---
endpoint: analytics
pattern: Internet
status: done
latency_ms: 245786
conversation_id: d4fed8f1-819d-44e4-9109-8cad2715b031
citations: 17
created: 2026-05-31 19:14:13Z
---

# Provide a one‑year narrative of PDD, outlining how business performance, market conditions, and company actions shaped investor sentiment and valuation.

# PDD Holdings — One-Year Narrative (May 2025 → May 2026)

The past 12 months for PDD Holdings have been a story of **deliberate margin sacrifice in service of long-term ecosystem rebuilding**, set against a backdrop of intensifying domestic competition, escalating US tariff/regulatory disruption to Temu, and a management-led strategic pivot that fundamentally reshaped how investors valued the franchise. The stock spent the year compressing on each profit shock, then recovered modestly as the Street began to accept lower steady-state margins as the new normal.

---

## I. May 2025 — The Inflection: From "Cash Machine" to "Investment Cycle"

The narrative inflection point was **PDD's Q1 2025 print on 27 May 2025**, which CLSA characterized as a "hard miss" in a note titled *Challenging time*: total revenue grew only 10% YoY to Rmb95.7bn, while adjusted Ebit collapsed **36% YoY to Rmb18.3bn — 33% below CLSA's estimate** [1]. Adjusted net profit fell 45% YoY with margin compressing to 17.7%, with S&M expenses jumping 34% YoY as PDD subsidized SME merchants out of its own pocket to match trade-in subsidized prices on appliances, 3Cs and even daily goods to peer channels [4].

Two simultaneous shocks drove the miss:

- **Domestic merchant support.** PDD upgraded its **Rmb10bn fee reduction program into an Rmb100bn merchant support program**, expanding industrial-belt support from top/mid-tier to small merchants — explicitly designed to help merchants invest in R&D, product upgrades and branding amid macro & tariff headwinds [2]. The domestic take rate dropped 0.7ppt YoY to 5.3%, decelerating revenue growth even as GMV grew ~20%.
- **Temu disruption in the US.** Temu's US MAUs fell **30% from March to 41m in May 2025** after Washington removed the De Minimis Tax Exemption and raised tariffs in early April; daily GMV reportedly declined 50% post the tariff hike after Temu passed costs to consumers, triggering social-media backlash [3]. In early May Temu pulled direct China-to-US shipping; US sales were rerouted through a local semi-consignment model (now 80–90% of US GMV) [3][5].

CLSA's response was emblematic of the Street's posture: **cut 25/26 adj. NP estimates by 29%/36%**, cut TP from US$150.40 to **US$128**, but maintained Outperform [1] — analysts willing to accept a margin reset but not yet willing to abandon the structural story.

---

## II. Q2 2025 (reported 25 Aug 2025) — A "Beat" That the Market Still Sold

PDD's Q2 print on 25 August 2025 ostensibly beat: **non-GAAP EPADS came in at CNY22.07 vs FactSet consensus CNY15.53** [13] — a wide upside surprise. But the management tone was anything but celebratory: "Revenue growth further moderated, and operating profit declined by 21% year-over-year. However, as we have emphasized in the past, we prioritize long-term value creation over short-term financial results" [6]. The Rmb100bn support program was now front-and-center as a multi-quarter commitment.

Sentiment broke regardless. **New Street Research downgraded PDD to Neutral from Buy the next morning** [14], with the stock at $128.21. The Street message: a beat doesn't matter if guidance language explicitly tells you not to extrapolate. Simultaneously, the **FT reported Temu had resumed shipping from Chinese factories to US consumers and stepped up US advertising spending** [15] — a tactical reversal that highlighted Temu's continued strategic improvisation under tariff regimes.

