What happened
Shares of PDD Holdings (PDD -1.89%), the parent of Chinese social commerce company Pinduoduo and new U.S. marketplace Temu, were falling today as rival JD.com (JD 0.71%) is preparing for a new $1.5 billion subsidy campaign aimed at competing with Pinduoduo on low-margin merchandise.
Chinese e-commerce stocks fell broadly on signs that competition was heating up, and Pinduoduo stock was down 9.6% as of 12:05 p.m. ET.
So what
According to the South China Morning Post, JD.com is launching a new subsidy campaign in early March to stem Pinduoduo's market share gains, as its Groupon-like social shopping model has made it a major player in Chinese e-commerce, alongside JD and Alibaba. The subsidies are expected to cover both JD's first-party direct retail platform and its third-party platform.
The decision for JD comes after founder Richard Liu returned to the CEO role in December and said the company needs to recapture its low-price reputation as it has lost market share to Pinduoduo in the discount segment.
Pinduoduo has used similar subsidies in the past, which strengthened its position with more budget-conscious customers in China's lower-income small towns, where it's built a more extensive delivery network than JD.
Now what
JD's new strategy indicates it's willing to fight a price war with Pinduoduo to gain market share, which is likely to impact both companies' bottom lines. Pinduoduo only recently turned profitable after years of reporting losses as it spent aggressively on marketing.
The company's most recent report shows the business has evolved nicely with $1.5 billion in generally accepted accounting principles (GAAP) net income on $4.9 billion in revenue, but JD's move could put those margins in jeopardy.
We'll learn more next month, when JD's new program goes into effect.
