(Bloomberg) -- The prospects for Chinese consumer firms are looking increasingly bleak after PDD Holdings Inc. cautioned that its revenue growth will slow as competition continues to heat up.
PDD said its current trajectory wasn’t sustainable, reinforcing concerns fueled by Alibaba Group Holding Ltd.’s anemic revenue growth after its Chinese commerce business shrank for the first time in at least a year. The shares of Temu’s owner slumped by the most on record on Monday following the warning.
The e-commerce giant’s woes strike at the heart of worries about China’s consumer sector and indicate that its troubles go beyond weak domestic consumption. Analysts say that if PDD isn’t immune to the industry’s troubles, there’s little chance that its peers will be able withstand the pressure.
Shares of Alibaba and JD.com Inc. slid over 5% in early trade Tuesday.
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Here’s a look at what strategists are saying:
Vey-Sern Ling, managing director at Union Bancaire Privee:
- “PDD said they plan to waive certain merchant fees and invest more into building a healthy ecosystem, so it probably means domestic competition is going to rise. E-commerce penetration is saturated and consumption is trending lower so players are all fighting for market share. Not just PDD, Baba, JD, but also Bytedance, Kuaishou, Meituan, etc... Can’t be good.”
Morgan Stanley analysts Eddy Wang and Kathy Zhu:
- “PDD’s miss on 2Q24 online marketing service revenue growth implies weak consumption and intense competition. However, management’s comments on declining long-term profitability are too conservative. Management’s tone on earnings call was a negative surprise: management said the domestic business is facing changing consumer demand (growing emphasis on rational consumption) and intensified competition, while Temu is facing uncertainty internationally, resulting in revenue growth slowing from 2Q24.”
Robert Lea, Bloomberg Intelligence analyst:
- “PDD’s miss highlights the rising challenges in China’s e-commerce sector, with competition and economic headwinds likely to impact Alibaba, Kuaishou and Bytedance the most. China’s e-commerce sector was already known to be weak, though things seem to be devolving at a more rapid pace.”
Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd.:
- “The big issue is weakness in China consumer. Also Din Tai Fung is the latest victim of the weak environment, closing more than 12 stores. The read across for competition and a weak consumer will be negative for sure.”
Sonija Li, an analyst at MIB Securities Hong Kong Ltd.:
- “We did see the share correction on Baba and JD overnight on PDD’s mixed results and cautious guidance; sentiment will be adversely affected. Yet the share downside should be limited, backed by HK-listed tech stock share buyback program. For Baba, market focus is on its potential inclusion in the Stock Connect program.”
(Updates with comments from Union Bancaire Privee and Morgan Stanley)
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