---

## III. Q3 2025 (reported 18 Nov 2025) — Ten Years, Lower Profitability, Tougher Competition

The Q3 2025 call coincided with PDD's 10th anniversary and was framed as such by management: **"This quarter, we reported RMB 108 billion in revenue, with growth remaining under pressure. As always, we've prioritized long-term value over short-term results"** [7]. Headline EPADS again beat — **CNY21.08 vs consensus CNY16.59** [17] — but the operating story decisively worsened:

- Online marketing revenue growth **slowed to 8% YoY** as competition intensified and platform investment continued.
- Non-GAAP operating margin compressed to **25% from 27% YoY**.
- Management for the first time explicitly flagged that **"trade barriers and other global events" were producing "significant shifts in the platform's regulatory environment, including in trade policies, tax rules, data security, and the product compliance regulation across different countries and regions"** — risks "unpredictable and difficult to quantify" [8].

**Bernstein downgraded PDD to Market Perform from Outperform** the same day [16] — the second major sell-side downgrade in the cycle. The stock dropped from $129.04 pre-print to $118.08 by the next session [17], reflecting investor exhaustion with the "we will invest more, results will fluctuate" framing.

---

## IV. Q4 2025 / FY2025 (reported 25 Mar 2026) — The Headline Miss That Triggered the Sentiment Pivot

Q4 2025 was the most negative print of the year on a consensus basis: **non-GAAP EPADS CNY17.69 vs FactSet consensus CNY20.84** — a clear miss across a range of CNY18.34–24.16 [18]. Management framed FY2025 as the largest investment year in PDD's history: **"This quarter, the group's revenue reached RMB 123.9 billion, growing 12% year-on-year, while full year revenue reached RMB 431.8 billion, up 10% year-on-year"** [9], with both quarterly and annual net income down YoY due to sustained supply-side and demand-side investment.

Critically, this print included a **major governance announcement**: at the December 2025 shareholder meeting PDD introduced a **co-share / co-CEO structure** and signaled "a systemic and structural transformation of our organization, culture and the corporate governance," with management explicitly tying it to the **"rapidly evolving international geopolitical landscape with trade and regulatory policies across regions changing quickly and becoming increasingly tightening"** [10].

Counterintuitively — and this is the key sentiment pivot of the year — **the Street upgraded into the weakness**:
- **Huatai Securities upgraded to Buy** on 26 March 2026 (stock ~$102.61) [20].
- **Nomura upgraded to Buy from Neutral** the same evening [19].

The interpretation: expectations had finally been reset low enough that the long-term moat (cash-rich balance sheet — Rmb422.3bn in cash & short-term investments as of Dec-25, ecosystem reinvestment, ex-US Temu growth) was again attractive at a sub-12x adj-PE multiple.

---

## V. April–May 2026 — Regulatory Pressure, Strategic Pivot, and the "Second Decade"

Spring 2026 layered two more elements onto the narrative:

1. **Renewed China regulatory pressure on the platform model.** Per Nikkei on 14 April 2026, China was preparing to **fine PDD Holdings and other e-commerce platforms over concerns around food deliveries** [22] — the latest in a string of platform-economy regulatory actions that have selectively constrained margin and reinvestment latitude.
2. **Arete Research upgraded to Buy from Neutral on 17 April 2026** (stock ~$106.06) [21], indicating Street sentiment continued to migrate from "underweight on margin reset" to "buy the new steady-state."

Then on **27 May 2026** PDD reported Q1 2026 — the structural pivot was now formalized. Newly appointed Chairman Zhao Jiazhen opened the call: **"this year marks the beginning of PDD's second decade. Following my appointment as Chairman, this is also a critical year for the complete reinvention of our corporate organization and culture, which is centered on the high-quality development of a new decade"** [11].

Most importantly, PDD unveiled a **first-party brand strategy** — a direct break from the platform-only model — to be funded by another **three-year, Rmb100bn supply-chain investment plan**: **"under our first-party brand model, we provide a certainty of sales volume to the supply chain and empowering the manufacturers to confidently invest in R&D and process innovation, and significantly cutting down the cost and risks that are inherent in the innovation and brand building"** [12]. Q1 2026 total cost of revenues rose 15% to Rmb46.9bn driven by fulfillment, bandwidth/server, and payment processing — consistent with PDD absorbing supply-chain risk in exchange for control over quality and margin structure over time.

