Temu-owner PDD revenue misses estimates, profit falls on ‘intense’ China competition

Chinese e-commerce giant PDD Holdings reported a decline in second-quarter profit and revenue that fell short of market estimates on Monday (Aug 24). Despite a 8% rise in revenue to 112.36 billion yuan (US$15.7 billion) in the quarter ending Jun 30, net income attributable to ordinary shareholders decreased by 12% to 27.2 billion yuan compared to the previous year.

Adjusted earnings per American Depositary Share, however, exceeded expectations at 19.33 yuan. PDD shares experienced a 1.5% drop in US trading on the same day. The company faces intense competition in China from rivals such as Alibaba's Taobao and Tmall, JD.com, and ByteDance-owned Douyin, largely driven by discounts, subsidies, and incentives to attract consumers and merchants.

Weak consumer confidence, job security concerns, and a prolonged property downturn have contributed to cautious consumer spending, leading to a price war across China's e-commerce sector and putting pressure on margins. PDD executives stated that competition in the Chinese market remains intense, necessitating continued investments in platform governance.

Although consumer spending remained subdued even during the "618" shopping festival, one of China's largest online sales events, PDD has increased spending on logistics and merchant support programs to lower fulfillment costs and enhance value for consumers, raising concerns about potential profitability challenges. Temu, PDD's international platform, has encountered increasing regulatory scrutiny in its major overseas markets due to US tariffs on Chinese imports and the termination of duty-free treatment for low-value parcels.

The higher shipping and compliance costs have prompted some merchants to raise prices, potentially dampening demand among price-sensitive shoppers in the US and Europe. Additionally, low-value e-commerce goods have faced scrutiny, with shipments declining in recent months as trade rules and tariffs changes disrupt cross-border sales.

PDD's co-CEO Chen Lei acknowledged the company's position at the intersection of global trade, navigating diverse international regulatory frameworks. European policymakers have intensified efforts to curb the influx of inexpensive goods from China through platforms like Temu, Shein, and AliExpress, with the EU's new fee on small parcels imported directly from China set to increase costs for sellers and consumers.

Chen Lei cautioned that in the short term, these added costs could impact fulfilment efficiency and increase expenses for Temu, potentially affecting its price advantage and slowing international growth, which has attracted investor enthusiasm for PDD.