- PDD's net profit falls due to competition and investments
- Revenue rises 7% in second quarter, beating expectations
- Temu promotes US warehouse products to cushion tariff pressures
Aug 25 (Reuters) - E-commerce company PDD Holdings, which operates low-cost platforms Pinduoduo in China and Temu internationally, beat market estimates for quarterly revenue on Monday, although net profit fell due to investments to ward off growing competition.
U.S.-listed shares of the company were up 0.3% in premarket trading after it reported adjusted earnings per ADS of 22.07 yuan, beating market estimates for 15.74 yuan.
The Chinese government has been seeking to boost domestic consumption to revive a sluggish economy that is navigating several pressures, including a weak property sector and U.S. President Donald Trump's trade policies.
To lure customers, e-commerce majors including Pinduoduo, JD.com and Alibaba have resorted to steep discounts and promotional offers. While that has helped prop up demand, it has also sparked a price war.
Along with the need to keep prices low in China, PDD's margins have been under pressure in recent quarters due to a multibillion-dollar investment in merchant support programs and as U.S. tariffs drive up costs tied to international shipping.
The second-quarter earnings showed PDD has increased spending across the board on everything from server costs to sales and marketing expenses as part of its drive to improve the ecosystem for merchants and consumers alike.
INTENSIFIED COMPETITION
Zhao Jiazhen, PDD's co-chief executive, said the company expected profit levels to fluctuate in the coming quarters.
"In the past quarter industry competition has intensified further ... against this backdrop our revenue growth slowed and operating profit declined meaningfully for the second quarter," he said during a call with analysts.
"We do not believe this quarter's profit levels are sustainable and expect fluctuations in profits in future quarters," he added.
In a bid to cushion pressures, PDD's Temu has been promoting products already in U.S. warehouses and trying to tap more local sellers. Still, the business is facing competition from global e-commerce giant Amazon , which has used its scale to negotiate favourable pricing with suppliers.
Temu has also been pivoting to a "fully-managed" model where the company has more control over product selection, pricing and logistics, with hopes of leveraging its vast supply chain network to keep prices as low as possible.
Even so, a survey released this month by online marketing firm Omnisend found 30% of American shoppers have noticed price hikes on Temu.
PDD reported revenue of 103.98 billion yuan ($14.53 billion) during the second quarter ended June, up 7% from a year earlier, while operating profit fell 21%.
Adjusted net income attributable to PDD's shareholders stood at 32.71 billion yuan during the quarter, compared with 34.43 billion yuan a year earlier.
($1 = 7.1561 Chinese yuan renminbi)
Reporting by Deborah Sophia in Bengaluru and Casey Hall in Shanghai; Editing by Shilpi Majumdar, Susan Fenton and Helen Popper
Source: Reuters