(Bloomberg) – PDD Holdings soared 18% after the hit shopping app Temu reported a better-than-expected sales doubling as it ramped up discounts and marketing, luring consumers away from Shein and Amazon.com Inc.
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The Chinese-owned e-commerce platform reported a 47% increase in net profit from sales of 68.8 billion yuan ($9.6 billion) in the September quarter, beating average revenue estimates by about 25%. Stock prices have risen significantly since May.
The company’s growth rate far outpaced that of Chinese rivals such as Alibaba Group Holding Ltd., highlighting how the company is using promotions to lure bargain-hunting consumers during times of economic uncertainty. . PDD scored on TEM (which featured heavily in this year’s Super Bowl) and Citigroup’s Alicia Yap processed $4.2 billion in deals in the quarter, generating about 13% of PDD’s total revenue. It is estimated that
Until now, the company had kept Temu’s achievements secret. The company’s U.S.-listed shares have soared 90% since July, while Alibaba and JD.com Inc. have fallen. This outperformance reflects expectations that the company will continue to take market share in its home country and continue to win fans among U.S. consumers.
“Although our business outside China is still in its early stages, we have made meaningful progress since our launch a year ago,” Chief Executive Officer Chen Lei told analysts on a conference call. “While we have expanded our coverage, the business is still in its early stages and will face uncertainty.”
PDD soars with results showing Temu’s explosive growth: Street Rap
Temu is recognized as a potentially disruptive force in global e-commerce. The site follows the same cut-price strategy employed by arch-rival Shein and PDD’s own domestic app Pinduoduo, and has expanded its operations to dozens of countries.
“Management is confident that Temu has made meaningful progress in expanding its business, enabling thousands of manufacturers to reach international customers in more than 40 countries and territories,” said Ronald Kuhn, an analyst at Goldman Sachs Group. “I commented that I was supporting them,” he wrote in his research notes. “The company plans to further collaborate with manufacturers to directly connect them with overseas customers on the basis of a more flexible supply chain.”
The first time the company outperformed Shayne’s in sales on the platform was in May, when the company outperformed its rival by about 20%, according to Bloomberg Second Measure, which analyzes consumer card transactions. The company more than doubled its sales in the country in September, according to the data, and has widened its lead every month since.
Domestically, the company is making inroads against two market leaders: Alibaba and Jingdong. During the just-concluded Singles’ Day shopping festival, PDD likely saw a 20% increase in transaction value, compared to single-digit increases for its competitors, Goldman Sachs estimated.
Bloomberg intelligence statement
The company’s expansion in China may have generated better-than-expected cost savings through economies of scale and operating efficiencies, offsetting pressure on its bottom line from higher selling and marketing expenses.
– Katherine Lim and Tiffany Tam, Analysts
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Temu owner could expand bull market by outperforming peers: Tech Watch
But some investors are concerned that the bitter feud between Temu and Shein could hurt the parent company’s bottom line.
Read more: Tem beats Shane in US, hits bottom line
JD.com rolled out $1.4 billion in discounts in March to attract new users, sparking a price war. Alibaba also launched a “value-versus-amount war” to attract buyers and sellers. Some analysts say PDD’s aggressive spending, now an industry-wide phenomenon, will further pressure margins.
PDD was one of the last of China’s major internet companies to report financial results, but some have shown warning signs about the health of China’s economy.
Alibaba lost $22 billion in market capitalization this month when it canceled a spinoff of its giant cloud unit due to tougher U.S. regulations on advanced chips destined for China. However, Tencent Holdings and JD.com both reported strong financial results, alleviating investors’ concerns about an economic slowdown.
–With assistance from Jenny Yu.
(Updates stock price from first paragraph)
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