Temu parent PDD's stock suffering a record plunge after revenue misses forecasts

By Tomi Kilgore

China-based company said profit will likely be hurt by plans to invest in the business, as competition intensifies

The U.S.-listed shares of Temu parent PDD Holdings Inc. were having their worst day ever, after the China-based e-commerce company reported second-quarter revenue that fell well short of expectations amid intensifying competition.

And while quarterly profit more than doubled to beat expectations, the company said it would be willing to make "short-term sacrifices," such as a potential decline in profitability, as it invests in its business.

"[W]e are seeing many new challenges ahead in changing consumer demand, intensifying competition and uncertainties in global environment," Co-Chief Executive Chen Lei on the post-earnings call with analysts, according to an AlphaSense transcript. "As a result, we will enter a new phase of high-quality development that calls for increased investments and our profitability will be affected as a result."

The American depositary shares (ADS) (PDD) plunged 30.1% in morning trading toward a 10-month low.

The stock was headed for its biggest one-day drop since it went public in the U.S. as Pinduoduo in July 2018. The current closing record for a one-day drop is 24.6% on Oct. 24, 2022.

"In the past quarter, our revenue growth rate slowed quarter-on-quarter," said Jun Liu, vice president of finance.

"Profitability will also likely to be impacted as we continue to invest resolutely," Liu added.

Net income for the quarter to June 30 climbed to RMB32.01 billion ($4.4 billion), or RMB21.61 per ADS, from RMB13.11 billion, or RMB9.00 per ADS, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per ADS of RMB23.24 beat the FactSet consensus of RMB20.43.

Revenue jumped 85.7% to RMB97.06 billion ($13.36 billion) but missed the FactSet consensus of RMB100.17 billion.

PDD's stock has now shed 33.2% year to date, while the iShares MSCI China ETF (MCHI) has gained 2.2% and the S&P 500 index has rallied 17.8%.

-Tomi Kilgore

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08-26-24 1048ET

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