---
endpoint: analytics
pattern: Internet
status: done
latency_ms: 162878
conversation_id: e8a0d8bb-575a-40d8-a1e6-eeb00c3e4765
citations: 7
created: 2026-05-31 20:21:52Z
---

# What is the investment thesis for PDD in the current market environment?

# PDD Holdings (PDD) — Investment Thesis in the Current Market Environment

**As of May 2026, the PDD investment thesis has materially evolved from the "share-gaining, capital-light cash machine" narrative of 2023-24 into a more contested "strategic-investment-phase, supply-chain-pivot" story.** The bull case still rests on value-for-money structural positioning; the bear case is now front-loaded around margin compression, deliberate reinvestment, and Temu's regulatory/tariff disruption.

---

## 1. Internal Research (CLSA) — Core Thesis

CLSA's most recent dedicated PDD note (27-May-2025, "Challenging time") maintains an **Outperform** rating with a target price of **US$128** (cut from US$150.40), implying ~**14x 26CL adjusted P/E (12x ex-Temu losses)** on a rolled-forward DCF to Jun 2026 [2].

**The four-pillar bull thesis** [1]:
- **Value-for-money positioning** — PDD is the major beneficiary of China's consumer downtrading trend.
- **Domestic share gains** — sustained GMV outperformance vs. peers continues to take share in Chinese e-commerce.
- **Temu expansion** — overseas business gaining traction in user base and GMV as it widens country coverage.
- **Margin resilience** — robust domestic profits cushion Temu's losses, keeping the consolidated margin profile healthy.

**Two principal risks** that have moved to the foreground [4]:
1. **Competition**: rivals (Alibaba, JD, ByteDance) have upgraded apps, opened new low-tier channels, and launched billion-RMB subsidy programs for shopping festivals and daily promos — eroding PDD's price-leadership moat.
2. **Overseas losses + regulation**: Temu requires escalating investment in user acquisition, logistics, and overseas infrastructure, and faces a thickening antitrust / data-security / e-commerce / labor regulatory stack across jurisdictions.

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## 2. What's Actually Changed — The 1Q25 Reset (CLSA's Trigger for the TP Cut)

CLSA characterized 1Q25 as a **"hard miss"** [3]:

| Metric | 1Q25 Result | YoY | vs. CLSA Estimate |
|---|---|---|---|
| Total Revenue | Rmb95.7bn | +10% | — |
| Adj. EBIT | Rmb18.3bn | **–36%** | 6% below |
| Adj. NP | — | –45% | 33% below [5] |
| Adj. EBIT margin | 19.1% | **–14ppts** | — |
| GPM | 57% | **–5ppts** | — |

CLSA cut 25/26CL adjusted NP estimates by **29% / 36%** [2]. The "domestic ex-Temu" e-commerce margin was estimated at ~35% (down ~20ppts YoY assuming Rmb5bn Temu losses) [5] — i.e., even stripping out the international drag, **the core China business is reinvesting at a level that meaningfully compresses near-term profitability**.

**Two drivers of the miss:**
- **0.7ppt take-rate cut** to support merchants, offsetting ~20% GMV growth and decelerating domestic revenue to only ~6% YoY [3].
- **S&M expenses jumped 34% YoY** as PDD matched trade-in-subsidised prices on peer platforms out of its own pocket (since it does not directly receive national trade-in subsidies on appliances/3Cs) [5].

---

## 3. Temu: The Single Largest Swing Factor

Temu's narrative has bifurcated by geography post-tariff hikes:

- **US collapse**: After the US removed the De Minimis Tax Exemption and hiked tariffs in early April 2025, **US MAU fell ~30%** from March to 41m in May 2025; user mix from the US dropped to ~10% of global [6]. Daily US GMV reportedly fell ~50% after Temu passed tariffs through to consumers.
- **Pivot to EU + LatAm**: Southern America became Temu's #1 market (30% of global MAU); Europe at 27% [6]. Ad spending shifted accordingly (+40% in France, +20% in UK).
- **Business model shift**: Temu accelerated migration from full-consignment to **semi-consignment** — now **80%+ of US GMV** — to insulate platform economics from cross-border friction and localise the merchant base [7].

**Implication**: Temu's drag is partly self-imposed (deliberate revenue recognition shift) and partly external (US tariff regime). The latter is non-discretionary; CLSA's risk list now leads with "competition and overseas losses" rather than the older "regulatory only" frame [4].

