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PDD Holdings shares fell 29% on Monday after its outlook was bleak due to competition and customer shifts.
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The company faces challenges due to changing demand, increasing competition and global uncertainties.
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PDD, facing backlash from merchants, plans to support high-quality sellers.
Shares of PDD Holdings, Temu’s parent company, plunged after the Chinese e-commerce giant signaled a bleak outlook.
After the company reported its second-quarter earnings on Monday, PDD’s share price fell nearly 29%, its biggest drop ever.
The company reported profit of about $4.4 billion in the quarter, an increase of 144 percent from the previous year. But co-CEO Chen Lei said investors should expect a decline in profits in the future.
“We face many new challenges, from changing consumer demand to increasing competition and uncertainties in the global environment,” Chen said on Monday during a conference call on quarterly results.
PDD competes with ByteDance’s TikTok store, Alibaba and Shein, all of which target fast-fashion shoppers. Temu also sells low-priced products, from home goods to motorcycle accessories.
Chen added that consumers are increasingly abandoning material purchases in favor of experience-based purchases and that they want high-quality and valuable purchases.
Reward for good traders
Chen said the company will “crack down on low-quality merchants” by offering lower transaction fees to higher-quality providers.
Chen repeatedly stressed that this is the right path for the company, even if it comes at the expense of profits in the short term.
“On the one hand, we must ensure strict control of product quality to avoid substandard goods and protect consumer rights. On the other hand, we must ensure fairness so that committed traders who offer high quality can receive meaningful remuneration,” said the co-CEO.
Chen’s comments come amid a series of protests by Temu suppliers.
Hundreds of suppliers flocked to rallies outside Temu’s office in Guangzhou, China, this month, protesting against fines and refund policies that they say are destroying small merchants’ profits. Temu, which has become increasingly popular in the U.S. for its cheap clothing and home accessories, fines merchants when they receive refund requests or customer complaints.
“We feel that PDD’s intention to invest in ‘good traders’ is aimed at appeasing some of its dissatisfied sellers who complain about poor treatment by the platform,” Jialong Shi, an analyst at Nomura, wrote in a note on Tuesday.
The analyst maintained his buy rating on the company, noting that the 29% decline may have been an overreaction.
Read the original article on Business Insider
