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PDD Holdings, the owner of ecommerce apps Pinduoduo and Temu, has warned of an “inevitable” decline in profitability, leading shares to fall 29 per cent in New York.
The warning comes as PDD’s ecommerce apps face rising competition in China and around the world, and as the tech sector has to tread a careful line in Beijing, where authorities are prioritising high-end manufacturing.
In an hour-long call with investors and Wall Street analysts on Monday in New York, PDD’s executives said they were “committed to high-quality development”, parroting Beijing’s current policy priority.
The company’s management said it would spend Rmb10bn ($1.4bn) in the first year of a new programme to lower fees for “high-quality merchants” and “focus on creating a healthy and sustainable platform ecosystem”.
The share price plunge wiped $55bn off PDD Holdings’ market value. The sell-off stemmed from PDD’s top line growth missing expectations and a series of bleak forecasts issued by executives during an earnings call with analysts.
Co-chief executive Zhao Jiazhen said while profits might fluctuate in the near term, “in the long run the decline in our profitability is inevitable”.
Co-chief executive Chen Lei added that it was “not an appropriate time” to pay dividends or buy back shares and that “in the foreseeable years ahead, we also do not see such a need”.
PDD reported Rmb32bn in quarterly net profit, up 144 per cent year on year, and a cash balance of Rmb285bn. Most of its Chinese tech peers have begun using their ample cash to reward shareholders with capital return programmes.
The ecommerce giant also warned of rising competition. At home, it faces a renewed push by reigning giant Alibaba to win back market share. Abroad, Amazon has launched a new discount programme.
The company’s revenue of Rmb97bn missed analyst expectations, though it was up 86 per cent over the past year.
PDD Holdings faced a major public relations crisis in July when hundreds of Temu merchants descended on its Guangzhou offices to protest heavy fines and penalties levied by the company as punishment for customer returns, resulting in a swarm of police descending on the area.
The blunt messaging by PDD executives on Monday produced headlines more favourable to its standing in Beijing.
PDD is “investing billions to support new quality merchants, continuously helping merchants improve quality and efficiency”, read one headline from China’s official news agency Xinhua.
The company’s tumbling share price came with one silver lining for founder Colin Huang, who in recent weeks had topped China’s rich list, a spot that comes with unwanted attention in Xi Jinping’s “common prosperity” era.
In 2020, Huang gave away billions of dollars’ worth of PDD shares to charity and to other PDD executives as his name climbed to the forefront of the country’s wealthy ranks. People familiar with his thinking at the time said the move was in part driven by his desire to maintain a lower profile.
By the end of day on Monday, Huang had fallen to become the fourth richest Chinese person, according to a Bloomberg list.
Additional reporting by Tina Hu in Beijing
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