The impact of missed earnings expectations can be severe, as Temu’s parent company, PDD Holdings (NASDAQ: PDD), came to know, experiencing its largest ever one-day drop since its listing on Nasdaq.
Namely, on August 26, PDD Holdings released its Q2 earnings report, which posted a miss on expectations with a miss on adjusted earnings-per-share (EPS) of $0.81, compared to expectations of $2.81.
Revenue also came in below expectations at $13.35 billion compared to an estimated $13.78 billion, prompting a massive sell-off that resulted in a nearly 30% drop in an August 26 trading session, which erased $55 billion from its market cap.
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Temu stock price chart
PDD shares tumbled to an exact $100 valuation due to a 28.51% loss in the latest trading session, as the previous five trading days were also negative, with a decline of 32.87%.
After trading near a 1% gain for the year, yesterday’s losses have finally set a decisive direction for PDD stock, as they now show a 31.34% loss on a year-to-date (YTD) basis.
Stiff competition in China caused losses for Temu’s stock
In what turns out to be one of the most competitive e-commerce regions, PDD Holdings has JD.com (NASDAQ: JD) and Alibaba (NYSE: BABA) to worry about, as the price war it is currently waging with these competitors has started to reflect on its profit margins, while the battle seems far from over.
On the other hand, on a global scale, American behemoth Amazon (NASDAQ: AMZN) poses an even larger challenge than its domestic competitors.
However, some analysts think now might be a good opportunity to buy the dip and that PDD stock will eventually recover.
Speaking with CNBC, Shaun Rein, managing director of China Market Research Group, said:
“I actually think Pinduoduo is a good buy at 30% down because it’s still growing. Well, it failed to hit expectations of analysts, but you’re still growing 20%, 30%, you’re still getting billions of dollars of revenue.”
Only time will tell whether Rein is correct or if this starts a downward slope for Temu’s parent company.
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