---
endpoint: analytics
pattern: Internet
status: done
latency_ms: 189419
conversation_id: 1b0cb48c-6d8e-434e-b4a2-9d976fcfd990
citations: 6
created: 2026-05-31 20:12:31Z
---

# What’s the bull case bear case for PDD?

# PDD Holdings (PDD US) — Bull Case / Bear Case

Synthesis from CLSA internal research (Elinor Leung et al., May 2025) and PDD's own earnings call disclosures (Q3 FY25 through Q1 FY26). Coverage on a US‑listed ADR (PDD US), so CLSA‑parent (not CLST) is the relevant entity.

**Anchor view (CLSA, 27‑May‑2025):** **Outperform**, 12‑month DCF‑based TP **US$128** (≈ **+24%** upside off the May 2025 print of ~US$103) [1][2]. Implied multiple: **14x 26CL adj. PE (12x ex‑Temu losses)** [6]. WACC 12.4%, terminal growth 0.5% [6].

---

## Bull Case

| # | Argument | Evidence |
|---|----------|----------|
| 1 | **Fortress balance sheet bankrolls the investment cycle.** PDD ended Q1 FY26 with **RMB 436.1 bn** in cash, cash equivalents and short‑term investments — roughly US$60 bn, ~36% of CLSA's prior US$169 bn market cap. Effectively zero debt. Strategic flexibility to outspend rivals on subsidies, Temu, and supply‑chain build‑out is unmatched in China internet. | [9] |
| 2 | **GAAP operating profit has already inflected back to growth.** Q1 FY26 GAAP operating profit rebounded **+22% YoY to RMB 19.6 bn** (vs. RMB 16.1 bn in 1Q25 — i.e. the trough quarter that triggered CLSA's EPS cut). This is the first signal that the worst of the margin compression may be behind the company. | [8] |
| 3 | **Domestic revenue still scaling.** Q4 FY25 group revenue **+12% YoY to RMB 123.9 bn**, full year FY25 revenue **RMB 431.8 bn (+10% YoY)** despite an aggressive merchant‑support program — GMV is still expanding, just with deliberately compressed take rate. | [10] |
| 4 | **Temu is structurally diversifying away from the US tariff exposure.** Global mobile MAU hit **408 m in May 2025 (118% of Amazon)**. South America now contributes **30% of Temu MAU** and Europe 27% — together 57% vs. US share down to **10%**. Tariff/de‑minimis risk is now a smaller share of the franchise than headlines suggest. | [4][7] |
| 5 | **CLSA's RMB 100 bn merchant‑support program is an offensive moat, not a defensive subsidy.** It deepens supplier dependence on PDD, lowers merchant operating costs, and funds R&D / branding inside the industrial belt — the same playbook that built Pinduoduo's original cost advantage. Once the investment phase fades, take‑rate normalization is upside. | [3][11] |
| 6 | **Management is explicitly trading short‑term margins for ecosystem value.** Co‑CEO Zhao stated PDD will "resolutely choose" long‑term platform value over near‑term P&L — clean alignment with shareholders willing to underwrite a multi‑year transformation. | [12] |
| 7 | **CLSA model still implies meaningful EBIT base.** Even after 28–37% cuts, FY25–27CL adj. EBIT is RMB **96 / 100 / 109 bn** and adj. NP RMB **93 / 97 / 107 bn** — a Mag‑7‑caliber dollar profit pool. **ROE 19–24%, ROIC 64–78%, net‑cash positive** throughout. | [1] |

---

## Bear Case

| # | Argument | Evidence |
|---|----------|----------|
| 1 | **The margin reset is real and ongoing.** 1Q25 adj. EBIT fell **36% YoY to RMB 18.3 bn (19.1% margin, down 14ppt YoY)**; adj. NP **‑45% YoY to RMB 16.9 bn**. GPM fell 5ppt to 57%. S&M expenses **jumped 34% YoY** to match peer trade‑in subsidies. CLSA slashed FY25/26CL adj. NP estimates by **29% / 36%**. | [1][5] |
| 2 | **Domestic take rate is being voluntarily compressed.** CLSA estimates domestic take rate fell **0.7 ppt YoY to 5.3%** to fund merchant relief. The Rmb100 bn program is a multi‑year drag, not a one‑quarter event — "could further pressure margin" per CLSA. | [3][6] |
| 3 | **Temu's US franchise has been gutted by tariff actions.** Temu US MAU **‑30% from Mar to May 2025 (to 41 m)**, with reports of a **30% drop in user traffic and 50% drop in daily GMV** post tariff hike. The De Minimis removal forced a model shift to semi‑consignment (now **80–90%** of US GMV), structurally lowering the revenue recognized per US order. | [4] |
| 4 | **The path to sustained earnings recovery is uncertain.** Even in Q1 FY26, where GAAP op profit grew, **non‑GAAP net income fell to RMB 14.1 bn (vs. RMB 16.9 bn in 1Q25)** and **non‑GAAP diluted EPS dropped to RMB 9.51 from RMB 11.41**. The "rebound" is not yet evident on the metric the market traditionally pays for. | [9] |
| 5 | **Regulatory overhang on the global business is now explicit.** Management acknowledged "inquiries from regulatory authorities" as Temu scaled; G7/EU/Japan are all reviewing de‑minimis rules. PDD has flagged the international environment as "rapidly evolving with trade and regulatory policies … becoming increasingly tightening." | [13] |
| 6 | **CLSA's model already assumes structurally lower margins.** EBITDA margin projected to fall from FY24's 30.2% → **20.4% (FY25CL) → 19.5% (FY26CL) → 19.1% (FY27CL)**; revenue growth decelerating to **9.6% / 10.3% / 11.6%** — i.e. PDD is being re‑rated from hyper‑growth to mid‑teens grower, justifying the trim from the prior PE multiple. | [1][5] |
| 7 | **Open‑ended investment phase makes timing of recovery unpredictable.** Management itself says "it could be normal to see fluctuations in our profit margins from quarter‑to‑quarter" — that's a license for repeated downside surprises on every print until the company defines a steady‑state margin (which it has explicitly declined to do). | [11] |

