China-based e-commerce giant PDD Holdings exceeded expectations on Tuesday, reporting a 14% increase in third-quarter adjusted earnings. This indicates that the company’s aggressive marketing strategies and considerable discounts have successfully fueled demand within its domestic market.
PDD reported an adjusted earnings per share of 21.08 yuan (US$2.97), surpassing the average analyst forecast of 16.84 yuan. Despite these encouraging results, PDD’s US-listed shares, which operate the Pinduoduo platform in China and Temu internationally, experienced a 5% drop in early trading.
Prominent Chinese retailers like PDD, Alibaba, and JD have been enticing local consumers with significant price reductions and billions of dollars’ worth of subsidized promotions. This strategy is in response to a lengthened period of diminished consumer confidence, caused by employment concerns and a weak property market. While these tactics have resulted in elevated sales, they are not reaching PDD’s usual high double-digit growth rates of past years.
PDD stated that its revenue increased by 9% in the quarter, while JD reported consistent sales growth in the previous week, demonstrating a robust demand for general merchandise and staples.
PDD’s Co-CEO, Zhao Jiazhen, highlighted the competitive nature of the industry, noting, “We have witnessed many industry peers investing considerable capital into developing new business models, leading to increasingly fierce competition.” He further emphasized the company’s intention to continue investing in merchant support programs and platform upgrades, leading to expected financial fluctuations in future quarters.
Globally, cross-border platforms like Temu and Shein, known for selling inexpensive goods from China to the rest of the world, are facing increasing pressure. This comes after the US abolished duty-free exemptions on parcels worth less than US$800, and the EU announced plans to impose duties on low-cost packages beginning next year. Furthermore, Temu was recently flagged by a French consumer watchdog for selling illegal products.
Co-CEO Chen Lei voiced concerns over the evolving trade barriers, stating, “We are witnessing a significant shift in the regulatory environment for the global business. We will inevitably face greater challenges and uncertainties.”
For the quarter ending September 30, PDD reported revenue of 108.28 billion yuan, slightly lower than the 108.41 billion yuan average of 15 analyst estimates compiled by LSEG. Adjusted net income attributable to PDD’s shareholders was 31.38 billion yuan, an increase from 27.46 billion yuan a year earlier.
China’s biggest shopping event, the Singles’ Day sales festival, concluded on a quiet note this year. Many retailers started offering discounts in the first half of October, which made it the longest festival to date. Pinduoduo saw an 11.7% sales growth in this period, while JD and Alibaba reported increases of 8.3% and 9.3% respectively.
What has led to PDD’s increased earnings in the third quarter?
The rise in PDD’s earnings can be attributed to heavy marketing spending and steep discounts which bolstered demand in its home market.
What challenges are PDD and other cross-border platforms facing?
These platforms are facing regulatory pressure, with the US scrapping duty-free exemptions on low-value parcels and the EU planning to introduce duties on low-cost packages starting next year. There are also concerns over the sale of illicit products.
How did the major Chinese retailers perform during the Singles’ Day sales festival?
Despite being the longest festival to date, the event ended on a subdued note. Pinduoduo, JD, and Alibaba saw sales growth of 11.7%, 8.3%, and 9.3% respectively.
