Temu operator PDD tumbles as trade war hits sales, profit
Revenue for the March quarter was 95.7 billion yuan ($13.3 billion), falling short of the average analyst estimate of 101.6 billion yuan. Net income totaled 14.7 billion yuan, while analysts had expected 25.7 billion yuan. PDD's US depositary receipts tumbled 19% in premarket trading in New York on Tuesday.
PDD offered faint hope for improvement in the near term. It's facing intensifying competition in the domestic China market and shifting trade policies that have hurt Temu, the discount e-commerce platform that had propelled revenue growth abroad in quarters past. PDD Chairman Chen Lei warned the company will have to make pricey investments to adjust its business model.
'This effort will likely weigh on our profitability in the short term and even for considerable period of time to come,' he said in a conference call after results.
Chen said the company has to invest and charge lower fees for its merchants to help the e-commerce ecosystem. It's also trying to fill more Temu orders by sourcing merchandise locally to insulate operations against trade policies.
The US eliminated what's known as the de minimis exemption that allowed PDD merchants to ship orders of less than $800 into the US duty free. That loophole had helped Temu ship T-shirts, dresses and other clothes to American consumers at bargain-basement costs.
'Amid the rapidly changing external environment, our global business is working with merchants across regions to bring stable prices and abundant supply to consumers around the world,' Chen said. 'No matter how policies shift, we'll continue to strengthen our operations in the markets we serve, helping more local merchants grow on our platform and enabling more orders to be fulfilled from local warehouses.'
PDD's sales growth rate slowed to 10% in the current quarter, down from 24% the quarter before and 131% the quarter before.
Temu has worked to expand in other markets to reduce dependence on the US, but it's also facing potential regulatory challenges elsewhere. Japan, a major Asian market, is mulling a review of the tax exemptions for small parcels on concerns of fair competition. Meanwhile, the EU is also considering charging a flat fee for those packages, mainly from China.
PDD's results come after its peer JD.com Inc. saw the fastest revenue growth in three years thanks to government stimulus measures to boost purchases. Alibaba Group Holding Ltd. also reported better-than-expected growth in domestic retail, although overall results disappointed.
Beijing has intensified its national trade-in and purchase subsidies that were first launched last year to encourage domestic consumption of products from smartphones to cars. The policy has proved popular among consumers, and the recent progress in talks between Beijing and Washington should also have eased some pressure on China's economy. –BLOOMBERG
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