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## Bottom Line — How CLSA Resolves the Two‑Sided Setup

CLSA lands on **Outperform with US$128 TP** because the cash‑generation engine (RMB 436 bn balance sheet [9], operating profit re‑inflecting in 1Q26 [8]) plus a multiple already cut to **14x 26CL adj. PE** (12x ex‑Temu) [6] over‑compensates for the bear list — *provided* you can underwrite the next 4–6 quarters of choppy margins. The skew is asymmetric: balance‑sheet absorbs downside, while any sign that the Rmb100bn program is tapering or Temu localization is profitable triggers a re‑rate.

**Key signposts to flip the call:**
- Trajectory of adj. EBIT margin: needs to stabilize >20% on a trailing basis (currently 19.1% in 1Q25)
- Take rate trend: a halt to the 0.7 ppt/yr compression [3]
- Temu US: stabilization or recovery of MAU above 50 m, and unit economics on the semi‑consignment model
- Regulatory: any concrete framework on de‑minimis, EU flat fees, or Chinese cross‑border rules [13]
- Disclosure on first‑party brand investment ROI and steady‑state margin guidance — currently withheld by management [11]

---
**Sources**
[1] PDD – O‑PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF (thesis chunk: 1Q25 miss; estimates cut 29%/36%; TP US$150.40 → US$128; maintain O‑PF)
[2] PDD – O‑PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF (rating box: 12M TP US$128, +24% potential, mkt cap US$169 bn)
[3] PDD – O‑PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF (domestic revenue +15% YoY, take rate ‑0.7 ppt to 5.3%, Rmb100bn support program)
[4] PDD – O‑PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF (Temu US MAU ‑30%, semi‑consignment shift, ad spend pivot to EU/LatAm)
[5] PDD – O‑PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF (1Q25 adj. EBIT ‑36% YoY to Rmb18.3bn, S&M +34%, ex‑Temu domestic margin ~35%)
[6] PDD – O‑PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF (TP basis: DCF rolled to Jun 2026, 14x 26CL adj. PE / 12x ex‑Temu, WACC 12.4%)
[7] PDD – O‑PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF (Temu 408m global MAU, S. America 30% / Europe 27% of MAU, US share down to 10%)
[8] PDD Holdings — Q1 FY2026 Earnings Call (May 2026) — GAAP op profit RMB 19.6 bn vs 16.1 bn, +22% YoY
[9] PDD Holdings — Q1 FY2026 Earnings Call (May 2026) — RMB 436.1 bn cash & short‑term investments at 31‑Mar‑26
[10] PDD Holdings — Q4 FY2025 Earnings Call (Mar 2026) — Q4 revenue RMB 123.9 bn (+12% YoY); FY25 revenue RMB 431.8 bn (+10% YoY)
[11] PDD Holdings — Q1 FY2026 Earnings Call (May 2026) — prioritize platform ecosystem and supply chain over short‑term financials
[12] PDD Holdings — Q4 FY2025 Earnings Call (Mar 2026) — management: "resolutely choose" long‑term value over short‑term performance
[13] PDD Holdings — Q4 FY2025 Earnings Call (Mar 2026) — acknowledgment of regulatory inquiries; geopolitical/trade tightening flagged

## Citations

- [8] **PDD Holdings, Inc., Q1 2026 Earnings Call, 27-May-2026 7** · external
- [9] **PDD Holdings, Inc., Q1 2026 Earnings Call, 27-May-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., Q4 2025 Earnings Call, 25-March-2026 7** · external
- [13] **PDD Holdings, Inc., Q4 2025 Earnings Call, 25-March-2026 7** · external

