In the wake of trade tensions between the U.S. and China, PDD Holdings Inc., the owner of Temu, experienced a significant drop in its shares in U.S. trading following disappointing quarterly sales and profit figures. Revenue for the March quarter came in at 95.7 billion yuan, falling short of analyst expectations of 101.6 billion yuan, while net income reached 14.7 billion yuan, far below the projected 25.7 billion yuan. As a result, PDD's U.S. depositary receipts plummeted by as much as 18% in New York.
With intensifying competition in the Chinese market and evolving trade policies negatively impacting Temu, PDD Chairman Chen Lei acknowledged the challenges ahead, emphasizing the necessity of substantial investments to adapt its business model. Chen highlighted the need for the company to lower fees for merchants and source merchandise locally to counter the adverse effects of changing trade policies.
The recent elimination of the de minimis exemption further added to PDD's woes, as this had previously allowed duty-free shipping of orders under $800 to the U.S., benefiting Temu in providing cost-effective products to American consumers. Despite these setbacks, Chen remains optimistic about PDD's global business and its efforts to ensure stable prices and abundant supply for consumers worldwide.
However, analyst estimates for PDD's performance may be revised down by as much as 30% due to ongoing U.S.-China trade tensions impacting Temu's ability to sell Chinese products globally. Additionally, regulatory challenges loom for Temu in markets such as Japan and the EU, as tax exemptions for small parcels are under review, potentially affecting the company's operations.
While PDD faces challenges, its industry peers JD.com Inc. and Alibaba Group Holding Ltd. have seen resilient growth, driven by government stimulus measures and better-than-expected performance in domestic retail. As Beijing continues to implement trade incentives and subsidies to boost domestic consumption, signs of progress in U.S.-China trade negotiations offer a glimmer of hope for China's economy under pressure.