Chinese e-commerce discounter PDD Holdings reported a fall in second-quarter profit on Monday and revenue that missed market estimates as fierce competition in China and mounting regulatory pressure overseas weighed on growth.

The operator of Pinduoduo in China and Temu internationally said revenue rose 8 per cent to 112.36 billion yuan (US$15.7 billion) in the three months ended June 30, below analysts’ average estimate of 116.35 billion yuan, according to LSEG data.

Net income attributable to ordinary shareholders fell 12 per cent to 27.2 billion yuan from a year earlier, but adjusted earnings per American Depositary Share of 19.33 yuan beat analysts’ expectations.

PDD shares were up 2.3 per cent in early morning trading in New York.

PDD competes with Alibaba’s Taobao and Tmall, JD.com and ByteDance-owned Douyin through discounts, subsidies and incentives aimed at attracting consumers and merchants.

However, weak consumer confidence, concerns over job security and a prolonged property downturn have kept shoppers cautious, fuelling a price war across China’s e-commerce sector and squeezing margins.

PDD executives told analysts on a post-earnings call that competition in the Chinese e-commerce market “remained intense”, prompting further investments in platform governance.

Consumer spending remained subdued even during this year’s ‘618’ shopping festival, one of China’s largest online sales events, despite weeks of promotions and discounts.

PDD has stepped up spending on logistics and merchant support programmes to lower fulfilment costs and improve value for consumers, raising investor concerns that profitability could come under further pressure.

Regulatory pressures in US and Europe

Temu, meanwhile, faces increasing scrutiny in some of its largest overseas markets.

The platform built its international business by shipping low-cost goods directly from Chinese suppliers to overseas consumers, but has been hit by US tariffs on Chinese imports and the end of duty-free treatment for low-value parcels.

Higher shipping and compliance costs have forced some merchants to raise prices, potentially dampening demand among price-sensitive shoppers in the US and Europe.

Low-value e-commerce goods have also attracted scrutiny, with shipments declining in recent months as changes to trade rules and tariffs disrupted cross-border sales.

“We find ourselves at a unique intersection of global trade constantly navigating diverse international regulatory frameworks,” said PDD’s co-CEO Chen Lei.

In Europe, policymakers have stepped up efforts to curb the influx of inexpensive goods from China through platforms including Temu, Shein and Alibaba’s AliExpress. The European Union’s new fee imposed in July on small parcels imported directly from China is set to increase costs for sellers and consumers alike, industry analysts say.

“In the short term, cross-border orders in the affected markets will face slower fulfilment efficiency and higher costs which will have a considerable impact on those parts of our business,” Chen said.

The added costs threaten to erode Temu’s price advantage and could make it harder for the company to sustain the rapid international growth that has helped fuel investor enthusiasm for PDD, analysts say.

• Reporting by Harshita Mary Varghese in Bengaluru; Editing by Pooja Desai, Christopher Cushing and Emelia Sithole-Matarise, of Reuters.