Chinese discount e-commerce giant PDD Holdings, operator of Temu and Pinduoduo, faces increased profitability challenges amid US President Donald Trump’s trade policies and heightened competition in its home market, according to analysts.
PDD on Tuesday reported a 47 per cent slump in first-quarter earnings amid slower sales growth, with results trailing market consensus. PDD’s Nasdaq-listed shares tumbled as much as 18 per cent in New York overnight, as the company’s poor report card suggested that continued discounts to attract consumers would hurt near-term earnings outlook.
In the company’s post-earnings call, PDD co-founder, chairman and co-chief executive Chen Lei said “a slowdown in growth rate is inevitable” amid new challenges, which prompted the firm to boost support for merchants. Apart from intensified domestic competition, Chen pointed out that “radical change in the external policy environment, such as tariffs, has created significant pressure for our merchants”.
Those factors were expected to continue affecting PDD’s profitability, according to UBS analysts in a research note published on Wednesday.
“Management’s tone is cautious, highlighting macroeconomic uncertainties and significant investments in the ecosystem,” the analysts said.
PDD in April pledged to invest 100 billion yuan (US$13.9 billion) in several initiatives to support merchants on its platform as well as consumers.
That effort is expected to bring “short-term pain”, but “long-term gain” for the company, according to a Morgan Stanley research note on Tuesday. “We believe these investments, together with PDD’s laser focus on China e-commerce business, will translate into long-term competitive advantages,” the report said.
