PDD Holdings (PDD) Domestic Retail, Europe Expansion Might Slow Down. Expect Lower Guidance

$PDD Holdings Inc(PDD)$ is scheduled to report the quarterly earnings for period ending 30 September on 21 November 2024 before market open.

PDD is expected to report a rise of 49.1 in quarterly revenue to CNY 102.646 billion from CNY 68.84 billion a year ago

is expected to show a rise in quarterly revenue when it reports results on November 21 for the period ending September 30 2024

Earnings per share is estimated to come in at CNY 19.79 per share or $2.71.

Will PDD Temu's European Expansion Affected By EU Probe (Twice)

PDD Holdings' total revenues for the second quarter of 2024 were US$113,355.8 million, which was an 86% increase from the same quarter in 2023. However, this growth was slower than the 131% rate recorded in the first quarter of the year.

PDD Holdings' total revenues for the first quarter of 2024 were US$112,023.3 million, which was a 131% increase from the same quarter in 2023. PDD Holdings Inc. revenue for the last year amounted to 34.88 B USD.

The key revenue contributor came from Online Marketing Services and Others, its highest performing source which rake in 21.67 B USD. It brought in 15.25 B USD, one year ago.

The greatest contribution to the revenue figure was made by China, in 2023 it brought PDD Holdings Inc. 34.95 B USD, and the year before that — 19.39 B USD.

Temu, a subsidiary of PDD Holdings, is expanding into Europe by targeting Amazon merchants in the UK, Germany, France, Italy, and Spain. Temu's goal is to capture 50% of the market share in the region. PDD Holdings has found that small towns and cities are a fast-growing market for online retailers.

PDD’s Temu racks up USD 20 billion in first-half sales, surpassing 2023 total. But in November, we saw that Temu faces second EU probe for misleading sales practices.

What would be interesting to watch in this earnings would be how much revenues could Temu brought in for PDD in other regions like Europe amidst the EU probe (twice in fact).

China Consumer Confidence Decline - Same Concern For PDD As BABA?

In September 2024, China's consumer confidence index was 85.7 points, which was down from 85.8 points in the previous month.

While many economies in the West are grappling with high inflation, China’s economy is struggling with low or negative prices. We have seen the central bank taken aggressive measures to support the economy, including monetary support measures and a plan to boost spending.

But if we looked at PDD’s competitors in China, $Alibaba(BABA)$ ,their sales for Alibaba's massive China-focused retail division – the Taobao and Tmall Group – were essentially flat from a year earlier, at 212.4 billion yuan, while BABA international retail sales surged 35% to 25.6 billion yuan. So BABA has looked to grow its internationally-focused Lazada and AliExpress businesses with consumer spending slowing in China.

So this might give us an idea that the measures might not be enough to boost consumer economic activity and demand in the retail spending side in the near term.

PDD would have a tough time in expanding into Europe with EU given second probe recently in November. I am expecting PDD to adjust its guidance downwards for 2024 and future quarters.

Technical Analysis - MACD and Multi-timeframe (MTF)

PDD is currently trading below the short-term and long-term MA which is converging and MACD is also converging, and no potential reversal can be seen.

This might be due to the recent EU second probe reported on 08 November for misleading sales practices, this should have caused some investors to start to adopt a wait-and-see attitude as we can see that it has started to trade sideways.

So with the Chinese stimulus measures not really helping consumer to spend more as seen from BABA earnings, PDD Temu might suffer from its domestic retail sales and their EU sales from first half of $20 billion might take a hit.

I think it is better to hold on to go into this stock, monitor and see how 20 Nov trading goes for Chinese ADRs stocks.

Summary

I think PDD will face challenges from their Europe expansion and with a slow domestic retail spending, I am expecting PDD to lower their guidance for the next quarter, and this might cause some significant movement to its stock price.

I will be monitoring how BABA and PDD trade today (20 Nov) whether traders and investors confidence is back.

Appreciate if you could share your thoughts in the comment section whether you think PDD would be able to give an earnings surprise or PDD would lower their outlook guidance.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.