Temu owner PDD’s stock crash sends warning about China's economy
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One of the last remaining bright spots for Chinese consumption is rapidly fading, as the nation’s economic malaise takes a toll on demand for even the most accessible of goods.
In the latest warning to global markets on the health of the Chinese economy, Temu-owner PDD on Monday surprised investors with an unusually gloomy outlook.
The e-commerce firm, which became a market darling with low-priced goods that helped propel business during China’s economic downturn, also reported revenue that missed estimates. During a post-earnings briefing, chief executive Chen Lei mentioned at least eight times that revenue and profits must “inevitably” decline as economic growth slows.
“We are seeing many new challenges ahead, from changing consumer demand, intensifying competition, and uncertainties in global environment,” Mr Chen, also one of PDD’s earliest employees, told analysts.
The chief executive and his lieutenants were careful to stress they remained confident in Chinese consumption over the longer term — a big priority for Beijing in rebalancing the world’s No.2 economy.
But the damage was done. PDD’s shares plunged 29% in their biggest fall on record, wiping out $55bn (€49bn) of market value. Its closest rivals Alibaba and JD.com followed suit, sliding about 4% in Hong Kong.
PDD’s warning stunned investors because the company was long viewed as the main beneficiary of a Chinese “consumer downgrade” — its low-pricing strategy on Pinduoduo domestically and Temu abroad was intended to appeal to cost-conscious shoppers at a time of unprecedented economic volatility.
The disappointing results were the latest in a series of red flags about the Chinese economy.
On Tuesday, China’s biggest bottled water producer Nongfu Spring reported the slowest half-year profit growth since its listing in 2020, while popular fast food chain Din Tai Fung — long one of the most popular restaurant brands across the country — revealed this week it was shutting more than a dozen outlets.
Last month, Starbucks disclosed a 14% drop in Chinese revenue in the June quarter.
“The big issue is weakness in China consumer,” said Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong. “The read-across for competition and a weak consumer will be negative for sure.”
While Starbucks and Din Tai Fung have long wrestled with volatile sentiment, PDD’s warnings were especially surprising given it encapsulated for years how cash-strapped Chinese consumers spurned luxury brands for lower-end alternatives.
Founded by ex-Google engineer Colin Huang in 2014, the company in past years has combined low prices with aggressive rural expansion and game-like elements on its platform to grab market share from Alibaba and JD.
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