Temu’s parent company is on track for its worst day ever
Investors are bailing on PDD Holdings after management warned of increased competition and declining revenue growth.
After reporting its second quarter earnings, Chinese e-commerce retailer PDD Holdings, the parent company of Temu, is down as much as 29.70%. The stock is on track for its largest one-day decline ever (the previous record is 24.6% on October 24, 2022).
The reason? PDD's revenue growth rate is contracting, down quarter-over-quarter, and management provided a somber business outlook, with Jun Liu, the company's VP of Finance, noting that "revenue growth will inevitably face pressure due to intensified competition and external challenges."
PDD Holdings reported revenue of 97.1 billion yuan ($13.6 billion), missing analysts' estimates of 100 billion yuan.
Beyond intensified competition, one "external challenge" facing PDD Holdings is increased regulatory pressure in foreign markets. As we discussed two weeks ago, The United States has long had a "de minimis" policy on foreign goods which allows the duty-free import of goods worth up to $800, meaning low-cost imports aren't subject to tariffs and import fees. Chinese fast fashion retailers such as Temu, a PDD Holdings subsidiary, have benefited from America's de minimis policy by selling low-cost goods to Americans. As of 2022, an estimated 30% of total US de minimus imports came from Temu and Shein, another fast fashion retailer.
However, US senators have recently proposed new legislation to close the "de minimis loophole," and in July, Bloomberg reported that the European Union is considering similar legislation to reduce the flow of duty-free imports from foreign e-commerce platforms.
New tariff legislation for Temu would raise export costs and further pressure PDD's margins, creating yet another headwind for a company that just warned investors that "profitability will also likely be impacted" as it invests more heavily in its ecosystem.
