Record High Performance... Parent Company of Zhongtemu Faces Continuous Stock Price Plunge

Shares of Pinduoduo, the parent company of Chinese e-commerce platform Temu, which posted record-breaking results in the second quarter, continue to decline day after day. Remarks from management forecasting intensified industry competition and declining profitability have sparked growing investor anxiety.

On the 27th (local time) in the New York stock market, Pinduoduo's share price fell 4.09% from the previous day to $95.91 (approximately 127,569 KRW). Following a 5% drop on the 23rd and a 28.5% plunge?the largest since its listing?after the earnings announcement on the 26th, the stock has been declining for three consecutive trading days.

[Image source=Reuters Yonhap News]

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The stock price has dropped 34.8% during this period. On the 26th alone, $55 billion in market value evaporated, and Colin Huang, once considered the wealthiest person in China, saw his net worth decrease by $14 billion, falling from first to fourth place among the richest.

This stock price decline occurred following earnings that fell short of expectations and management's remarks expressing concerns about future profitability declines. After the Q2 earnings announcement, Pinduoduo CEO Chen Lei stated, "Industry competition will become more intense," and announced that the company would forgo share buybacks and dividends for the next several years to focus on long-term growth. CEO Chen emphasized, "We will dedicate ourselves to transitioning to high-quality development and fostering a sustainable ecosystem," adding, "We will invest heavily in platform trust and safety and support high-quality merchants." He further noted, "We are prepared to endure short-term sacrifices and potential profitability declines."

Pinduoduo's revenue last quarter was 97.1 billion yuan (approximately 18 trillion KRW), an 86% increase year-on-year and the highest ever. However, it slightly missed analysts' estimates of about 99.9 billion yuan. The Q2 net profit surged 144% year-on-year to 32 billion yuan, surpassing market expectations of 30.1 billion yuan, yet the stock price continues to decline.

UBS assessed in a client letter that investors are feeling confused by Pinduoduo's market outlook. Hong Kong's South China Morning Post (SCMP) diagnosed, "China's e-commerce market is undergoing significant changes due to recession and reduced consumer spending."

Mark Tanner, Managing Director of market research firm China Skinny, told SCMP, "Pinduoduo's main competitors, Alibaba and JD.com, are focusing on low-priced products without compromising service, logistics, and quality reputation, thereby pressuring Pinduoduo's position."

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