Chinese e-commerce giant PDD Holdings (PDD.O) reported a sharp 47% drop in first-quarter net profit, falling to 14.74 billion yuan ($2.05 billion) as it struggled with intense local competition and global trade uncertainty. The company’s U.S.-listed shares plunged more than 17% following the disappointing results. Analysts pointed to weaker-than-expected operating margins, likely impacted by U.S. tariffs, as a key factor in the miss.
Competition and Economic Pressures in China
Despite aggressive price cuts by retailers and government stimulus efforts to boost consumer spending, PDD’s domestic platform faced challenges from a prolonged property crisis in China, which has dampened overall consumer spending. Analysts have noted that PDD’s focus on low-price offerings had helped the platform outperform competitors, but even its popular Pinduoduo platform could not escape the broader economic slowdown. “Slower domestic consumption, intensified competition, and global trade frictions are weighing on growth,” said Bo Pei, an analyst at U.S. Tiger Securities.
Impact of U.S. Tariffs and Global Trade Tensions
The company’s international business was also hit hard by global trade tensions, particularly the ongoing tariff battles between the U.S. and China. Mscience analyst Vinci Zhang highlighted that the company’s weaker operating margins were likely a direct result of these tariffs. In a post-earnings call, PDD chairman and co-CEO Chen Lei acknowledged that the external pressures from tariff changes had significantly impacted their merchants. He noted, “Radical change in external policy environments such as tariffs has created significant pressure for our merchants.”
Strategic Efforts to Counteract Challenges
Despite these setbacks, PDD Holdings is working to navigate through these challenges. Chen Lei emphasized that the company is collaborating with merchants across different regions to maintain stable prices and a consistent supply. The company’s global business, which is integral to its future growth, is strategically shifting toward more orders being fulfilled by local merchants to mitigate the impact of tariffs. Chen reiterated that Temu, PDD’s global platform, aims to avoid raising prices in response to tariffs and instead focuses on strengthening its operational footprint in the markets it serves.
Revenue Misses and Market Outlook
For the quarter ending March 31, PDD reported revenue of 95.67 billion yuan ($13.30 billion), which fell short of analysts’ expectations of 102.51 billion yuan, according to LSEG data. Despite the miss, the company continues to push forward with its long-term strategy of maintaining competitive pricing and expanding its global footprint. However, the uncertainty surrounding trade policies and the broader economic environment remains a significant hurdle for PDD’s growth prospects.
