Recently, the stock price of the popular Chinese e-commerce giant Pinduoduo (PDD) has plunged, which could result in global hedge funds that heavily bet on the company losing billions of dollars, according to Reuters.
Pinduoduo operates a platform in China focused on discounted goods and also operates the Temu platform in international markets.
On Monday, Pinduoduo released its second-quarter financial report as of June 30, showing a revenue of 97.06 billion yuan, an 86% year-on-year increase; adjusted operating profit of 34.99 billion yuan, a 139% year-on-year increase; and adjusted net profit attributable to common shareholders of 34.43 billion yuan, a 125% year-on-year increase.
The second-quarter revenue of Pinduoduo fell below market expectations of 99.985 billion yuan. In contrast, in the first quarter, Pinduoduo’s revenue reached 86.8 billion yuan, exceeding market expectations by nearly 10 billion yuan. The market reacted strongly to Pinduoduo’s revenue falling short of expectations after the release of the second-quarter financial report.
Pinduoduo’s U.S. stock plummeted more than 28% in pre-market trading, marking the largest single-day stock price drop since the company went public in the United States in 2018, leading to a market value reduction of nearly 55 billion dollars.
The U.S.-listed Pinduoduo stock has experienced a 33% sharp drop this week and a 30% decline in the third quarter.
According to WhaleWisdom, as of the end of June, global hedge funds held 102.8 million shares of Pinduoduo, up from 91.7 million shares in the previous quarter.
It remains unclear whether hedge funds have increased or decreased their investments since then. However, Reuters calculations show that from the end of June to August 29, the value of these positions decreased by about 4 billion dollars as Pinduoduo’s stock price dropped by 30%.
WhaleWisdom’s data as of June 30 indicates that some of Asia’s largest hedge funds, including HHLR Advisors under billionaire Zhang Lei’s Hillhouse Group, Tairen Capital, and Greenwoods Asset Management, are major market value investors in Pinduoduo.
Among the global hedge fund giants, David Tepper’s Appaloosa Management held 1.94 million shares of Pinduoduo stock worth over 250 million dollars at the end of the second quarter.
During Monday’s financial results conference call, Pinduoduo stated that revenue growth would face pressure due to intensifying competition and external challenges, with no plans for dividends or stock buybacks.
Pinduoduo has long been a top choice for many funds investing in China, as one of the few companies in China that has continued to grow and expand globally amid economic difficulties.
However, the unexpectedly pessimistic business guidance shared during the call, coupled with the stock price decline, has further dampened sentiment towards China’s already struggling stock market, dragging down tech and consumer stocks.
Andy Maynard, Global Equities Managing Director at China Renaissance Securities, recalled, “Pinduoduo has been a popular long position for many diverse clients.”
He noted, “In terms of business guidance, (Pinduoduo’s) outlook is indeed poor. Overall, this will likely keep some investors persistently negative, potentially leading them to further shrink their portfolios to focus on companies they trust, with transparency, and visibility of future growth.”
Pinduoduo’s Chairman Chen Lei remarked during the financial results conference call post-release, “We anticipate facing many new challenges in the future, including changes in consumer demand, escalating competition, and global uncertainties.”
According to a report from France 24 on August 27, factors such as China’s fragile economy, continuously sluggish real estate industry, and high youth unemployment rate have led to reduced consumer spending, dragging down the retail and e-commerce sectors and triggering fierce competition for market share among e-commerce giants. Despite Pinduoduo’s attraction to cost-conscious shoppers with low prices and substantial discounts on everything from cleaning supplies to headphones, major competitors Alibaba and JD have also launched numerous promotional activities on their platforms, putting pressure on Pinduoduo.
(This article refers to reports by Reuters)