PDD Holdings Inc. experienced a sharp decline in U.S. trading on Wednesday, with shares falling 10.5% to $86.52 after the company reported first-quarter results that missed Wall Street expectations. The parent company of e-commerce platforms Temu and Pinduoduo faced headwinds from rising costs and intensifying competition in China's online retail sector.
The company posted revenue of 106.23 billion yuan ($15.4 billion) for the quarter ended March 31, representing an 11% increase from the prior year but falling short of the LSEG consensus estimate of 109.33 billion yuan. Net income attributable to ordinary shareholders declined 15% to 12.55 billion yuan, while adjusted diluted earnings per American depositary share came in at 9.51 yuan, down from 11.41 yuan a year ago and well below the 16.77 yuan consensus forecast.
PDD's results were pressured by a 15% increase in cost of revenue, driven by higher fulfillment expenses, bandwidth and server fees, and payment processing costs. Fulfillment costs, which cover the expense of delivering orders to shoppers, rose significantly. Revenue from transaction services, which depends on merchant and payment volume, increased 20% to 56.29 billion yuan, but the growth was not enough to offset the margin compression.
Executives characterized the quarter as a period of transformation. Co-CEO Lei Chen spoke of "deep transformations," while co-CEO Jiazhen Zhao identified supply-chain investment as a "core strategic priority." Finance VP Jun Liu indicated that related spending could continue "over the long term," suggesting that near-term profitability may remain under pressure as the company invests in infrastructure.
The broader Chinese e-commerce landscape remains fiercely competitive. Alibaba and JD.com also saw their shares decline, with Alibaba down 1.6% and JD.com falling 1.1%. The KraneShares CSI China Internet ETF slipped 0.9%, but PDD's drop was notably steeper than its peers. Chinese retailers have been running aggressive promotions to stimulate consumer spending amid concerns over employment, property values, and income growth.
Adding to the challenges, Chinese regulators have increased scrutiny on major platforms. Last month, the market watchdog imposed fines and seized 3.6 billion yuan from seven major platforms, including Pinduoduo, over food-delivery safety violations. Pinduoduo stated it accepted the ruling and would improve its practices. Meanwhile, Temu's low-cost cross-border model faces pressure from retailer complaints in multiple markets regarding duty waivers on cheap parcels.
The earnings miss underscores the delicate balance PDD must strike between investing for growth and maintaining profitability. While the company has the financial resources to continue its supply-chain upgrades, the market's reaction suggests investors are seeking concrete evidence of returns on that spending rather than promises. If consumer demand in China does not pick up, increased investment could yield diminishing returns as competitors maintain subsidies and regulators tighten rules.
On the positive side, supply-chain enhancements could accelerate delivery times, expand product offerings, and improve quality control, potentially strengthening PDD's competitive position over the long term. However, the immediate market sentiment is cautious, with the stock sell-off reflecting a desire for proof that the company's spending will build lasting value rather than fuel another round of price wars in China's crowded e-commerce market.