---

## VI. Sentiment & Valuation Arc — Summary Table

| Quarter (reported) | Headline | Stock context | Sell-side reaction | Investor narrative |
|---|---|---|---|---|
| Q1'25 (27-May-25) | Adj. EBIT –36% YoY, hard miss [1] | TP cut to $128 from $150.40 [1] | CLSA O-PF, est. cuts 29%/36% [1] | Margin reset on Rmb100bn program + Temu US shock |
| Q2'25 (25-Aug-25) | EPADS beat (22.07 vs 15.53) [13] | $128.21 → downgrades | New Street → Neutral [14] | "Beat" rejected; mgmt tone too cautious |
| Q3'25 (18-Nov-25) | EPADS beat; OM –2ppt [17] | $129 → $118 next day [17] | Bernstein → Market Perform [16] | Geopolitical / regulatory risk explicit [8] |
| Q4'25 (25-Mar-26) | EPADS **miss** 17.69 vs 20.84 [18]; FY rev +10% [9] | ~$100 area | Huatai → Buy [20]; Nomura → Buy [19] | **Sentiment pivot**: expectations reset, valuation supportive |
| Q1'26 (27-May-26) | "Second decade" + 1P brand strategy [11][12] | Post-Arete upgrade @ $106 [21] | Constructive; new strategic chapter | Pivot from platform-only to supply-chain depth |

---

## VII. The Through-Line

Three intertwined forces shaped investor sentiment over the year:

1. **A management-led margin reset, not a forced one.** PDD spent the year deliberately collapsing operating margin from ~32% (Q1'24) to ~19% (Q1'25) via the Rmb10bn → Rmb100bn merchant support program [2][4], then another Rmb100bn first-party brand commitment in 2026 [12]. The Street's repeated complaint — that any single quarter's profit "should not be considered as guidance for future performance" — was made literally by management, undermining traditional DCF anchoring.

2. **Temu went from US growth engine to geopolitical hostage.** The April 2025 De Minimis removal forced an immediate semi-consignment pivot in the US [3], a tactical resumption of China direct-shipping by August [15], and a wholesale geographic rebalance toward Europe and South America (now Temu's top market at 30% of MAU). Management explicitly told the Q3'25 call that regulatory risk across "trade policies, tax rules, data security, and product compliance" was now unpredictable [8].

3. **Domestic competition intensified into new business models** — quick commerce, live-streaming commerce — forcing PDD to defend GMV with subsidy matching while peers (Meituan, Alibaba, Douyin) absorbed margin pressure on their own terms. The April 2026 China food-delivery fine signal [22] underscored that the regulator was now actively shaping competition.

The valuation outcome was a year of **derating from ~16x to ~12x forward adj-PE** as estimates fell faster than the share price, followed by stabilization in March–May 2026 as the **co-share governance change, first-party brand pivot, and a reset earnings base** convinced a quorum of sell-side names (Huatai, Nomura, Arete) that PDD was once again investable on a 3-year horizon. Bernstein and New Street remained on the sidelines — the bear case being that supply-chain reinvention will keep margins below historical levels indefinitely, with cash burn now extending into Year 2 of the new program [12].

PDD ends the year a fundamentally different company in narrative terms: from "uniquely high-margin platform with a Temu free option" to **"long-cycle supply-chain investor with a structurally lower steady-state margin, a co-CEO governance, and a geographically rebalanced Temu."** Whether that is a better or worse company depends entirely on the time horizon the investor is willing to underwrite.

