Very bad news for PDD Holdings stock price

PDD Holdings' stock is under pressure as Temu's US sales have plunged, with weekly sales down over 25% YoY between May 11 and June 8 due to reduced marketing spending and the impact of tariffs after the expiration of the de minimis tax break. This decline coincides with a 58% drop in US traffic to Temu's website in May, now surpassed by Brazil, France, Mexico, and Germany, contributing to concerns about PDD's growth prospects; Q1 results revealed a 10% revenue increase but a 38% drop in operating profit and a 47% decline in net income, leading to expectations of continued business slowdown despite analysts' bullish average stock price forecast of $127.

Analysis

PDD Holdings is experiencing significant headwinds, reflected in its stock price decline of over 23% from its March high to $102.25, and a 37% drop from its 2024 peak, placing it in a bear market. This pressure is primarily driven by a sharp downturn in its subsidiary Temu's US operations, where weekly sales plunged over 25% year-over-year between May 11 and June 8. This sales collapse is attributed to the cessation of the de minimis tax break leading to higher prices due to tariffs (initially 145%, now reportedly around 10%), and a drastic reduction in US marketing spend, with daily new ad creation plummeting from potentially tens of thousands to single digits or none at times. Consequently, US traffic to Temu's platform crashed by 58% in May, with its share now surpassed by markets such as Brazil, France, Mexico, and Germany. PDD's Q1 financials further underscore these challenges: while revenue increased 10% to $13.18 billion, operating profit fell 38% to $2.2 billion and net income dropped by over 47%. Management anticipates this business slowdown will persist due to scaling and external challenges, with analysts forecasting slower Q2 (5.8%) and Q3 (6%) sales growth. Despite an average analyst stock price target of $127, the stock's weekly chart shows a symmetrical triangle pattern nearing confluence and the MACD indicator below the zero line, suggesting an imminent significant price movement, potentially towards the $80 support or $125 resistance levels. The difficulties faced by Temu also draw parallels to historical precedents like Wish.com, which struggled with a similar business model, highlighting inherent long-term viability risks.

Key Decisions for Investors

• Investors should acknowledge the heightened risk profile for PDD Holdings, stemming from Temu's significant US sales decline, PDD's contracting profit margins, and the extremely negative sentiment, warranting a cautious stance.
• Closely monitor upcoming PDD earnings releases for any stabilization or further deterioration in Temu's US performance, changes in its aggressive marketing expenditure, and management's commentary on the sustained impact of tariffs, as these factors will be pivotal for the stock's trajectory.
• Be prepared for significant stock price volatility, as indicated by the symmetrical triangle pattern nearing confluence; a decisive break below the $80 support level could signal further downside, which would challenge the current average analyst price target of $127 given the prevailing operational headwinds.