Missed second quarters expectations and soft growth guidance has sparked the biggest ever one-day sell-off in PDD Holdings (PDD:NASDAQ), the parent of online shopping platforms Temu and Pinduoduo.
ADR (American Depositary Receipts) in the company fell as much as 40% in intraday trading, eventually closing 28.5% lower at $100 on 26 August, a decline that wiped more than $55 billion off PDD’s market cap.
PDD reported second-quarter revenue of 97.06 billion yuan, or $13.6 billion, rising 86% from the same period the year before. But this fell short of Wall Street expectations for quarterly revenue of 99.4 billion yuan (about $14 billion) from analysts polled by Investing.com.
‘The market has been caught out by weaker than expected results from PDD and gloomy comments from management’, said AJ Bell investment director Russ Mould. ‘It looks like consumers are being even more cautious about spending and perhaps realising they don’t need to fill their house with oodles of cheap products.’
Lei Chen, chairman and co-CEO of PDD, wrote in the earnings release that ‘while encouraged by the solid progress we made in the past few quarters, we see many challenges ahead’.
Chen added the company is ‘prepared to accept short-term sacrifices and potential decline in profitability’ as it invests heavily in areas like trust and safety, as well as improving its merchant ecosystem.
PDD is not the only online marketplace in China to have reported missed expectations as the country experiences an economic downturn with high unemployment rates and falling household income. Alibaba (BABA:NYSE), a similar online marketplace selling ultra-discounted goods, reported net income down 28.8% in June and JD.Com (9618:HKG), listed in Hong Kong, missed its revenue projection in the same month.
‘The group’s stellar run has come to a crashing halt,’ said AJ Bell investment director Russ Mould. ‘There is a perfect storm of uncertain economic conditions, cautious consumers and competitive pressures. It suggests that even bargain basement operators can struggle if consumers are thinking hard about where they spend money.’
Reports emerged in July that young consumers in China are saving more than generations past and that the idea of setting ultra-low spending targets has even become a viral social media trend called ‘revenge saving’, sparked by the country’s weakening economy.
The sharp fall in PDD’s share price will prompt the market to reappraise the business and its prospects even as it continues to post rapid growth. ‘The latest results are a reminder that even the most successful companies cannot maintain very high levels of growth forever,’ said Mould.
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