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## 4. The Strategic Pivot Confirmed on the Q4'25 and Q1'26 Calls

Management's framing on the most recent calls is unambiguous about a multi-year strategic-investment phase, not a defensive cycle:

**Q4 2025 (FY 2025 results)**: Group revenue Rmb123.9bn (+12% YoY); full-year revenue Rmb431.8bn (+10% YoY); FY NP declined YoY due to sustained supply-side + demand-side investment [11]. Management explicitly stated: *"between short-term financial performance and the long-term value of the platform ecosystem, we will resolutely choose the latter"* [13].

**Q1 2026 (latest, May 2026)**: Revenue Rmb106.2bn (+11% YoY) [8]. Non-GAAP operating profit margin **20%, up from 19% YoY** — but this margin level is structurally lower than the 24-25% level of late 2024 [12]. The pivot is encoded in three programs:
1. **First-party (1P) brand business** — a new model launched last quarter; the team is going deep into industrial belts, partnering with manufacturers to build branded supply [9].
2. **RMB 100 billion merchant support program** — multi-year subsidy/investment commitment covering Duoduo Premium Produce (agriculture), new quality supply (industrial belts), and logistics support to remote/rural regions.
3. **Supply-chain "reinvention" / "build another Pinduoduo in three years"** — Chen Lei's strategic framing: *"the key is to return to the roots of e-commerce, which is supply chain capabilities"* [14].

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## 5. Synthesis — The Thesis in the Current Environment

| Dimension | Bull Case | Bear Case |
|---|---|---|
| **Domestic competition** | Value-for-money positioning still benefits from consumer downtrading [1] | Take-rate cuts + matched subsidies have collapsed adj. EBIT margin from ~33% to 19.1% [5]; 1Q25 was a "hard miss" [3] |
| **Temu** | EU + LatAm pivot diversifies away from US risk; semi-consignment de-risks model [7] | US user base –30% YoY, GMV halved post-tariff; structural de-minimis loss is permanent [6] |
| **Capital allocation** | Rmb436bn cash war chest (Q1'26) underwrites multi-year reinvestment | No buyback / dividend; reinvestment fund is open-ended ("build another Pinduoduo") |
| **Valuation** | 14x 26CL adj. PE (12x ex-Temu losses) – not demanding for a sector leader [2] | 25/26CL NP estimates have been cut 29% / 36%; further cuts possible if Temu drag persists [2] |
| **Management posture** | Explicit long-termism; deep supply-chain integration could be a durable moat [9][14] | Same posture explicitly signals "expect margin volatility quarter-to-quarter" — IR is no longer defending profitability [13] |

**The current-environment thesis distilled**: PDD is no longer the late-2023 "EPS-compounding share-taker" — it is now a **value-for-money platform deliberately compressing near-term margins to fund (a) merchant-side ecosystem subsidies that defend domestic share against rivals' billion-yuan promo programs, (b) a first-party brand / supply-chain pivot positioned as the next decade's growth engine, and (c) Temu's geographic rotation out of the US and into EU/LatAm**. CLSA's Outperform stance survives because the valuation (14x forward, 12x ex-Temu) and intact share-gain narrative still discount this reinvestment phase; the risk is that the reinvestment phase extends well beyond what the current Street estimates imply, given management has openly told investors not to focus on quarterly margins [13].

**Catalysts to watch**:
- Trajectory of domestic take rate (further cuts vs. stabilisation around new base)
- Temu EU/LatAm GMV and ad-spend efficiency post-US pivot
- Any visible inflection from the 1P brand initiative ("when will it reflect in financials" was an analyst question this quarter [9])
- Tariff / de-minimis policy changes in G7 + EU (currently a binding constraint on Temu US economics)
- Competitive intensity from Alibaba (Taobao/Tmall instant retail), JD, Douyin shop

---

**Sources**
- [1][2][3][4][5][6][7] CLSA — *PDD - O-PF (Challenging time)* — 27 May 2025 — 607960697LinqAlpha.PDF
- [8][9][10][12][14] PDD Holdings, Inc. — Q1 2026 Earnings Call Transcript — May 2026
- [11][13] PDD Holdings, Inc. — Q4 2025 Earnings Call Transcript — March 2026

## 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., Q1 2026 Earnings Call, 27-May-2026 7** · external
- [11] **PDD Holdings, Inc., Q4 2025 Earnings Call, 25-March-2026 7** · external
- [12] **PDD Holdings, Inc., Q1 2026 Earnings Call, 27-May-2026 7** · external
- [13] **PDD Holdings, Inc., Q4 2025 Earnings Call, 25-March-2026 7** · external
- [14] **PDD Holdings, Inc., Q1 2026 Earnings Call, 27-May-2026 7** · external

