listed stock slumped 24.93 per cent to US$105.68 at the open on Monday morning US time.
PDD chairman and co-CEO Chen Lei said on the earnings call that the company has no plans to buy back shares or make dividend payments to shareholders in coming years as it has to save the cash for investments, dampening investor appetite for the stock.
The company attributed the June quarter growth to improved conditions in the domestic market but warned investors that increasing competition and risks in the “external environment” would affect its revenue growth and profitability over the next few quarters.
The results come at a time when Chinese e-commerce platforms, including Temu, face greater scrutiny in overseas markets as they accelerate their expansion to tackle sluggish consumer demand at home.
PDD’s management did not directly address recent protests by merchants against harsh fines imposed on them by Temu, but said it will continue its long-term investment to support suppliers and consumers of the platform, vowing to waive 10 billion yuan in transaction fees for high-quality merchants over the next year.
“We will strongly support merchants with product and technology innovation capabilities and will significantly reduce transaction fees,” Zhao Jiazhen, co-CEO of PDD Holdings, said during an earnings conference call on Monday.
Zhao added that the platform will further strengthen its controls, including identifying and removing unlawful merchants on its platform to protect consumers’ rights.
Co-CEO Chen said the company was facing “intense competition and [an] evolving external environment”, which would “inevitably bring fluctuations” and slow down revenue growth.
He added that short-term profitability will also be affected as the company continues its “patient” investment to support its platform ecosystem.