PDD Holdings stock tumbled Thursday, after the Temu parent company reported a double miss against expectations for its third quarter sales and earnings. The results add to a turbulent year for PDD, a reversal after the firm rode the rapid rise of its global discount e-commerce site Temu to big gains last year.
PDD said in a news release that it earned an adjusted 18.59 yuan per American depositary share (ADS) on sales of 99.35 billion yuan, or $13.7 billion, for the September-ended quarter. Both numbers came up short compared to the 19.58 yuan per ADS in earnings and 102.87 billion yuan in sales analysts were forecasting, according to FactSet.
Revenue grew 44% in the quarter, compared to sales growth of 86% and 131%, respectively, in the first and second quarters this year. The September quarter marks PDD's slowest overall sales growth since the second quarter of 2022. PDD launched Temu three months later, which helped accelerate sales.
Now, PDD is coming up against harder comparisons to previous years. But it's also facing what it acknowledged is tougher competition for sales.
"Our topline growth further moderated quarter-on-quarter amid intensified competition and ongoing external challenges," PDD Vice President of Finance Jun Liu said in a news release. "In our pursuit of high-quality development, we will continue to invest resolutely in building a healthy and sustainable ecosystem, which will be reflected in our results."
On the stock market today, U.S.-listed PDD stock fell more than 10% to 104.20 in recent action.
PDD Stock Slumping In 2024
PDD stock surged 80% last year. This year has been a different story. Even before slumping with Thursday's Q3 report, PDD stock was trading 20% lower year to date.
New hurdles keep popping up as PDD tries to build on Temu's meteoric rise as a challenger to Amazon and other global e-commerce players. Amazon, for one, has responded to Temu by launching its own ultra-discount business, called Amazon Haul. The operation is following Temu's model of facilitating direct sales from Chinese merchants to consumers in the U.S. and elsewhere.
Meanwhile, the Biden administration in September said it would restrict the use of a trade exemption that has allowed parcels from Temu to arrive on U.S. doorsteps duty-free. It's not yet certain what position President-elect Donald Trump will take on the issue in his upcoming second term. But he has promised tariffs on imported goods.
In China, e-commerce giants Alibaba and JD.com are ramping up discounts and promotions to try to prevent further loss of market share to PDD's Pinduoduo. Alibaba on Thursday revealed a plan to restructure its e-commerce operations, with its domestic and international retail divisions placed into a single group.
Each of the Chinese e-commerce giants is operating in an environment where consumer spending in China remains shaky and investors are debating whether government stimulus efforts can reignite economic growth.
PDD stock plunged following its second quarter earnings report in August. The company's results missed sales estimates, while its leadership warned that growth and profitability will face pressure from "intensified competition and external challenges."
PDD Composite Rating
Coming into the report, PDD stock had an IBD Composite Rating of 77 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks typically have a Composite Rating of 90 or better.
On the positive side, PDD's earnings have steadily outperformed. The stock has a best possible 99 EPS rating, as tracked by IBD. However, PDD stock has a meager Relative Strength rating of 18 out of 99. The RS Rating means that PDD has outperformed just 18% of all stocks in IBD's database over the past year, based on price performance.
