PDD’s status as China’s top growth stock is in doubt after a 30% decline.

(Bloomberg) — The position of PDD Holdings Inc. ( PDD ) of China’s best-performing tech stock is at risk amid a crisis in investor confidence over the e-commerce company’s weaker-than-expected sales and growing competitive threats.

Bloomberg’s most read

The company behind the popular Temu platform and its Chinese equivalent Pinduoduo has seen its US-listed shares fall 30% since market-disappointing results last month. That’s the worst performance ever for the Nasdaq 100 (^NDX), and the pain seems far from over as analysts cut expectations for the former market darling.

PDD’s poor outlook and lack of shareholder returns raised concerns. Meanwhile, rivals including Alibaba Group Holding Ltd. ( BABA ) are showing success in matching the company’s slashing prices, and heated U.S. rhetoric continues to build over the Chinese business model.

In the earnings briefing, management “guided for lower growth and lower margins over the long term” while saying it needs to spend more to defend its market share, Chelsey Tam said , analyst at Morningstar Inc. “They say the competition is intense,” she said.

Until recently, PDD was seen as a rare bright spot in China’s e-commerce, as its low-price strategy allowed Pinduoduo to gain share among consumers looking for value in a weakening economy. He also garnered praise by duplicating this success overseas with Temu. Shares of PDD are still up 171% over the past five years, outperforming Bloomberg’s top Chinese tech stocks.

That changed with the company’s warning that revenue growth would inevitably decline. PDD has shed more than $80 billion in market value since its peak in May, once again overtaking Alibaba as China’s largest e-commerce firm. In the process, PDD founder Colin Huang lost his briefly held position as the nation’s richest person.

“The market quickly became concerned that PDD’s hyper-growth phase may be coming to an end,” said James Kenney, senior investment manager at Pictet Asset Management. “Domestic macro headwinds and a growing competitive landscape are likely to moderate this strong growth in the shorter term.”

Amazon.com Inc. plans. (AMZN) for a discount section, and recent offerings from others, including TikTok owner ByteDance Ltd., are crowding the mainstream low-cost PDD market. At the same time, geopolitical risks are rising as the US focuses on forced labor and retailers avoiding import duties with large volumes of small shipments.

The story continues

“More than 50 percent of Temu’s products currently come from China,” so increased scrutiny may hurt PDD’s margins, Bloomberg Intelligence analyst Catherine Lim said. She added, however, that “in terms of price competitiveness, I’m less concerned about that because rivals like AliExpress and Amazon source a similar portion from China.”

The consensus price target for PDD shares has been cut 24 percent since its August results, more than any other Chinese company except Gaotu Techedu Inc., according to data compiled by Bloomberg. Analysts have been put off by the online retailer’s unclear guidance, as well as the absence of plans to buy back shares or pay dividends, even as rivals plan record levels of shareholder returns.

“All investors we spoke to were puzzled by the PDD guidance and investment areas,” the JPMorgan Chase & Co. analyst wrote. Andre Chang in a note. Long-dated funds, in particular, “are disappointed by the company’s apparent disregard for shareholder value, given PDD’s guidance that it will not consider shareholder return actions for the foreseeable future.”

Top Technologies

• OpenAI is releasing a new AI model, known internally as “Strawberry,” that can perform some human-like reasoning tasks as it looks to stay ahead of a crowded market.

• Oracle Corp. said annual revenue will rise to at least $104 billion in fiscal 2029, a bullish signal about the growth prospects of the software maker’s cloud infrastructure business.

• Shares of Adobe Inc. they fell after the company provided an outlook that failed to quell investors’ eagerness for the new AI tools to start generating cash.

Bloomberg Businessweek’s most read

©2024 Bloomberg LP