PDD Holdings (PDD), the parent company of Temu and Pinduoduo, reported second-quarter results that blew past Wall Street expectations.
Adjusted earnings came in at $3.08 per American depositary share, far ahead of forecasts of $2.16. Revenue rose to $14.5 billion, modestly above estimates and up 7% from a year ago.
The better-than-expected results initially sent the stock soaring more than 11% in premarket trading, before settling to a gain of about 3% at $130.92. The volatile price action underscored investor uncertainty despite the earnings surprise, with tariff concerns and slowing revenue growth weighing heavily.
Over the past year, PDD shares have surged more than 30%, outpacing the S&P 500’s roughly 10% rise.
Profit Margins Under Strain
While top-line growth impressed, profitability told a different story. Non-GAAP net income dropped 21% to 27.75 billion yuan, or about $3.9 billion, as costs ballooned. Revenue-related expenses climbed 36% to nearly 46 billion yuan, fueled by higher fulfillment, payment processing, and bandwidth costs. Operating expenses also ticked up 5% to 32.3 billion yuan, driven largely by a 4.5% rise in sales and marketing outlays.
“We continued to invest in merchant support initiatives, which we believe are critical for building a healthier ecosystem,” Chairman and Co-CEO Lei Chen said. Finance Vice President Jun Liu acknowledged that such investments would keep pressure on margins in the near term, even as they strengthen the company’s competitive positioning.
While top-line growth impressed, profitability told a different story. Non-GAAP net income dropped 21% to 27.75 billion yuan, or about $3.9 billion, as costs ballooned. Revenue-related expenses climbed 36% to nearly 46 billion yuan, fueled by higher fulfillment, payment processing, and bandwidth costs. Operating expenses also ticked up 5% to 32.3 billion yuan, driven largely by a 4.5% rise in sales and marketing outlays.
“We continued to invest in merchant support initiatives, which we believe are critical for building a healthier ecosystem,” Chairman and Co-CEO Lei Chen said. Finance Vice President Jun Liu acknowledged that such investments would keep pressure on margins in the near term, even as they strengthen the company’s competitive positioning.
Competitive and Geopolitical Pressures
The earnings report highlighted the dual challenges PDD faces: slowing consumer demand at home and fierce competition abroad. Growth in online marketing services, one of PDD’s most important revenue streams, slowed to 13% from 15% in the prior quarter. Meanwhile, transaction services revenue remained flat.
In China, PDD continues to face heavy discounting battles with Alibaba (BABA) and JD.com (JD). Internationally, Temu has been pivoting to a fully managed model, taking greater control of logistics and pricing to better compete with Amazon (AMZN). But these strategic shifts require upfront spending that cuts into profitability.
The earnings report highlighted the dual challenges PDD faces: slowing consumer demand at home and fierce competition abroad. Growth in online marketing services, one of PDD’s most important revenue streams, slowed to 13% from 15% in the prior quarter. Meanwhile, transaction services revenue remained flat.
In China, PDD continues to face heavy discounting battles with Alibaba (BABA) and JD.com (JD). Internationally, Temu has been pivoting to a fully managed model, taking greater control of logistics and pricing to better compete with Amazon (AMZN). But these strategic shifts require upfront spending that cuts into profitability.
Geopolitics add another layer of uncertainty. With U.S.-China trade tensions resurfacing under President Donald Trump’s tariff agenda, costs tied to international shipping and imports could rise further, dampening Temu’s expansion momentum.
Outlook: A Cautious Path Forward
Despite the earnings beat, adjusted profit slipped about 6% compared with the same period last year, and management warned of continued fluctuations. Analysts remain divided. Some highlighted the stronger-than-expected bottom line, while others flagged risks from slowing growth and tariff exposure.
Consensus expectations for the next quarter stand at $2.15 per share on nearly $15 billion in revenue. But estimate revisions have recently trended downward, leaving PDD with a bearish Zacks Rank #5 (Strong Sell).
PDD’s strong supply chain and global ambitions give it resilience, but the road ahead is clouded by margin pressures, an intensifying e-commerce price war, and uncertain trade policies. For investors, the stock’s year-to-date rally may offer little cushion if profitability continues to erode.
Despite the earnings beat, adjusted profit slipped about 6% compared with the same period last year, and management warned of continued fluctuations. Analysts remain divided. Some highlighted the stronger-than-expected bottom line, while others flagged risks from slowing growth and tariff exposure.
Consensus expectations for the next quarter stand at $2.15 per share on nearly $15 billion in revenue. But estimate revisions have recently trended downward, leaving PDD with a bearish Zacks Rank #5 (Strong Sell).
PDD’s strong supply chain and global ambitions give it resilience, but the road ahead is clouded by margin pressures, an intensifying e-commerce price war, and uncertain trade policies. For investors, the stock’s year-to-date rally may offer little cushion if profitability continues to erode.
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