Temu-Owner PDD Soars After Strong Sales Defy Chinese Gloom

PDD Holdings Inc. income rose a stronger-than-expected 66 p.c after the corporate behind hit procuring app Temu spent to spice up progress at residence and overseas to counter a bumpy post-pandemic restoration.

Its US-traded shares climbed 17 p.c in New York Tuesday morning after the e-commerce platform reported income of 52.3 billion yuan ($7.2 billion) within the June quarter, beating the common analyst’s estimate of 43.3 billion yuan. Web revenue elevated a faster-than-projected 47 p.c.

PDD’s progress surpassed its Chinese language friends and underscored how the corporate that after trailed far behind Alibaba Group Holding Ltd. and JD.com Inc. has, lately, used promotions and inroads into lower-tier cities to seize market share from extra established rivals. It created Temu, featured with a lot fanfare throughout this yr’s Tremendous Bowl, to attempt to replicate that success overseas. Executives declined on Tuesday to get into specifics about Temu’s progress or financials, besides to say the main target now was to fine-tune its technique.

At residence, Chinese language client sentiment was bettering, executives stated, in defiance of warning indicators of economic stress and a broad downturn internationally’s No. 2 economic system.

“Our enterprise is intently tied to the general consumption market, and we observed continued enchancment within the macro developments and likewise customers’ growing willingness to buy,” co-chief govt officer Zhao Jiazhen stated.

Combined monetary outcomes from the nation’s on-line commerce and media leaders have solid doubt over a restoration for the world’s largest web area. This month, Alibaba and JD.com each reported faster-than-anticipated progress for the second quarter, whereas social media big Tencent Holdings Ltd. recorded gross sales and web revenue that missed analysts’ estimates.

In PDD’s case, more and more fierce competitors in China and aggressive strides abroad might strain profitability.

PDD Soars as Outcomes Present Energy and Resilience: Road Wrap

JD.com rolled out a $1.4 billion low cost spree in March to seize new customers, igniting a worth warfare. Alibaba additionally launched a “value-for-money battle” to lure patrons and retailers. Traders fear that PDD’s aggressive spending — now a sector-wide phenomenon — will additional harm bottom-line progress.

As the value warfare heats up and Chinese language consumption weakens, buyers might discover it more and more arduous to justify PDD’s valuation. The inventory is buying and selling at greater than 19 instances ahead earnings, in contrast with practically 11 instances for Alibaba and over 12 for JD.com, in response to knowledge compiled by Bloomberg.

Amid intensifying rivalry at residence, PDD is popping outward for progress, following the playbook employed by ByteDance Ltd.’s TikTok and fast-fashion phenom Shein. In September, PDD debuted its Temu bargains platform within the US, then shortly rolled it out to different locations like Canada and Europe.

The outcomes have been “extra resilient than anticipated contemplating the softening macro atmosphere in China,” Citigroup analysts wrote after the report.

Morgan Stanley says PDD is “the one e-commerce play that may ship alpha” in China, as the corporate outgrows friends as a result of the month-to-month use of its app is growing whereas Temu expands to extra international locations. Temu was ranked the highest procuring app by downloads within the US, Australia and Germany over the previous three months, in response to market analysis agency Sensor Tower.

However to this point, the fledgling platform has been a drag on margins. PDD acknowledged in its annual report final yr that Temu requires “substantial” assets to develop. Whereas site visitors on the app has risen, it most likely accounted for lower than 1 p.c of PDD’s gross sales within the second quarter, Bloomberg Intelligence analysts estimated.

What Bloomberg Intelligence Says

PDD’s non-GAAP working margin within the second quarter probably narrowed from 34 p.c a yr in the past as value will increase exceeded income progress. Advertising and marketing bills surged 45 p.c in 1Q amid growing competitors in China’s e-commerce market, and the rise most likely continued in 2Q, countering revenue beneficial properties from economies of scale gained with the growth in operations. PDD may also have incurred larger personnel prices in 2Q to help the enlarged home and abroad operations, which might have cramped profitability.

PDD probably raised funding in Temu, its abroad e-commerce platform, because it enters new markets in Europe and Asia, together with Germany, France, Japan and South Korea. But Temu most likely contributed lower than 1 p.c of the gross sales in 2Q, we estimate.

Temu is now locked in a lawsuit with Shein, alleging the rival violated antitrust legal guidelines through the use of threats and intimidation to dam clothes producers from working with the fast-rising upstart.  Shein has additionally sued Temu within the US, alleging trademark and copyright infringement in addition to “false and misleading enterprise practices.”

PDD has additionally drawn scrutiny over potential knowledge safety dangers, after Google’s Android app retailer suspended downloads of its Chinese language procuring app Pinduoduo whereas it investigates alleged malware in unsanctioned variations. Google didn’t point out Temu, which stays out there to obtain.

By Jane Zhang

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