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The nearly 30% drop in shares of China online retailer PDD Holdings was a “very strong correction,” said Shaun Rein, founder and managing director of China Market Research Group.
Speaking to CNBC’s “Street Signs Asia,” Rein said that “the panic was overblown last night,” and that this would be a good opportunity for investors to buy the stock.
Comments that come after sharing from PDD Holdings saw its biggest one-day loss since listing on the Nasdaq, plunging 28.57% on Monday after second-quarter results fell short of expectations.
PDD Holdings reported second-quarter revenue of 97.06 billion yuan, or $13.6 billion, an 86% increase from the same period a year earlier. But this fell short of Wall Street’s expectations for quarterly revenue of $14.034 billion, or 99.98 billion yuan, from analysts polled by FactSet.
PDD reported operating profit of 32.56 billion yuan, up 156% from a year ago, while attributable income rose 144% year-on-year to 32.01 billion yuan.
Rein said, “I actually think Pinduoduo is a good buy at 30% down, because there is still a lot. Well, it failed to hit the analyst’s expectations, but you still grow 20%, 30%, you still get billions. dollars.”
They list brands like Pinduoduo, Costco and Walmart’s Sam’s Club will benefit from economic weakness in the country as Chinese consumers decline. Pinduoduo is PDD Holding’s largest e-commerce platform and has a group buying feature that lowers prices when more people participate.
“Because the name of the game for now, for the rest of the year … is the price for the Chinese consumer,” Rein said.
A careful statement
But the sell-off may have been triggered by cautious statements from the company’s leaders, not the second quarter numbers, said Ben Harburg, portfolio manager at the asset management company CoreValues Alpha.
Lei Chen, chairman and co-CEO of PDD, wrote in the earnings release that “While encouraged by the solid progress we made in the past few quarters, we see many challenges ahead.”
Chen added that the company is “prepared to accept short-term sacrifices and potentially lower profits” as it invests in areas like trust and security, as well as improving the merchant ecosystem.
His view was echoed by PDD Vice President of Finance Jun Liu, who wrote, “Looking forward, revenue growth will certainly face pressure due to increased competition and external challenges.” He added, “profits will also be affected as we continue to invest decisively.”
Harburg said the Chinese e-commerce sector is now saturated, and PDD faces domestic competition such as J.D, Alibabaand Shein. Globally, the company will be up against incumbents like Amazon.
This, combined with weak consumer growth in China, has led to a slowdown in China’s e-commerce sector, Harburg said, pointing to second-quarter results from JD.com and Alibaba as well.
“So I don’t think it’s isolated. PDD, in many ways, PDD is longer than others,” he said.
