Chinese e-commerce giant PDD Holdings reported a revenue of 99.35 billion yuan for the third quarter of 2024, falling short of market expected 102.8 billion yuan.
The revenue grew by 44% year-on-year, marking a sharp slowdown from 131% growth in the first quarter and 85.65% growth in the second quarter.
Net profit attributable to ordinary shareholders was 24.98 billion yuan, surging 61% year-on-year but sliding 21.96% from the previous quarter, slowing from 246% and 144% in the first two quarters. Non-GAAP net profit was 27.46 billion yuan, also surging 61% year-on-year, but below the market expected 29.2 billion yuan, slowing from 202% and 125% in the first and second quarter.
Following the earnings release, PDD’s stock price tumbled in pre-market trading, slumping 15.87% at one point.
The overall e-commerce landscape remains highly competitive, posing numerous challenges for the company, and the slowdown in revenue growth is inevitable due to natural constraints in the business development cycle, with long-term linear growth unrealistic, PDD Executive Director and Co-CEO Zhao Jiazhen acknowledged during the earnings call.
Operational limitations, such as constraints inherent in the platform’s model and the team’s experience and capabilities, which could create significant disadvantages compared to peers and further financial impacts in the short term, Zhao said.
PDD Chairman and Co-CEO Chen Lei attributed the slowing revenue growth and falling profits in the quarter to intensified competition in the e-commerce sector and various operational challenges.
He emphasized that investments in the merchant ecosystem had a short-term impact on financial results but were in line with expectations, as the company prioritizes the long-term value of ecosystem development.
In August, PDD launched a 10 billion yuan fee reduction plan that included measures such as service fee rebates, bill reductions for “Buy Now, Pay Later” services, lower security deposit requirements, and streamlined withdrawal processes. The initiative aims to support innovative merchants and industries.
Zhao said that PDD has also audited its after-sales service system and formed a special team to address issues such as abnormal orders, malicious complaints, and negative consumer experiences. Merchants who successfully appeal these cases will receive compensation from the platform for the relevant orders.
PDD’s controversial “refund only” policy, introduced in 2021 to enforce higher product and service standards, has led to quality inconsistencies on the platform. The policy, which heavily favors consumers, has sparked abuse and black-market practices in the e-commerce sector.
The primary factor behind the slowdown in overall revenue growth was a decline in the growth rate of transaction services income. For the quarter, revenue from online marketing services reached 49.35 billion yuan, a 24% year-on-year increase, while transaction services revenue was 50 billion yuan, surging 72% year-on-year, but significantly lower than the 327% and 234% growth rates posted in the first two quarters of the year, respectively.
The primary driver of transaction services revenue growth came from Temu, PDD’s rapidly expanding overseas business. Chen noted that the global business is facing intensified competition and a complex external environment, which has introduced uncertainties and fluctuations.
For the quarter, PDD’s operating costs were 39.7 billion yuan, up 48% year-on-year, primarily due to increased fulfillment and payment processing fees. Operating expenses grew by 39% to 35.35 billion yua , driven mainly by a 40% increase in sales and marketing expenses to 30.48 billion yuan, which accounted for 86.23% of operating expenses. General and administrative expenses rose by 138% to 758 million yuan, while R&D spending increased by 7.59% to 3.06 billion yuan.
Operating cash flow for the quarter was 27.52 billion yuan, an 18.22% year-on-year decline. As of the end of the third quarter, PDD’s cash, cash equivalents, and short-term investments totaled 308.5 billion yuan, an increase of 217.2 billion yuan from the end of 2023.