Temu PDD owner sales soar after Global Drive gains momentum

(Bloomberg) — PDD Holdings Inc. more than doubled its revenues after deepening its expansion into the markets of countries, including the USA, in order to escape from the unstable Chinese market.

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Shares of the Chinese retailer rose 6% after it reported better-than-expected sales of 86.8 billion yuan ($12 billion) in March, marking its second consecutive period of triple-digit growth. Net income more than tripled to about 28 billion yuan.

PDD’s gains could help keep Hong Kong’s market buoyant as one of the key consumption barometers in China’s post-Covid-19 economy, which is struggling with a real estate crash and persistent youth unemployment. But it faces heightened expectations after overtaking much larger rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd. in revenue growth over the past two years. On Wednesday, management noted an improvement in the situation in the country.

“This year is the year of promoting consumption. The consumer market started well in the first quarter, and online consumption remains strong,” said Jiazhen Zhao, executive director and co-CEO of the company. “We are confident in the consumer market in China.”

Rivals including JD.com Inc. posted single-digit revenue growth in the March quarter as China’s economic recovery remained uneven. In April, consumer spending growth unexpectedly slowed to 2.3%, the slowest pace since 2022.

In the case of PDD, the company spent heavily on Temu, an e-commerce company that quickly became one of the most downloaded apps in the US after a spectacular debut in 2022. Executives keep the unit’s sales figures secret, even as its aggressive advertising positions it as a disruptive rival to fast-fashion giant Shein and Amazon.com Inc.

Temu has expanded to more than 60 countries, but its growing profile has increased the risk of regulatory scrutiny in key markets such as the United States, which banned ByteDance Ltd. from owning TikTok over data security concerns. European consumer groups filed a complaint with the European Commission last week accusing Temu of failing to protect consumers and using manipulative practices on its platform.

What the Bloomberg interview says

PDD’s operating margin expansion in the first quarter despite intense competition from Amazon.com, AliExpress and Alibaba’s Shein suggests that business model improvements at Temu’s e-commerce unit are paying off as it expands into new markets. Stronger-than-expected first-quarter non-GAAP operating margin of 32.9% compared to 22.5% a year earlier could translate into a 16% increase in consensus earnings for 2024, we estimate, even in the absence of further growth this year.

– Catherine Lim and Trini Tan, analysts

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PDD relies on a price reduction strategy both domestically in its domestic online store Pinduoduo and abroad.

In China, it has gained ground in recent years against traditional retailers such as Alibaba and JD.com, while seeking to use subsidies and incentives to fend off startups such as ByteDance’s Douyin and Kuaishou Technology.

(Updates on share action from second paragraph)