---
endpoint: analytics
pattern: Internet
status: done
latency_ms: 206177
conversation_id: cb160be3-ef4f-4ce9-8444-28c1fe6f09cf
citations: 0
created: 2026-05-31 19:57:02Z
---

# What is PDD’s core business franchise and the key components of its operating model?

# PDD Holdings — Core Business Franchise & Operating Model

PDD Holdings (NASDAQ: PDD; market cap US$169.3bn as of 27 May 2025) is a Chinese e-commerce holding group built around two intertwined marketplaces — **Pinduoduo** (domestic China) and **Temu** (cross-border/global). Major shareholders are founder Zheng Huang (44.6%) and Tencent (16.9%), with foreign holding ~45% and a free float of ~22.9% [6]. The franchise generates revenue almost entirely through merchant monetisation on third-party marketplaces (no in-house inventory at the core), with FY2024 revenue of Rmb393.8bn and FY2025CL forecast of Rmb431.6bn [7].

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## 1. The Core Franchise — Two Pillars

PDD's revenue model is split into two segments that appear on the P&L as **"Online marketing & others"** (advertising/ads income) and **"Transaction services"** (commissions / fulfilment-linked fees). The mix in 1Q25 was roughly Rmb48.7bn online marketing vs Rmb47.0bn transaction [7].

### 1a. Pinduoduo (Domestic China) — "Value-for-money" discount marketplace

- **Positioning**: A team-purchase / group-buy origin app that has evolved into China's dominant **discount-led e-commerce destination**. CLSA's investment thesis frames PDD as the structural beneficiary of "China's consumer downtrading," with sustained GMV market-share gains versus Alibaba / JD.
- **Monetisation = take rate on GMV**: The domestic franchise is fundamentally an **ads + commission model on third-party merchants**. CLSA estimates domestic take rate (ads plus commission) at **~5.3% of GMV in 1Q25**, down 0.7ppt YoY because PDD is actively rebating merchants [2].
- **Scale**: Estimated trailing-12-month GMV reached **Rmb4.84tn in 1Q25 (+19.6% YoY)** [7].
- **Profitability**: Domestic ecommerce remains highly cash-generative — CLSA estimates **~35% domestic ecommerce margin in 1Q25** (down ~20ppts YoY due to merchant support), and historically **>50% margin** when subsidies were not elevated [5][15].
- **Merchant ecosystem support — Rmb100bn program**: In response to macro/tariff headwinds, PDD upgraded its prior **Rmb10bn merchant fee-reduction program to a Rmb100bn merchant support program** in 2025. This includes fee reductions, service-fee refunds, remote-area transit fee exemptions, commission cuts on certain order types, and an expanded "industry belt" initiative supporting small merchants [2][14]. The structural intent is to keep low-priced SME supply on-platform to defend the value-for-money franchise.
- **Tactical promotions**: To remain competitive vs JD/Tmall (which benefit more from government trade-in subsidies), PDD has rolled out programs such as "Billions Consumption Coupons" and "Super Extra Subsidies," and S&M jumped +34–44% YoY in 1Q25 [5][7].

### 1b. Temu (Cross-border / International) — fastest-growing global discount platform

- **Positioning**: Launched in late 2022, Temu is positioned as the **lowest-price global discount marketplace**, sourcing from China-based manufacturers and shipping to overseas consumers.
- **Scale**: **Global mobile MAU 408m in May 2025** — equivalent to **118% of Amazon's mobile MAU** [4]. CLSA's August 2024 thesis already flagged Temu as the fastest-growing cross-border e-commerce platform, with the merchant overlap with Amazon increasing [11].
- **Geographic mix shift**: As of May 2025, **South America (30%) overtook Europe (27%) as Temu's largest market**; US fell to only 10% of MAU (US users 41m, down ~30% from March) following US tariff hikes and the removal of the de minimis exemption [4].
- **US tariff disruption (1Q25 / 2Q25)**: After the early-April US tariff hike, Temu passed prices through to consumers, triggering ~30% decline in US user traffic and ~50% decline in US daily GMV. In early May 2025 Temu **stopped selling Chinese-imported products directly to US consumers**, transitioning US sales to local sellers, and shifted advertising spend from the US to Europe and South America [4][3].
- **Losses**: CLSA assumes Temu losses of **~Rmb5bn in 1Q25** (compared with low-single-digit loss-ratio in 2Q24 when scale was improving) [5][15].

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## 2. Operating Model — Three Core Levers

### Lever 1: Marketplace / asset-light model (no merchant of record at core)

PDD does not hold inventory at scale on the domestic platform — revenue lines map to advertising slots ("online marketing") and transaction commissions [7]. Capex/sales is **~0.5% in 2025CL** and **free cash flow conversion is extremely high (Rmb96.3bn FCF on Rmb431.6bn revenue forecast)** — a hallmark of the asset-light marketplace structure [7].

