TMTPOST -- The American depositary receipts (ADRs) of PDD Holdings Inc. sank more than 10.6% to US$104.09 on Thursday, erasing all their gains since Beijing unveiled aggressive stimulus package two months ago. Shares hitt the lowest close since September 23 after China’s leading discounted e-commerce company posted steeper-than-anticipated earnings slowdown and issued downbeat outlook.

Credit：Sina

PDD fell short of Wall Street expectation both top and bottom line for the quarter ended September 30, 2024. Revenue of RMB99.35 billioin (US$13.72 billion) missed analysts estimated RMB102.83 billion. That represents a  year-over-year (YoY)  increase of 44%, the slowest sales expansion since the second quarter of 2022. The revenue growth further slowed from a 86% YoY rise for the preceding quarter. The December quarter and the first quarter of this year saw PDD sales delivered the triple-digit growth pace.

On non-GAAP basis, PDD reported adjusted net income attributable to ordinary shareholders of RMB27.46 billion with a 61% YoY increase, whereas analysts projected RMB29.21 billion. The bottom line also decelerated as net income for the second quarter grew 125% YoY. Adjusted diluted earnings per American depositary share (ADS) climbed 60.1% YoY to RMB18.59, compared with expected RMB20.19. PDD booked non-GAAP operating profit of RMB24.29 billion, first missing in seven quarters, and was 12% below consensus estimates for the September quarter.

Both of PDD’s two segments witnessed sales slowdown for the third quarter. Online marketing services and others hauled RMB49.35 billion with a 24% YoY increase after a 29% YoY gain three months ago. Revenue from transaction services, the charges the company collected from merchants for transactions on its platform, rose 72% YoY to RMB50.0 billioin, compared with a 234% YoY surge for the previous quarter.

PDD performance raised concerns about rising rivalry from peers at home and abroad that has already squeezed the margin. “Our topline growth further moderated quarter-on-quarter amid intensified competition and ongoing external challenges,” said Ms. Jun Liu, VP of Finance of PDD. “In our pursuit of high-quality development, we will continue to invest resolutely in building a healthy and sustainable ecosystem, which will be reflected in our results.”

PDD executives warned revenue growth will face pressure due to intensified competition and external challenges when they reported financial results for the second quarter. However, the latest quarterly results brought more questions on how PDD could maintain its rapid growth and profitablility amid China’s slowing economy and sluggish domestic demand, while in face of the threat of the punitive U.S. tariffs from President-elect Donald Trump.

The quarter ended September is a traditional lull in Chinese consumption between major shopping festivals in June and November, but the Chinese government in August rolled out an expansive trade-in policy across multiple sectors, ranging from automobiles and home appliances to real estate, to boost consumption.

Economic stimulus measures announced by Beijing in recent months had worked to fuel consumer demand, bringing both opportunities and challenges to PDD’s domestic e-cmmerce marketplace Pinduoduo, PDD Co-CEO Zhao Jiazhen told analysts on an earnings call Thursday.

"Our team was unable to fully leverage this macroeconomic shift due to the limitations of our operations as a third-party platform," Zhao said. "Consequently, to stay competitive we had to incur much higher costs than peers, which inevitably impacts our profitability now and into the future."

Zhao talked up limitation of PDD team because of their past experience and lackness of their capabilities. He expected the team won’t overcome the weakness any time soon, thus accordingly will hurt its profitability. “We will see greater financial impact as we will be disadvantaged against our competitors for some time to come,”Zhao said.