Shares in PDD Holdings, the parent company of Chinese e-commerce giant Tem, fell nearly 30% on Monday after the company warned that growing competition in the fast fashion sector could cause profits to fall.
PDD co-founder Lei stressed that the company’s current growth is not sustainable as it battles with rivals such as Shein, Bytedance’s TikTok and Alibaba for budget-conscious shoppers.
“Competition will continue and is expected to intensify within the industry,” Chen told analysts on a briefing after the earnings release. According to a Bloomberg report:.
“High revenue growth is not sustainable and a downward trend in profitability is inevitable.”
PDD fell 28.5% to $100, the company’s worst drop since 2022.
The company is spending billions of dollars to expand its Temu business in the United States, where it competes directly with fast-fashion giant Shein.
Both companies are facing legal challenges and accusations of copyright infringement and unethical labor practices.
PDD reported quarterly sales of 97.1 billion yuan ($13.6 billion), below analyst expectations of $14 billion.
The company reported net income of $4.5 billion, beating expectations of $3.9 billion.
Chen, who lost $14 billion in Monday’s share price plunge, said PDD needed to invest more in retailers as rivals tried to snatch up each other’s suppliers.
PDD Holdings CEO Colin Huang last week became China’s richest person with a net worth of $49.3 billion, according to Forbes magazine, but that figure plummeted to $35.2 billion on Monday.
PDD has seen success with its Temu business over the past few years as consumers, buffeted by stubborn inflation, have abandoned traditional retail stores and turned to buying cheaper fast-fashion goods online.
Tem has come under increased scrutiny from the European Union, which is reportedly working to eliminate import tax loopholes that allow companies like Tem and Shain to ship lightweight goods purchased cheaply online.
