Ago-parent PDD Holdings beats first-quarter revenue estimates

Authors: Casey Hall and Akash Sriram

(Reuters) – PDD Holdings topped first-quarter revenue estimates on Wednesday, helped by support from international shopping site Temu and growing consumer interest in Chinese discount e-commerce platform Pinduoduo.

The company’s first-quarter revenue rose 131% to 86.81 billion yuan ($11.99 billion), compared with analysts’ average estimate of 75.66 billion yuan based on LSEG data.

PDD shares increased by 5.7% in pre-session trading.

Consumers in China have turned to cheaper shopping platforms such as Bytedance’s Pinduoduo and Douyin as a real estate downturn and rising local debt weigh on the country’s economic growth.

Ago, Pinduoduo’s sister app, sells a wide range of products, many of them made in China, at the lowest prices. Its popularity has grown since its launch in September 2022, as has competition with e-commerce incumbents such as Shein and Amazon in the United States and other markets.

Rivals Alibaba and JD.com reported revenue last week that beat market expectations and said they expect higher levels of consumer confidence this year.

PDD co-founder Chen Lei told analysts in a call after the company’s earnings release that competition was fierce in the first quarter and consumers were getting used to making purchases on different platforms rather than just one.

“Our industry colleagues have significantly stepped up their efforts,” he said. “We are happy with healthy competition. We also recognize that consumer demand is constantly changing and we must do our best to keep up.”

PDD’s net income rose to 28 billion yuan from 8.1 billion yuan a year ago. Its EPS of 20.72 yuan was much higher than the 10.07 yuan expected by analysts, according to LSEG data.

Cost of revenue, however, increased by 194% to 32.7 billion yuan, outpacing revenue growth.

Analysts expected the cost of goods sold to increase by 30.78 billion yuan in the first quarter, according to nine analysts surveyed by LSEG.

PDD says the increase in cost of revenue is mainly due to increased order fulfillment fees, payment processing fees, maintenance costs and call center expenses.

Bernstein analysts estimate Temu spent more than $1 billion on advertising outside the Asia-Pacific region last year.

Temu has faced complaints from consumer groups, including pan-European consumer organization BEUC, which last week said it had complained to the European Commission about the information Temu provides about sellers on its platform and whether it offers Products meet EU safety guidelines.

The company, which entered the EU market just over a year ago, said it was actively adapting its services to suit local practices and preferences and that it was committed to fully complying with the laws and regulations of the markets in which it operated.

($1 = 7.2396 Chinese yuan)

(Reporting by Akash Sriram in Bengaluru and Casey Hall in Shanghai; Editing by Shilpi Majumdar, Jane Merriman, Philippa Fletcher)