Why PDD Holdings Stock Crashed Today
The Chinese e-commerce giant missed sales expectations.
stock of PDD Holdings (PDD -29.11%) Shares of the Chinese e-commerce company and parent company of Pinduoduo and Temu plunged today after it reported disappointing second-quarter revenue growth and offered a pessimistic outlook for the coming quarters.
As of 11:12 a.m. ET, the stock was down 28% after the news broke.
Image credit: Getty Images.
PDD hits the wall
PDD has continued to see remarkable growth in line with the trends of Chinese e-commerce, Alibaba and JD.com It’s been a struggle, but things seem to be changing now.
Second-quarter results were still impressive, with revenue surging 86% to $13.4 billion during the period, but falling short of analysts’ consensus of $14.04 billion.
Margins continued to expand as adjusted operating income surged 139% to $4.48 billion. PDD improved gross margins and gained leverage on expenses such as sales, marketing, and research and development.
In conclusion, the company reported earnings per share of $3.20, up $1.45 from the same period a year ago and beating market expectations of $2.73.
But investors seemed more concerned about weaker-than-expected top-line growth and management’s cautious comments. “We are encouraged by the solid progress we have made over the past few quarters, but we see many challenges ahead,” said co-CEO Ray Chen, hinting at increased competition. “We are prepared to take short-term sacrifices and potential reductions in profitability,” he added.
What’s next for PDD?
PDD did not provide specific guidance for the current quarter or the remainder of the year, as Chinese companies typically do not provide guidance, but the company said on its earnings call that it expects revenue growth to be negatively impacted by increased competitive pressures.
The good news is that PDD stock currently looks cheap at less than 10x earnings, a surprisingly low valuation considering the company is still growing rapidly and reflecting the cautious attitude of Chinese investors.
Today’s sell-off could be a buying opportunity, but given the broader challenges in China and signs from management that earnings could soon decline, investors may want to take a cautious approach to the stock.
Jeremy Bowman holds a position at JD.com. The Motley Fool holds a position at JD.com and recommends it. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
