TEAM PARENT PDD Holdings (PDDD) is set to report second-quarter results early Monday, and analysts expect the China-founded e-commerce giant to continue posting strong profit growth.
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PDD’s shares surged last year, driven by the rapid growth of its international discount shopping site Temu, and the company Amazon (AmazonPDD’s China-focused e-commerce platform, Pinduoduo, also continues to grow at a faster pace than its competitors. Alibaba (Baba) and JD.com (J.D.).
However, PDD’s share price fell in early 2024 due to concerns about the Chinese economy and potential increased regulation of Temu. However, the share price has recovered since June as PDD continues to show solid revenue growth.
Here’s what to watch ahead of Monday’s report.
By the numbers
Analysts expect PDD’s earnings per share to rise 95% in local currencies to 20.43 yuan, according to FactSet. Revenue is expected to rise 92% to 100.2 billion yuan ($14 billion).
PDD has not disclosed Tem’s revenue. Morgan Stanley analysts predicted in July that Tem’s global gross merchandise volume will grow to $53 billion in 2023 from $19 billion.
One figure to watch is PDD’s sales and marketing expenses. PDD spent billions on advertising last year to fuel Temu’s growth. Analysts expect PDD’s sales and marketing expenses to grow 62.5% year over year to $3.9 billion in the second quarter. Spending on this category grew 44% in the first quarter to $3.2 billion.
PDD Stock: System Regulatory Watch
The system’s rapid rise has drawn the attention of both Amazon and U.S. lawmakers.
For Amazon, Temu poses a new competitive threat to shoppers looking for discounts and merchants selling goods from China. In late June, technology news site The Information reported that Amazon was preparing to take on Temu. A new section of Amazon’s website will sell products directly from Chinese merchants. Similar to Temu’s operation, the section will offer lower prices but longer delivery times.
Meanwhile, Temu’s direct-import model from China is under scrutiny in Washington DC. A bipartisan group of lawmakers Earlier this month, legislation was announced that could change the “de minimis” provisions of US trade policy. Currently, small packages worth less than $800 can be brought into the US duty-free if they are addressed to individuals.
The provision helps the company keep costs down. PDD previously acknowledged in regulatory filings that there could be a “material adverse effect” on its business if existing tariff waivers are no longer available.
PDD plans to hold a conference call with analysts following the report. On its last analyst call in May, company executives did not mention Tem by name, saying only that “our global business is still in the exploration stage and there is plenty of room for improvement.”
PDD Stock-in-Cup Base
Meanwhile, PDD shares fell in trading on Friday ahead of the earnings release, dropping 5% to close at 139.87.
Friday’s decline caused PDD stock to form a handle-cup base. Market SurgeOverall, PDD shares are down 4% this year, including Friday’s trading, but are up 11% since the beginning of May.
PDD stock has the highest rating of any stock, an IBD Composite Rating of 99, buoyed by strong earnings growth. IBD Stock CheckupThis score combines five unique ratings into one rating, with the highest growth stocks having a composite rating of 90 or above.
Additionally, PDD has an IBD relative intensity rating of 87. 99 out of 99.
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