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Chinese e-commerce company PDD Holdings reported a decline in second-quarter profit and revenue that fell short of market expectations in its earnings release on August 24, 2021. The company, which operates Pinduoduo in China and Temu globally, disclosed that revenue grew by 8% to 112.36 billion yuan (S$21.2 billion) in the three months ending June 30, falling below analysts' average estimate of 116.35 billion yuan.

Net income attributable to ordinary shareholders decreased by 12% to 27.2 billion yuan year-on-year; however, adjusted earnings per American Depositary Share stood at 19.33 yuan, exceeding market forecasts. PDD's shares rose by 2.3% in early trading on the New York Stock Exchange. The company competes with Alibaba's Taobao and Tmall, JD.com, and ByteDance's Douyin, primarily through competitive pricing and incentives to attract both consumers and merchants.

However, weak consumer confidence, job security concerns, and a prolonged property market slump in China have kept shoppers cautious, leading to a price war across the Chinese e-commerce sector and putting pressure on margins. During a post-earnings call, PDD executives acknowledged that competition in the Chinese e-commerce market remains "intense," leading to further investments in platform governance.

Despite weeks of promotions and discounts, consumer spending remained subdued even during the annual "618" shopping festival, one of China's biggest online sales events. PDD has increased spending on logistics and merchant support programs to reduce fulfillment costs and enhance value for consumers, raising concerns among investors that profitability could face further challenges.

Meanwhile, Temu, PDD's international platform, is encountering increasing scrutiny in several key overseas markets. The company's international growth has been driven by shipping low-cost goods directly from Chinese suppliers to overseas consumers. However, US tariffs on Chinese imports and the end of duty-free treatment for low-value parcels have resulted in higher shipping and compliance costs.

These additional expenses have compelled some merchants to raise prices, which could dampen demand among price-sensitive shoppers in the US and Europe. Additionally, low-value e-commerce goods have faced scrutiny due to reduced shipments as changes in trade rules and tariffs disrupt cross-border sales. In Europe, policymakers have intensified efforts to curb the influx of inexpensive goods from China through platforms such as Temu, Shein, and Alibaba's AliExpress.

The EU's new fee imposed in July on small parcels imported directly from China is expected to raise costs for sellers and consumers alike, according to industry analysts. PDD's co-chief executive Chen Lei stated, "We find ourselves at a unique intersection of global trade constantly navigating diverse international regulatory frameworks."

For Temu, the added costs threaten to erode its price advantage, potentially making it harder for the company to sustain its rapid international expansion, which has attracted investor attention.