China’s PDD beats estimates as online discounter Temu booms

By Casey Hall and Chavi Mehta

(Reuters) -Temu parent PDD Holdings beat third-quarter revenue forecasts on Tuesday as heavy discounting boosted sales across its e-commerce platforms in China and overseas, sending its U.S.-listed shares almost 14% higher in premarket trading.

PDD, home to Chinese online discount retailer Pinduoduo as well as cross-border platform Temu, has received a big boost from the growing popularity of its international e-commerce arm, which is known for selling $4 earphones and $15 hoodies.

Analysts expect Temu, launched in September last year, to generate more than $16 billion in revenue this year. Since launching in the U.S., Temu is now available in 48 countries, including across Europe and the Middle East, as well as South East Asia and Australia.

“PDD’s overseas initiative Temu was the major driver for revenue growth,” said Xiaoyan Wang, analyst at 86Research, who added that domestic Chinese revenue also outstripped growth at rivals Alibaba and by a “large margin”.

Temu and its rival Shein, which according to sources has confidentially filed to go public in the U.S., have both benefited this year from a cost of living crisis in many countries increasing demand for their low-cost, largely Chinese-made goods.

PDD’s revenue rose 94% year-on-year to 68.84 billion yuan ($9.62 billion) in the quarter to Sept. 30, compared with an average estimate according to LSEG data of 54.59 billion yuan. The year-earlier result was still impacted by strict COVID-19 curbs in China.

Deep discounts ahead of the Singles Day shopping event in China helped lift demand for products on Pinduoduo, which was able to leverage its reputation for low prices to capture more value-conscious consumers in the world’s second-largest economy.

Executives said on a post-earnings call with analysts that 620 billion users took part in its subsidies program over the Singles Day festival period.

China’s e-commerce giants have all this year taken aim at the value-driven sector that has always been Pinduoduo’s strong suit.

“This year is a year of recovery but also a year of heightened competition … and we are not surprised to see industry peers are increasing investment to increase competition,” said co-CEO Zhao Jiazhen.

While PDD’s focus will continue to be value for consumers, he added, it is also focussing on high quality to increase trust in PDD’s platforms so consumers feel comfortable buying a wider range of goods.

Though the retail market in China was initially expected to bounce back strongly when strict COVID-19 curbs were lifted, Chinese consumers have remained cautious as the country faces more headwinds, including a property market downturn and record youth unemployment.

Chinese retail sales in September rose 5.5% following 4.6% growth in August.

PDD’s net income attributable to ordinary shareholders rose to 15.54 billion yuan in the third quarter, from 10.59 billion yuan a year earlier.

($1 = 7.1532 Chinese yuan renminbi)

(Reporting by Chavi Mehta in Bengaluru and Casey Hall in Shanghai; Editing by Shilpi Majumdar, Mark Potter and Jan Harvey)