MW Temu parent is using coupons, lower fees to eat some costs of Trump's tariffs

By Tomi Kilgore

PDD's stock tumbled as investments to fend off tariffs and competition lead to a big miss in quarterly earnings

Shares of Temu parent PDD Holdings Inc. took a deep dive in Tuesday's trading after the e-commerce company missed quarterly earnings expectations by a wide margin, citing the costs to help shield merchants and consumers from the effects of tariffs.

The China-based company said it was also dealing with increasing competition from companies that sell their products directly to consumers, which gives them an advantage to Temu's third-party marketplace model. The costs to support those third-party merchants also weighed on first-quarter results.

"In the first quarter, we made substantial investments in our platform ecosystem to support merchants and consumers amid rapid changes in the external environment," said PDD co-Chief Executive Lei Chen.

The U.S.-listed stock $(PDD)$ tumbled 15.1% in midday trading, which put it on track for its biggest one-day selloff since a record 28.5% plunge on Aug. 26, 2024.

PDD's efforts show how tariffs are hurting companies on both sides of the trade war - but there is a key difference for the Chinese company.

Walmart Inc. $(WMT)$ said earlier this month that it may have to raise prices to deal with higher costs from tariffs, only to receive criticism from President Trump, who urged the company to "eat the tariffs." In contrast, PDD's efforts to help shield both the supply and demand for products from tariffs is being supported by China's National Subsidy Program, which is aimed at boosting consumer spending.

Also read: Walmart is reportedly cutting jobs to lower costs, in another way to deal with tariffs.

On the supply side, among the ways PDD is supporting merchants is through a RMB100 billion ($13.7 billion) support program to help merchants compete.

PDD believes it needs to support its merchants for the longer-term outlook since, because Temu is a third-party marketplace - meaning it acts as a middleman between merchants and consumers - PDD believes its merchants have a "clear disadvantage" to competitors with a first-party business.

And on the demand side, PDD is supporting consumers with programs including an RMB10 billion ($1.4 billion) coupon program. The company is also holding some prices firm, with the help from government subsidies.

"The platform will continue to benchmark prices against the national subsidy program and expand the promotion coverage to categories such as daily necessities," said co-CEO Jiazhen Zhao, according to a FactSet transcript of a postearnings call with analysts.

Meanwhile, PDD reported first-quarter net income that dropped 47% form a year ago to RMB14.7 billion ($2.03 billion), which was well below the average analyst estimate compiled by FactSet of RMB25.9 billion. That was the biggest miss of bottom-line expectations in four years.

Revenue rose 10% to RMB95.7 billion, which also missed expectations of RMB103.1 billion.

PDD's stock has gained 4.3% in 2025, while the iShares MSCI China ETF MCHI has rallied more than 15% and the S&P 500 index SPX has edged up 0.5%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 27, 2025 12:53 ET (16:53 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.