China’s e-commerce shopping platform Pinduoduo (PDD Holdings) released its second-quarter financial report as of June 30 on Monday (August 26), showing revenue lower than market expectations. Combined with pessimistic comments from the company’s executives on domestic e-commerce competition in China and the global outlook of the company, its stock price plummeted by over 28%.
This marked the largest single-day drop in Pinduoduo’s stock price since its listing in the United States in 2018, with the market value evaporating nearly $55 billion overnight. The e-commerce operates in China on its platform primarily focused on discount promotions, and operates internationally under the name Temu.
The fragility of the Chinese economy, continued softness in the real estate industry, and high youth unemployment rates have led to decreased shopping by consumers, putting pressure on the retail and e-commerce industries and sparking intense competition among e-commerce giants.
While Pinduoduo attracts cost-conscious shoppers with low prices and hefty discounts, major competitors like Alibaba and JD.com are also heavily promoting on their platforms, putting pressure on Pinduoduo.
On the other hand, Beijing authorities are prioritizing the development of high-end manufacturing industries, and the tech sector also needs to tread carefully. Pinduoduo warned that the company’s profitability is “inevitably” going to decline.
According to Reuters, Vinci Zhang, an analyst at research firm M Science, agreed with Pinduoduo’s management’s “very bleak” outlook on the future.
“We know that consumer spending is slowing down, but people were hoping that perhaps Pinduoduo could withstand this slowdown by offering cheaper products on their platform, but they are also facing losses,” Zhang said.
Earlier this month, Alibaba, the Chinese e-commerce giant, missed market expectations in revenue due to weak domestic e-commerce sales in China, while JD.com saw only a 1.2% growth in quarterly revenue.
Due to Pinduoduo’s underperforming financial report, Alibaba and JD.com’s stocks listed in the US also experienced declines, with their stock prices falling by over 5% in early trading on Tuesday (August 27).
Bloomberg reported that Pinduoduo’s warnings about escalating competition and slowing revenue growth have made the future of Chinese consumer businesses appear increasingly bleak.
Vey-Sern Ling, Managing Director at Union Bancaire Privee, told Bloomberg, “Pinduoduo has said that they plan to waive certain merchant fees and increase investment in building a healthy ecosystem, which may mean intensified domestic competition. With e-commerce penetration rates saturated and consumer trends on the decline, all participants are vying for market share. Not only Pinduoduo, Alibaba, JD.com, but also companies like ByteDance, Kuaishou, Meituan, etc… The situation is not optimistic.”
Bloomberg industry research analyst Robert Lea analyzed, “Pinduoduo’s poor performance highlights the increasingly severe challenges facing the Chinese e-commerce industry, with competition and economic headwinds likely to have the biggest impact on Alibaba, Kuaishou, and ByteDance. It is well known that the Chinese e-commerce industry is underperforming, however, the situation seems to be deteriorating at a faster pace.”
Joshua Crabb, Asia-Pacific Equity Director at Robeco Hong Kong Ltd., stated, “The biggest issue is weak consumer spending in China. Din Tai Fung is also the latest victim under the weak overall environment, closing over a dozen stores (in China). Competition and weak consumer spending will definitely have a negative impact.”