American depositary receipts (ADRs) of $PDD Holdings (PDD.US)$ plunged nearly 30% on Monday, marking their worst performance since the company went public in 2018. The sharp decline comes amid widespread selling pressures triggered by the company's dismal second-quarter earnings and a more pessimistic revenue forecast.
The sell-off was driven by a combination of lackluster second-quarter results and a bleaker revenue outlook that rattled investor confidence.
The Chinese retail giant reported quarterly revenues of RMB97.06 billion ($13.4 billion), an 86% increase from RMB52.28 billion in the same quarter of 2023. However, the figure fell short of analyst expectations, which were set at $13.78 billion.
Market Punishes PDD On Disappointing Q2 Results, Goldman Sachs Holds Bullish Outlook
Goldman Sachs analyst Ronald Keung, noted that the negative market reaction was likely driven by heightened expectations ahead of the earnings release, as the stock had surged about 20% from the low $120s since late July in anticipation of strong results.
Keung also highlighted initial signs of a slowdown in online marketing services growth, which came in at 29% year-over-year, below the consensus estimates of 36%, as well as management's comments about slower revenue growth, fluctuating profits due to intensified competition, and the potential long-term decline in domestic profitability added to the concerns.
"While encouraged by the solid progress we made in the past few quarters, we see many challenges ahead," said Lei Chen, chairman and co-CEO of PDD Holdings.
"We are committed to transitioning toward high-quality development and fostering a sustainable ecosystem. We will invest heavily in the platform's trust and safety, support high-quality merchants, and relentlessly improve the merchant ecosystem. We are prepared to accept short-term sacrifices and a potential decline in profitability," Chen added.
Despite the disappointing earnings, Goldman Sachs maintained a Buy rating on PDD, with a 12-month price target of $184, equating to a nearly 90% upside from current market levels.
The investment bank highlighted PDD's strong adtech capabilities, cost-competitive Chinese suppliers, and favorable risk-reward profile, indicated that the current market cap does not account for any valuation attributed to PDD's online marketplace Temu.
ETFs With Significant Exposure To PDD Suffer A Blow
PDD's dramatic single-day decline had a ripple effect on several exchange-traded funds (ETFs) with significant exposure to the stock. Here are the most affected ETFs:
ETF Name | Weight % | 1-day % Change |
|---|---|---|
ProShares Online Retail ETF (NYSE:ONLN) | 11.27% | -4.6% |
Global X MSCI China Consumer Discretionary ETF (NYSE:CHIQ) | 10.23% | -4.3% |
ProShares Long Online/Short Stores ETF (NYSE:CLIX) | 9.87% | -4.6% |
Invesco China Technology ETF (NYSE:CQQQ) | 9.32% | -3.5% |
KraneShares CSI China Internet ETF (NYSE:KWEB) | 9.05% | -3.22% |
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