Temu Owner PDD’s Sales Slow Sharply After China Market Sputters

(Bloomberg) — PDD Holdings Inc. reported sales that missed estimates, lending weight to fears that China’s slowdown is hurting its biggest tech companies more than anticipated.

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The Chinese-owned e-commerce platform reported revenue of 99.4 billion yuan ($13.7 billion) in the September quarter, versus the average analyst estimate of 102.8 billion yuan. Net income was 25 billion yuan, compared to a projected 26.6 billion yuan. PDD’s shares slid as much as 16% in pre-market US trading.

The disappointing results highlight how PDD, despite a thriving overseas business anchored by hot shopping app Temu, is grappling with an anemic Chinese consumer economy. A quarter ago, PDD issued a surprisingly strong warning about a slowdown in the world’s No. 2 economy and talked up challenges including uncertainties in the global environment.

That’s offsetting some of PDD’s gains from abroad. It’s been spending big on Temu to drive its global presence, helping push growth well above that of rivals Alibaba Group Holding Ltd. and JD.com Inc. Temu became one of the most downloaded US apps after a splashy 2022 debut, and has begun challenging even Amazon.com Inc. in certain segments.

Temu is also encountering growing regulatory scrutiny following its meteoric rise overseas.

The European Union has opened an investigation into the e-commerce platform, looking into whether the company is doing enough to combat sales of illegal products. The EU said it suspects the company is violating its new Digital Services Act, a law aimed at stamping out illegal content and disinformation online. It’s also unclear how a Trump administration will wield tariffs as a political tool, potentially disrupting the cross-border trade on which Temu depends.

“There’s uncertainty on potential tariff change and increasing pushback from more countries related to its ‘cheap’ prices,” Citigroup analyst Alicia Yap wrote ahead of the results. “While still growing robustly, Temu is also facing multiple headwinds.”

At home, the company in past years has combined low prices with aggressive rural expansion and game-like elements on its platform to grab market share from Alibaba and JD. Those two rivals have recently begun to team up on logistics and payments.

What Bloomberg Intelligence Says

PDD may maintain its warning, last articulated in August, that intense rivalry in China and overseas will shrink revenue gains and hurt margins ahead, even if both metrics exceed consensus estimates in 3Q. Lengthier Black Friday shopping campaigns that rivals such as Alibaba, Amazon and TikTok Shop are currently running outside of China — similar to the extended Singles’ Day sale on the mainland recently — raises the risk that PDD will need to cede some profit gains to raise revenue by more than 30%.

– Catherine Lim and Trini Tan, analysts

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It’s also grappling with a consumer and merchant backlash. Sellers are pushing back against PDD’s low-pricing strategy, as well as policies that allow shoppers to get refunds without returning goods. Over the summer, hundreds of merchants staged a rally outside its offices in southern China, protesting what they called unfair penalties on their businesses.

Nongfu Spring’s founder Zhong Shanshan, China’s richest man, this week publicly called out PDD’s pricing system. PDD’s shares have tumbled since peaking in August, when founder Colin Huang briefly surpassed Zhong to become China’s richest person.