PDD tumbles 17% as company falls short of revenue expectations

PDD Holdings reported its Q2 earnings, delivering mixed results that outperformed on earnings per share (EPS) but fell short on revenue expectations. The company reported adjusted earnings of RMB 23.24 per American Depositary Receipt (ADR), significantly above the FactSet Consensus estimate of RMB 20.52. However, total revenue for the quarter came in at RMB 97.06 billion, missing the FactSet Consensus estimate of RMB 99.99 billion, despite showing a robust year-over-year growth of 86%.

Shares of PDD are down 17% in pre-market trade. The stock fell below its 200-sma ($133) and the August low ($122) in immediate reaction. The March low ($108) is the next stop for this stock.

A deeper look at the revenue breakdown reveals that PDD's core revenue streams slightly underperformed against market expectations. Revenues from online marketing services and others were reported at RMB 49.12 billion, just below the estimated RMB 50.5 billion. Similarly, transaction services revenue also came in lower than expected at RMB 47.94 billion, missing the RMB 50.02 billion consensus. These misses, albeit slight, highlight the competitive pressures and external challenges that the company acknowledged in its forward-looking commentary.

On the profitability front, PDD demonstrated strong operational efficiency, which led to impressive bottom-line results. The company reported an adjusted net income of RMB 34.43 billion, well above the consensus estimate of RMB 30.1 billion. Operating profit also surged to RMB 32.56 billion, a 156% increase year-over-year, underscoring PDD’s ability to maintain strong margins despite increased competition and investment in growth initiatives.

Operating expenses were tightly controlled, contributing to the profitability beat. Total operating expenses for the quarter were RMB 30.80 billion, below the estimate of RMB 33.1 billion. Sales and marketing expenses, which often represent a significant cost for e-commerce companies, were managed effectively at RMB 26.05 billion, under the expected RMB 27.9 billion. Research and development expenses also came in lower than anticipated at RMB 2.91 billion, compared to the RMB 3.49 billion estimate, reflecting a disciplined approach to spending.

Looking ahead, PDD’s management expressed caution regarding the company’s future revenue growth, citing intensifying competition and external challenges. The company indicated that its aggressive investment in platform trust, merchant support, and ecosystem improvements might impact profitability in the near term. This cautious tone has likely contributed to a tempered market reaction, as investors weigh the potential for slower growth against the company’s current strong profitability.

Overall, while PDD delivered a solid earnings beat on EPS, the revenue miss and cautious outlook may dampen investor enthusiasm. The company’s ability to navigate the challenging landscape, while maintaining profitability, will be closely watched in the coming quarters, especially as it continues to invest heavily in its platform and merchant ecosystem.