Shares of PDD Holdings, the parent company of fast-growing shopping app Temu, fell more than 30% on Monday, shedding more than $50 billion in market value, after the e-commerce giant posted disappointing revenue results and executives warned of rapid competition and non-business challenges that could hamper growth and profits going forward.
The Nasdaq-listed company, which is technically headquartered in Ireland but employs most of its staff in China, runs Chinese online shopping giant Pinduoduo as well as Temu, the discount shopping app that has taken over the United States and other Western markets since its launch in 2022. But Temu has also faced scrutiny from governments, including the United States, over issues ranging from its use of import trade loopholes to the quality and origin of the products its sellers sell in its online stores. And those pressures appear to be hurting the company’s prospects.
PDD continues to grow at an incredible pace, both in China and other markets, with revenue up 86% in the second quarter to more than $13.6 billion, but analysts had expected revenue to exceed $14 billion. On top of the revenue shortfall, PDD executives have spooked investors by painting a bleak picture for the quarters ahead.
“Going forward, revenue growth will inevitably come under pressure due to intensified competition and external challenges,” PDD CFO Jun Liu said in a press release. “Profitability will also likely be impacted… as we continue to invest aggressively.”
Amazon officials in China recently told merchants in the country that the U.S. e-commerce giant would soon launch its own discount store. Temu also competes with other e-commerce giants with close ties to China, including fast-fashion giant Shein and TikTok’s growing marketplace Shop.
While PDD Holdings does not disclose Temu’s financial results, executives warned on a call with analysts of “significantly greater uncertainty” in the company’s global business unit, which houses Temu.
“Our business is also increasingly affected by non-business factors,” said co-CEO Lei Chen. “And at the same time, the competition we face is intensifying. Competition is here to stay and is expected to intensify in our industry.”
“These combined factors will inevitably lead to fluctuations in our business,” Chen added. “As this quarter’s results show, strong revenue growth is not sustainable and a downward trend in profitability is inevitable.”
A boost for “high quality” traders
Temu has become one of the most popular shopping apps in the United States and other markets like Mexico, thanks to its tempting cocktail of low prices, often acceptable product quality, and big ad spend with in-app gimmicks that are once again attracting bargain-hunting shoppers. Temu is headquartered in Boston, but Fortune It has already been reported that this was only a matter of name.
But the company is also increasingly under attack from regulators and lawmakers over some of its shipping tactics, its compliance with product safety laws and questions about whether it sells goods made with forced labor.
This month, U.S. lawmakers from both political parties announced legislation that would make it more expensive for foreign companies like Temu to ship goods from China to U.S. customers. Currently, most Temu orders shipped to the U.S. avoid import taxes and customs checks thanks to a trade rule known as “de minimis,” which allows customer packages under $800 to avoid import fees.
PDD executives have also committed to investing heavily to improve the quality of sellers on its marketplaces, in part by rewarding quality merchants with lower fees.
“On the supply side, we will invest substantial resources to support quality merchants who are willing to innovate and improve quality,” Chen said. “And we will offer these merchants a significant reduction in transaction fees, with an initial target of 10 billion (yuan) in the first year.”
