By Sophie Yu and Deborah Mary Sophia
(Reuters) – China's PDD Holdings missed market estimates for quarterly revenue on Monday, and downbeat comments from management about domestic competition in China's e-commerce industry and the company's global outlook sent its shares down more than 28%.
PDD's biggest one-day offering since its listing in the US in 2018 removed nearly $55 billion from the market. An e-commerce retailer uses discount-oriented platforms Pinduoduo (NASDAQ:) in China and Temu in the international market.
“(We) see many new challenges ahead, from changing consumer demand, intensifying competition and uncertainty in the global environment,” said Co-Chief Executive Chen Lei on an earnings call with analysts after the results.
“We will enter a new phase of high-quality development that requires increased investment and our profits will be affected as a result,” he added.
China's weak economy, continued weakness in the construction sector and high levels of youth unemployment, have led consumers to cut back on purchases, limiting the country's retail and e-commerce sectors and resulting in unfair competition for market share among e-commerce giants.
While Pinduoduo's low prices and deep discounts on everything from cleaning products to earphones have attracted cost-conscious consumers, major competitors such as Alibaba (NYSE: ) and JD (NASDAQ: ).com also gave heavy increases to their bases, piling competitive pressure on PDD.
“Looking ahead, revenue growth will definitely face pressure due to strong competition and external challenges,” said PDD Vice President of Finance Jun Liu.
UBS analyst Kenneth Fong said that while Pinduoduo is doing well, with good growth and profitability despite a highly competitive domestic e-commerce environment, management's tone is confusing investors.
“Investors are not sure if Pinduoduo is seeing what we are not seeing or if it is over-conservative in a big uncertain environment,” Fong added.
Science analyst Vinci Zhang agreed that PDD management's view sounded “very strong”.
“We know there is a decline in consumer spending, but there was hope that maybe PDD with a budget product platform with cheaper offerings could capture this decline, but it turns out they are also losing,” Zhang said.
Co-CEO Chen said consumers are increasingly choosing to spend on experiences rather than physical goods and there is an “increasing emphasis on meaningful consumption”.
Chinese e-commerce giant Alibaba missed market estimates for revenue earlier this month, weighed down by weak e-commerce sales, while JD.com's quarterly revenue grew just 1.2%.
Both US-listed company shares also fell on the PDD earnings miss.
PDD reported revenue of 97.06 billion yuan ($13.64 billion) in the second quarter, compared with analysts' average estimate of 100 billion, according to LSEG data.
Operating expenses rose 48% in the three months ended June 30, as the company invested in marketing, advertising and promotion to attract buyers.
General and administrative expenses more than tripled in the quarter to 1.84 billion yuan, due to labor-related costs.
($1 = 7.1173)
(This story has been corrected to correct the market loss number to $55 billion, not $40 billion, in the headline and paragraph 2)
