PDD Holdings, the Chinese conglomerate that owns popular e-commerce platforms Temu and Pinduoduo, has reported lackluster financial results for the quarter ending September 2024, sending its US-listed shares plunging nearly 11% on Thursday. The disappointing performance highlights growing challenges for PDD as it grapples with a slowing Chinese economy, intensifying competition, and rising regulatory scrutiny abroad.
Stagnant Growth in China
PDD’s revenue for the quarter reached 99.35 billion yuan ($13.7 billion), falling short of analysts’ expectations of 102.8 billion yuan. This marks the second consecutive quarter where the company has missed revenue estimates, signaling a departure from its previous years of rapid growth.
The slowdown is largely attributed to economic turbulence in China, including a property sector crisis and persistently high youth unemployment rates, both of which have dampened consumer confidence. Despite Pinduoduo’s popularity as a hub for discounted goods, the platform is facing stiffer competition as rivals like Alibaba and JD.com adopt similar low-cost strategies, sparking a price war in the e-commerce space.
Jun Liu, PDD’s Vice President of Finance, acknowledged the hurdles in a statement:
“Our topline growth further moderated quarter-on-quarter amid intensified competition and ongoing external challenges.”
James Yang, a retail expert with Bain & Company, echoed these concerns, saying,
“China’s retail sector is grappling with headwinds from the broader economic slowdown, with consumer confidence yet to fully recover. Looking ahead, e-commerce growth is expected to continue… albeit at a slower pace.”
Global Challenges for Temu
While PDD has leaned on its global e-commerce platform Temu for diversification, it too is facing significant challenges. Once seen as a thriving player abroad, Temu is encountering rising regulatory hurdles and geopolitical risks in key markets.
Vietnam recently announced that Temu, alongside fast-fashion giant Shein, must register with the government by the end of the month or face a ban. Similarly, Indonesia ordered Google and Apple to remove Temu from their app stores in October, citing the need to protect domestic retailers.
The European Union is also investigating allegations that Temu facilitated the sale of illegal products. If proven, this could result in steep fines and damage the platform’s reputation in a region that has been central to its international growth strategy.
Tariff Threats in the United States
Compounding Temu’s overseas woes are potential tariff increases in the United States. President-elect Donald Trump has pledged to raise tariffs on Chinese goods, which would erode Temu’s key competitive advantage—offering products at unbeatable prices. Such a move could significantly impact its pricing model, making its goods less attractive to cost-conscious American consumers.
Broader Industry Challenges
PDD’s disappointing performance is not isolated, as competitors Alibaba and JD.com also posted weaker-than-expected results for the same quarter. The struggles of these giants underscore the broader challenges facing China’s e-commerce sector as it grapples with slowing growth and evolving consumer behavior.
Additionally, PDD faces ongoing scrutiny over its reliance on ultra-low pricing. Alicia Yap, an equity research analyst at Citi, noted,
“There’s uncertainty on potential tariff change and increasing pushback from more countries related to its ‘cheap’ prices.”
Future Outlook
As PDD looks ahead, its ability to navigate domestic and international pressures will be critical. Analysts suggest that while the global e-commerce market still holds potential, companies like PDD must adapt to stricter regulations, evolving geopolitical dynamics, and a maturing consumer base both at home and abroad.
For now, the once-high-flying e-commerce giant finds itself in a precarious position, with investors and analysts alike questioning how it will regain momentum in an increasingly challenging environment.
