Although China was the first country to suffer from the novel coronavirus, it’s also the first to enjoy a significant economic recovery from the pandemic. Naturally, this dynamic lifted Chinese e-commerce company Pinduoduo (NASDAQ:PDD), with PDD stock becoming one of the top performers of this year. However, this narrative could be coming to a close, considering two major headwinds impacting the underlying business.
First, Pinduoduo has long suffered criticism that its growth strategy is unsustainable. No stranger to offering its customers generous subsidies, Pinduoduo eschews any pretense of profitability to maximize its growth potential. Hence, in its second quarter of 2020 earnings report, the company disclosed revenue of 12.19 billion yuan, or $1.76 billion.
This is up a whopping 67% from the year-ago quarter. However, that’s where the good news ends for PDD stock. As Reuters detailed regarding its Q2 results:
Pinduoduo’s second quarter operating loss widened to 1.64 billion yuan ($236.87 million) from 1.49 billion yuan a year earlier as the cost of maintaining its cloud services and call centre operations during the COVID-19 pandemic rose.
Its 12-month gross merchandise volume (GMV), a measure of business growth, was 1.27 trillion yuan. Although that was up almost 10% from the end of the first quarter, it failed to meet some analysts’ expectations.
Not surprisingly, PDD stock tanked badly on the disclosure. Moving forward, analysts and investors will likely have even more questions regarding Pinduoduo’s sustainability. For instance, Pinduoduo got into a heated clash with Tesla (NASDAQ:TSLA) by offering the Model 3 at a steep discount. However, Tesla has a policy against the reselling of its vehicles, thus refusing to honor PDD’s too-good-to-be-true sales promotion.
PDD Stock May Face a Political Reality Check
Interestingly, Pinduoduo’s management team may have known that with its Tesla stunt, it gave itself a win-win situation. As FT.com noted, the e-commerce firm has been looking to shed its reputation as a hub for junk. By selling Tesla and other high-profile western products like Apple (NASDAQ:AAPL) iPhones, Pinduoduo sends a clear message: it’s a premium retail platform now.
With Tesla, if the electric vehicle maker enabled the offering, Pinduoduo wins. If not – as was the case – the Chinese company gets free publicity. As a bonus, it received sympathy from the China Consumers’ Association, which called Tesla’s actions “improper.”
While a huge benefit to PDD stock (before the Q2 report came out), this is also a sign of typical Chinese trolling. In a time of smoldering tensions between the U.S. and China, such trolling is perfect campaign material for President Trump.
Recently, I listened to former Vice President Joe Biden accept the Democrats’ nomination for President. Given the image of his frailty, Biden looked spunky, delivering a solid speech. But the problem is that Trump is spunkier and has far more charisma than any of the heavy-hitting Democrats can muster.
Further, Trump has no qualms about saying some shocking things. Guaranteed, he will blast China and its leadership like you wouldn’t believe. And you know what? Neither the Democrats nor their cronies at every major news channel can paint the picture that Trump is racist.
Sure, they’ll try, but it won’t stick. According to a Pew Research Center report in April of this year, Americans view of China shifted very unfavorably because of the pandemic. True, more Republicans dislike China than Democrats. However, a majority of supporters from both parties have an unfavorable view of the Asian powerhouse.
A Simple Roadmap
Of course, a Trump presidency would not be helpful to PDD stock. After all, this is an administration that is seeking to ban the popular app TikTok. But even this action should tell you how confident the President is in his anti-China narrative.
It’s a strategy so simple, a simpleton can execute it, which is why Trump is executing it. All he needs to do is to sit there and take potshot after potshot against China, or even Chinese people for that matter. Because in a pandemic where so many hurting Americans are looking to channel their rage, all lives matter except Chinese ones – or anyone that looks Chinese.
Now, what I just said sounds dark and cynical. But you have to remember that pre-pandemic, less-educated white voters held the keys to the White House. And they still do. Typically, these voters don’t understand nuance, probably getting their talking points from Fox News. When you have a President bluntly explaining that the source of all their misery are shifty-eyed, conniving Chinese – well, you shouldn’t be surprised if Trump wins, and by a comfortable margin at that.
So, forget the polls. There are only two facts that are pivotal to this election: a) many Americans don’t like the Chinese because of the pandemic and b) most voters are white and modestly educated. Therefore, Trump wins and that’s bad news for PDD stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.