Shares of PDD Holdings(NASDAQ: PDD), which owns the popular online marketplace Temu, fell as much as 32.9% in trading this week, according to data provided by S&P Global Market Intelligence. The company reported earnings that showed an astounding 86% increase in revenue, but the biggest news was management saying the focus would be on growth, not profits, in the future.
PDD's priorities
Second-quarter 2024 revenue jumped 86% to $13.6 billion, and operating profit jumped 156% to $4.48 billion.
While the results were impressive, co-CEO Jiazhen Zhao said in the earnings statement, "We are committed to transitioning toward high-quality development and fostering a sustainable ecosystem." He went on to say there will be short-term sacrifices and profitability may decline as a result of these investments.
Temu's new direction
PDD's growth has been driven by Temu, and the site has become synonymous with low-cost, low-quality products. But Temu wants to make a transition from the low end of retail to a higher-quality market.
It's not clear that it will be successful, given the brand the company has already built. And now U.S. online retailers are trying to copy the company's marketplace by allowing retailers to sell and ship directly from overseas, avoiding many of the tariffs that larger retailers face.
While growth is great in online retail, PDD's strategy has been to acquire a lot of its customers in foreign markets, using loopholes that could eventually close. Moving into higher-end products may sound great, but it could come with lower profits just as some of these loopholes are getting more attention. I think investors are just taking risk off the table, and that's a good idea today.
Should you invest $1,000 in PDD Holdings right now?
Before you buy stock in PDD Holdings, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PDD Holdings wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $720,542!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 26, 2024
Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
