By Casey Hall and Akash Sriram
(Reuters) -PDD Holdings beat first-quarter revenue estimates on Wednesday, powered by its international shopping site Temu and and growing consumer interest in its Chinese discount e-commerce platform Pinduoduo (NASDAQ:PDD).
The company's revenue rose 131% to 86.81 billion yuan ($11.99 billion) in the first quarter, compared with analysts' average estimate of 75.66 billion yuan, based on LSEG data.
PDD's shares were up 5.7% in pre-market trading.
Consumers in China have turned to less expensive shopping platforms such as Pinduoduo and Bytedance's Douyin at a time when a property sector downturn and rising local debt has weighed on the country's economic growth.
Temu, Pinduoduo's sister app, sells a wide variety of products, many of them made in China, for rock-bottom prices. Its popularity has grown since its launch in September 2022, as has competition with e-commerce incumbents such as Shein and Amazon (NASDAQ:AMZN) in the United States and other markets.
Competitors Alibaba (NYSE:BABA) and JD (NASDAQ:JD).com last week reported revenue that beat market expectations and said they expected consumer confidence to tick higher this year.
PDD's co-CEO Chen Lei told analysts in a call following the company's earnings release that competition has been fierce in the first quarter, with consumers growing accustomed to making purchases from a variety of platforms, rather than defaulting to just one.
"Our industry peers have significantly stepped up their efforts," he said. "We welcome healthy competition. We also realise that consumer demand is constantly changing and we must do our best to keep up."
PDD's net income rose to 28 billion yuan from 8.1 billion yuan a year ago. Its EPS of 20.72 yuan was significantly higher than the 10.07 yuan expected by analysts, as per LSEG data.
Cost of revenue grew by 194% to 32.7 billion yuan, however, outpacing the rise in revenue.
Analysts had expected the cost of goods sold to rise 30.78 billion yuan in the first quarter, according to nine analysts polled by LSEG.
PDD said the surge in cost of revenue was mainly attributable to increased fulfilment fees, payment processing fees, maintenance costs and call center expenses.
Bernstein analysts reckon Temu directed over $1 billion to advertising last year outside the Asia-Pacific region.
Temu has faced complaints from consumer groups, including the pan-European consumer organisation BEUC, which last week said it had lodged a grievance with the European Commission related to the information Temu gives regarding the sellers on its platform and whether its listed products met EU safety guidelines.
Temu, which entered the EU market just over a year ago, said it actively adjusts its service to align with local practices and preferences and that it is committed to full compliance with the laws and regulations of the markets where it operates.
($1 = 7.2396 Chinese yuan renminbi)