PDD Holdings (PDD) tanked in pre-market trading after the Chinese online retailer’s Q2 revenues left investors disappointed. The company’s Q2 revenues surged by 86% year-over-year to RMB97.06 billion ($13.35 billion) but fell short of consensus estimates of $14.04 billion.
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This shortfall in revenues was compounded by the company’s increase in operating expenses, which ballooned by 48% year-over-year to RMB30.79 billion ($4.23 billion). The rise in operating expenses was driven by increased investments in marketing, advertising, and promotions to attract shoppers.
However, PDD’s adjusted diluted earnings per American Depositary Share (ADS) was RMB23.24 ($3.20), compared with RMB10.47 per ADS in the same period last year. This was above analysts’ expectations of earnings of $2.86 per ADS.
Reasons PDD Fell Short on Revenue Expectations
There were a number of factors behind PDD’s lower-than-expected revenues. China’s fragile economy, coupled with ongoing struggles in the property sector, and high unemployment rates have led consumers to reduce spending. This has negatively impacted the country’s retail and e-commerce companies.
While Pinduoduo’s low prices and steep discounts on everything from groceries to electronics have drawn budget-conscious shoppers, the company is increasingly feeling the heat as major competitors launch their own shopping deals.
Jun Liu, VP of finance at PDD, acknowledged the challenges ahead, noting that “revenue growth will inevitably face pressure due to intensified competition and external challenges.”
PDD’s Management Highlights Investment in Trust and Merchants
This sentiment was echoed by the company’s Chairman and Co-CEO, Lei Chen who expressed satisfaction with PDD’s recent progress but emphasized the need for significant investments in the platform’s trust and safety. Furthermore, Chen highlighted the company’s commitment to supporting high-quality merchants and consistently improving the merchant ecosystem, even if it means facing short-term sacrifices and potential declines in profitability.
PDD’s Rivals Face Similar Challenges
PDD’s competitors are also struggling with the slowdown in the Chinese economy. One of PDD’s key competitors, Chinese e-commerce giant Alibaba (BABA) also missed market expectations for revenue, struggling with weakness in domestic e-commerce sales. Meanwhile, JD.com (JD) reported just a 1.2% increase in quarterly revenue.
Is PDD Holdings a Good Stock to Buy?
Analysts remain bullish about PDD stock, with a Strong Buy consensus rating based on six unanimous Buys. Over the past year, PDD has surged by more than 70%, and the average PDD price target of $204.17 implies an upside potential of 46% from current levels. These analyst ratings are likely to change following PDD’s results today.
