How does PDD compare to other large e-commerce firms in China? By Reuters

By Casey Hall

SHANGHAI (Reuters) – Shares in China’s biggest e-commerce companies – Alibaba (NYSE: ), JD (NASDAQ: ).com and PDD Holdings – were dropped earlier this week on concerns about pressure on their margins after low-cost supplier PDD pledged to invest more to offer discounts .

The three firms sell everything from beauty products, household goods, electronics and food to hundreds of millions of people each month and are seen as barometers of Chinese consumer sentiment.

But since 2021, as COVID-19 and a weak economic recovery, combined with a prolonged slump in the housing market, have hurt consumer confidence in China, the three have seen their fortunes diverge.

The biggest winner over that period in terms of revenue growth and market cap gains was PDD, which operates discount-focused platforms. Pinduoduo (NASDAQ:) for the domestic market in China and Temu internationally.

Belt-tightening consumers swooned over Pinduoduo’s cheap electronics and affordable clothing staples as they swapped more expensive items for unbranded versions.

But this week, PDD’s surprise miss on analysts’ estimates for quarterly revenue (even after posting an 86% increase in revenue and beating profit estimates) was enough to see some people wondering if even low-price consumption in China was beginning to suffer.

It followed a $55 billion removal of PDD’s market cap, as executives told a post-earnings call that revenue and profit growth will be harder to come by amid increased domestic competition and the need for “investment determined’ to attract higher value traders.

“The domestic demand picture is unlikely to change much in the coming months,” said M Science analyst Vinci Zhang. “Despite the fact that China’s government says it is committed to boosting consumer spending … they are failing to address the underlying problem, which is weak household income.”

Alibaba and JD.com have also struggled to find significant revenue growth in recent quarters, with a much larger revenue base than PDD’s. But to some extent, they have stopped the bleeding of market share in favor of Pinduoduo by focusing on value for money offerings.

Although PDD’s revenue is less than half of Alibaba’s and only a third of JD.com’s, PDD’s lean structure of relying heavily on third-party suppliers has allowed it to enjoy better margins.

PDD’s operating margin is the highest at 34% among the three, followed by Alibaba at 15% and JD.com at 3%, as it has a relatively small team of only 17,400 employees. By contrast, Alibaba Group has a workforce of about 200,000, and JD.com’s workforce was 517,000, including 355,000 delivery staff.

According to Jacob Cooke, CEO of e-commerce consultancy WPIC Marketing + Technologies, Pinduoduo’s strength continues to focus on unbranded goods. But low price alone may not be enough to generate customer loyalty in an environment where everyone is now offering low prices.

“While much noise has been made about aggressive discounting from PDD competitors, we now see JD.com, Douyin and Alibaba leaning more on their own unique competitive advantages – namely that these platforms are stronger in value brand products bigger. , customer service and content-based commerce,” he said.