PDD Shares Tumble 17% After Sales, Profit Underwhelm

(Bloomberg) -- PDD Holdings Inc.’s shares fell as much as 17% in premarket trading in the US after its quarterly sales and net profit missed estimates as trade tensions between Beijing and Washington took a toll on its business.

The company reported revenue of 95.7 billion yuan ($13.3 billion), falling shy of the average analyst estimate of 101.6 billion yuan, for the quarter ended March. Net income in the three-month period totaled 14.7 billion yuan, while analysts on average looked for 25.7 billion yuan.

PDD Chairman Chen Lei attributed the disappointing results to economic uncertainties and the company’s investment in supporting merchants and consumers.

“These investments weighed on short-term profitability,” Chen said in the earnings statement.

A slowdown in growth rate is expected as PDD faces challenges from its efforts to expand its business, and the trend has seen an acceleration due to “changes in the external environment,” Vice President of Finance Liu Jun said in the same statement. She added the company’s financial results may continue to feel the impact from ongoing investments in its ecosystem.

The company has been warning investors since last year that the company’s growth would slow down overtime, but the drop was sharper than anticipated.

Temu operator PDD is grappling with heightened competition domestically and a constantly changing trade environment in the US. While the company has enjoyed significant success with its international foray, growth and its long-term future in the US have been undermined by recent steps by the Trump administration targeting Chinese e-commerce operators.

Washington’s move to close the de minimis exception for tariff-free parcels sent to the US pushed Temu to start shipping products in bulk to local warehouses. The Chinese online shopping outlet said it would switch to having US orders fulfilled only by local merchants.

Temu has worked to expand in other markets to reduce dependence on the US, but it’s also facing potential regulatory challenges elsewhere. Japan, a major Asian market, is mulling a review of the tax exemptions for small parcels on concerns of fair competition. Meanwhile, the EU is also considering charging a flat fee for those packages, mainly from China.

PDD’s earnings comes after its peer JD.com Inc. saw the fastest revenue growth in three years thanks to government stimulus measures to boost purchases. Alibaba Group Holding Ltd. also reported better-than-expected growth in domestic retail, although overall results disappointed.

Beijing has intensified its national trade-in and purchase subsidies that were first launched last year to encourage domestic consumption of products from smartphones to cars. The policy has proven popular among consumers, and the recent progress in talks between Beijing and Washington should also have eased some pressure on China’s economy.

What Bloomberg Intelligence Says

Steeper subsidies to help Temu’s merchants mitigate cost hikes from higher tariffs and supply chain disruptions probably hurt PDD’s earnings after the US-China trade war erupted.

- Catherine Lim and Trini Tan, analysts

Click here for the research.

(Updates throughout with share movement, net income and management comments.)

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