---

**Sources**

[1] PDD - O-PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF
[2] PDD - O-PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF, Domestic Rmb100bn support program
[3] PDD - O-PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF, Temu US users –30%
[4] PDD - O-PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF, Profits miss / margin compression
[5] PDD - O-PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF, Semi-consignment 80-90% US GMV
[6] PDD Holdings Q2 2025 Earnings Call (25 Aug 2025)
[7] PDD Holdings Q3 2025 Earnings Call (18 Nov 2025)
[8] PDD Holdings Q3 2025 Earnings Call (18 Nov 2025), geopolitical/regulatory risk
[9] PDD Holdings Q4 2025 Earnings Call (25 Mar 2026)
[10] PDD Holdings Q4 2025 Earnings Call (25 Mar 2026), governance reform
[11] PDD Holdings Q1 2026 Earnings Call (27 May 2026), Jiazhen as Chairman
[12] PDD Holdings Q1 2026 Earnings Call (27 May 2026), First-party brand model
[13] StreetAccount — PDD Q2 earnings beat, outlook remains challenging (25 Aug 2025)
[14] StreetAccount — PDD downgraded to neutral at New Street Research (26 Aug 2025)
[15] StreetAccount / FT — Temu resumes shipping goods from China to US (26 Aug 2025)
[16] StreetAccount — PDD downgraded to market perform at Bernstein (18 Nov 2025)
[17] StreetAccount — PDD Q3 EPADS CNY21.08 vs CNY16.59 (18 Nov 2025)
[18] StreetAccount — PDD Q4 EPADS CNY17.69 vs CNY20.84 (25 Mar 2026)
[19] StreetAccount — PDD upgraded to buy at Nomura (26 Mar 2026)
[20] StreetAccount — PDD upgraded to buy at Huatai Securities (26 Mar 2026)
[21] StreetAccount — PDD upgraded to buy at Arete Research (17 Apr 2026)
[22] StreetAccount / Nikkei — China to fine PDD over food delivery (14 Apr 2026)

## Citations

- [6] **PDD Holdings, Inc., Q2 2025 Earnings Call, 25-August-2025 7** · external
- [7] **PDD Holdings, Inc., Q3 2025 Earnings Call, 18-November-2025 7** · external
- [8] **PDD Holdings, Inc., Q3 2025 Earnings Call, 18-November-2025 7** · external
- [9] **PDD Holdings, Inc., Q4 2025 Earnings Call, 25-March-2026 7** · external
- [10] **PDD Holdings, Inc., Q4 2025 Earnings Call, 25-March-2026 7** · external
- [11] **PDD Holdings, Inc., Q1 2026 Earnings Call, 27-May-2026 7** · external
- [12] **PDD Holdings, Inc., Q1 2026 Earnings Call, 27-May-2026 7** · external
- [13] **PDD Q2 earnings beat, outlook remains challenging** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4383178&_doc_date=2025-08-25&_doc_product=SA>
- [14] **PDD Holdings downgraded to neutral from buy at New Street Research** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4383728&_doc_date=2025-08-26&_doc_product=SA>
- [15] **Temu resumes shipping goods from Chinese factories to US consumers, and steps up US advertising spending** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4383400&_doc_date=2025-08-26&_doc_product=SA>
- [16] **PDD Holdings downgraded to market perform from outperform at Bernstein** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4480083&_doc_date=2025-11-18&_doc_product=SA>
- [17] **PDD Holdings reports Q3 non-GAAP EPADS CNY21.08 vs FactSet CNY16.59** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4479160&_doc_date=2025-11-18&_doc_product=SA>
- [18] **PDD Holdings reports Q4 non-GAAP EPADS CNY17.69 vs FactSet CNY20.84** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4609110&_doc_date=2026-03-25&_doc_product=SA>
- [19] **PDD Holdings upgraded to buy from neutral at Nomura** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4611683&_doc_date=2026-03-26&_doc_product=SA>
- [20] **PDD Holdings upgraded to buy at Huatai Securities** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4610166&_doc_date=2026-03-26&_doc_product=SA>
- [21] **PDD Holdings upgraded to buy from neutral at Arete Research** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4631094&_doc_date=2026-04-17&_doc_product=SA>
- [22] **China to fine PDD Holdings and other e-commerce platforms over concerns around food deliveries** · news — <https://my.apps.factset.com/viewer-fusion/?_doc_id=sa_story_4626942&_doc_date=2026-04-14&_doc_product=SA>

