PDD Holdings ended trading Monday with a slight gain after the Temu parent company posted stronger-than-expected second-quarter results. Sales beat expectations while earnings declined far less than feared.
PDD earned an adjusted 22.07 yuan per American depositary share for the June-ended quarter. That is down 5% from a year earlier, but ahead of the 15.53 yuan per ADS analysts polled by FactSet were forecasting. Revenue, meanwhile, increased 7% to 103.98 billion yuan, or $14.5 billion, compared with analyst estimates of 102.7 billion yuan.
PDD Holdings operates the Pinduoduo e-commerce platform in China and Temu internationally, including the U.S. Its domestic business is facing challenges from a still-sluggish consumer spending environment in China. Temu, meanwhile, faces challenges from the elimination of the de minimis tariff exemption for small imports. The de minimis provision will end this week for all packages coming into the U.S., expanding the policies beyond parcels sent from China and Hong Kong.
PDD's growth is still slowing from the pace during Temu's breakout years in 2023 and early last year. PDD grew sales 10% in Q1 and 24%, 44% and 86% in the three quarters before that.
"Revenues growth further moderated this quarter amid intense competition," PDD VP of Finance Jun Liu said in a news release. "As we remain focused on long-term value creation, the sustained investments may continue to weigh on short-term profitability."
To manage increased competition in China, PDD has been lowering fees for merchants. That is among factors weighing on profitability, analysts said after the report.
"On top of merchant fee reduction, we think the lower margin was also dragged down by PDD's supply chain investments to improve access to remote regions of China," CFRA analyst Jian Xiong Lim wrote to clients Monday. "Looking ahead, management emphasized that long-term value creation will take precedence over short-term profits, with potential near-term profit volatility as PDD continues to invest in its business amid intensified competition."
On the stock market today, PDD stock closed roughly 1% higher at 128.21. Shares pulled back from a roughly 5% increase in earlier Monday trading.
PDD Stock Up 31% This Year
Coming into its earnings report, PDD stock had gained 31.7% this year, including a 12% rally in August. But shares of the Chinese e-commerce firm are down 9% vs. 12 months ago.
Meanwhile, PDD stock has an IBD Composite Rating of 89 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
Further, PDD's IBD Relative Strength Rating is 56 out of 99. The RS Rating means that PDD has outperformed 56% of all stocks in IBD's database over the past year.
