Temu older PDD holdings (PDD) is set to report its second-quarter earnings early Monday morning, with analysts expecting the China-founded e-commerce giant to continue a streak of strong earnings growth.
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Shares of PDD rose last year, helped by the rapid rise of international discount shopping site Temu, which has emerged as a challenger to Amazon (AMZN). PDD’s China-focused Pinduoduo e-commerce platform also continued to grow faster than rivals Alibaba (BABA) and JD.com (JD).
But PDD shares fell in early 2024 on concerns about China’s economy and a potential regulatory crackdown on Temu. But shares recovered from June onwards as PDD continued to post strong earnings growth.
Here’s what to watch ahead of Monday’s report:
In figures
Analysts expect PDD’s earnings per share to grow 95% in local currency terms to 20.43 yuan per share, according to FactSet. Revenue is expected to grow 92% to 100.2 billion yuan, or $14 billion.
PDD has not disclosed sales figures for Temu. Morgan Stanley analysts predicted in July that Temu would reach a global gross merchandise value of $53 billion, up from $19 billion in 2023.
One number to watch is PDD’s sales and marketing spend. PDD spent billions on advertising last year to fuel Temu’s growth. Analysts predict that PDD’s sales and marketing spend increased 62.5% year-over-year to $3.9 billion in the second quarter. Spending on the category increased 44% to $3.2 billion in the first quarter.
PDD Stocks: Keep an Eye on Temu Regulations
Temu’s rapid rise has put the company on the radar of both Amazon and US lawmakers.
For Amazon, Temu is a new competitive threat to discount-hungry shoppers and merchants selling out of China. In late June, tech news website The Information reported that Amazon was preparing a Temu challenger. A new section of Amazon’s website would sell goods directly from merchants in China. Similar to Temu’s operations, the section would offer cheaper prices but with longer shipping times.
Meanwhile, Temu’s direct-from-China model is coming under scrutiny in Washington, D.C. A bipartisan group of lawmakers introduced legislation earlier this month that would amend the “de minimis” provision of U.S. trade policy. Currently, packages worth less than $800 can enter the U.S. duty-free as long as they’re addressed to an individual.
The provision has helped Temu keep costs down. PDD has previously acknowledged in regulatory documents that its operations could be “materially and adversely affected” if existing tariff exemptions were no longer available.
PDD will hold a conference call with analysts following the report. Company executives did not mention Temu by name during the last analyst call in May, saying only that the “global business is still in an exploration phase and there is still plenty of room for improvement.”
PDD stock in cup base
Meanwhile, PDD stock is falling in trading on Friday ahead of the report. The stock is down 5.5% in recent stock market action today at 138.90.
Shares opened trading Friday in a cup base, as identified by MarketSurge, with a potential buy point at 164.69. Overall, PDD stock is flat for the year, excluding Friday’s morning action. However, shares have gained 18% since the beginning of May.
Helped by strong earnings growth, PDD stock has a best-possible IBD Composite Rating of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into a single rating. The best growth stocks have a Composite Rating of 90 or better.
In addition, the IBD Relative Strength Rating of PDD is 87 out of 99.
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