Discount e-commerce company PDD Holdings reported third-quarter revenue and profit figures that fell below market expectations on Thursday, as its low pricing strategy failed to encourage budget-conscious consumers to spend as anticipated on its platforms.
Shares of PDD, which operates the Pinduoduo online shopping platform in China and Temu internationally, experienced a decline of over 10% in pre-market trading.
The rising unemployment rate among Chinese youth, coupled with a crisis in the property sector, has adversely affected consumer confidence, leading to reduced sales at Pinduoduo.
Competitors in the Chinese market, including Alibaba and JD.com, also reported modest sales growth for their September quarters.
Although Pinduoduo has gained from its focus on low-cost offerings, competitive pressures have intensified as rivals increase their promotional activities and discounts, igniting a price war.
“Our topline growth further moderated quarter-on-quarter amid intensified competition and ongoing external challenges,” stated Jun Liu, Vice President of Finance at PDD.
PDD's revenue surged by 44% to 99.35 billion yuan ($13.72 billion) for the three months ending September 30, which was below the average analyst estimate of 102.65 billion yuan based on 17 forecasts compiled by LSEG.
Net income increased to 24.98 billion yuan from 15.54 billion yuan in the same quarter of the previous year; however, the company reported an adjusted profit of 18.59 yuan per American Depository Share, falling short of the expected 19.79 yuan.
During a call with analysts, company executives indicated that PDD had introduced several fee reduction and merchant support initiatives, which have been positively received by merchants and suppliers.
In July, numerous Chinese sellers on Temu protested against what they perceived as excessive fees imposed by the company.
Co-CEO Zhao Jiazhen also informed analysts that recent economic stimulus measures introduced by Beijing have contributed to boosting consumer demand, presenting both opportunities and challenges for Pinduoduo.
Zhao stated, "Our team could not fully capitalize on this macroeconomic change because of the constraints of our operations as a third-party platform. As a result, we faced significantly higher costs compared to our competitors, which will inevitably affect our profitability both now and in the future."
In August, following a disappointing second-quarter earnings report and pessimistic remarks from executives regarding the company's future prospects, PDD shares experienced their largest single-day decline since the company's 2018 debut, erasing nearly $55 billion in market capitalization.