### Lever 2: Fulfilment-model architecture — Full vs Semi-consignment (Temu)

The single most important operating-model evolution at PDD is **Temu's transition from full-consignment to semi-consignment**. By 1Q25, **semi-consignment was 80%+ of US Temu GMV** [3].

| Dimension | **Full consignment** (Temu's original model) | **Semi consignment** (current dominant model) |
|---|---|---|
| Logistics | Temu controls China-out, cross-border shipping, last-mile | Merchant ships from local US/EU warehouse; merchant handles entire process |
| Pricing | Platform-set with merchant pricing flexibility (Temu validates prices) | Platform validates prices; merchants set within Temu's competitive bands [8] |
| Pricing bands (US) | n/a | Sellers w/ US/EU trademark & GMV>US$0.3m: ≤75–85% of Amazon; Overseas trademark: ≤90% of Amazon; Other sellers: lowest price across online channels [12] |
| Take rate / revenue | ~37% of order value (Temu captures the cross-border fulfilment fee economically) | ~20% of order value (merchant captures fulfilment, Temu gives up that revenue line) [9] |
| Operating margin per order | (-2%) | +4% [9] |
| Delivery time | 7–14 days (cross-border) | 2–7 days (local warehouse) [10] |
| Effect | High revenue, structural losses | Lower revenue / higher margin; better consumer experience |

**Key strategic implication:** Semi-consignment reduces Temu's revenue per dollar of GMV (compressing reported overseas revenue growth, as visible in 1Q25 Temu transaction revenue +6% YoY vs +22% in 4Q24), but is a **margin-accretive shift** because Temu offloads the most loss-prone cost line (cross-border fulfilment at ~20–25% of GMV) [3][10]. As of mid-2024 Temu's local-supply penetration reached **80% of US front-page listings** and **90% of heavy goods** (home appliances, furniture); company targeted ~30% GMV contribution from local warehouses [10].

### Lever 3: Take-rate flex as the strategic dial

PDD does not use share buybacks (no repurchase plan; the company prioritises growth) [14]. Instead, its operating dial is **take rate**:

- Lowering domestic take rate (5.3% in 1Q25, down 0.7ppt YoY) functions as a merchant-side investment to defend the supply base [2].
- Raising international take rate via price/AOV increases at Temu was the lever that drove the **record 36% adj EBIT margin in 2Q24** before the 2025 reversal [15].
- The Rmb100bn 2025 merchant support program and elevated S&M (34.2% of revenue in 1Q25 vs 26.2% in 1Q24) demonstrate that PDD will absorb margin compression in cycles where competitive intensity or macro headwinds are elevated [7].

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## 3. P&L Architecture (1Q25 Snapshot)

| (Rmbm) | 1Q24 | 1Q25 | YoY |
|---|---|---|---|
| GMV (T12M, Rmbbn) | 4,049 | 4,843 | +19.6% |
| Online marketing & others (ads) | 42,456 | 48,722 | +14.8% |
| Transaction (commission/fulfilment) | 44,356 | 46,950 | +5.8% |
| **Net revenue** | **86,812** | **95,672** | **+10.2%** |
| Gross profit | 54,117 | 54,725 | +1.1% |
| Gross margin | 62.3% | 57.2% | -5.1pp |
| S&M opex | (22,738) | (32,765) | +44.1% |
| Adj EBIT | 28,552 | 18,260 | -36.0% |
| Adj EBIT margin | 32.9% | 19.1% | -13.8pp |
| Adj net profit | 30,602 | 16,916 | -44.7% |

Source: PDD/CLSA [7]

---

## 4. What Defines the Franchise (Synthesis)

1. **A high-frequency, low-AOV, value-positioned third-party marketplace** that monetises through ads and commissions rather than first-party retail, allowing very high ROE (44.9% in 2024A) and ROIC (133% in 2024A) at marketplace economics [7][11].
2. **A merchant-side fee/subsidy lever** — used positively (raising take rate when supply is captive) or defensively (the Rmb100bn merchant support and consumer subsidies when competition intensifies) [14][2].
3. **Cross-border optionality via Temu** — a globally scaled (408m MAU; 118% of Amazon) marketplace exposed to consumer downtrading worldwide [4], with an evolving fulfilment architecture (semi-consignment now dominant in the US) [3][8].
4. **Asset-light + cash-rich** — minimal capex, no dividend/buyback, cash & equivalents projected to grow from Rmb126bn (2024) to Rmb222bn (2025CL); the company explicitly prioritises growth investment over capital return [7][14].
5. **Concentrated ownership and governance** — founder Zheng Huang owns 44.6% and Tencent 16.9%, which gives strategic latitude to absorb margin pressure for share gains without buyside pressure for short-term returns [6].

The current (2025) phase shows the operating model under stress — domestic take-rate compression (merchant support) + Temu's US disruption (tariffs, semi-consignment transition) — but the underlying franchise (marketplace ads + commission, asset-light, globally scaling via Temu) remains intact, with CLSA maintaining Outperform at a US$128 DCF-based target [1].

---

**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 merchant support / take rate)
[3] PDD - O-PF (Challenging time) — CLSA, 27 May 2025 — 607960697LinqAlpha.PDF (Temu transaction revenue, semi-consignment)
[4] PDD - O-PF (Challenging time) — CLSA, 27 May 2025 — 607960697LinqAlpha.PDF (Temu MAU & US disruption)
[5] PDD - O-PF (Challenging time) — CLSA, 27 May 2025 — 607960697LinqAlpha.PDF (Margins, Temu losses, domestic margin)
[6] PDD - O-PF (Challenging time) — CLSA, 27 May 2025 — 607960697LinqAlpha.PDF (Stock data table — shareholders, market cap)
[7] PDD - O-PF (Challenging time) — CLSA, 27 May 2025 — 607960697LinqAlpha.PDF (Quarterly results table)
[8] China internet (Still at full steam) — CLSA, 12 Aug 2024 — 607936072LinqAlpha.PDF (Cross-platform consignment comparison)
[9] China internet (Still at full steam) — CLSA, 12 Aug 2024 — 607936072LinqAlpha.PDF (Temu unit economics: full vs semi)
[10] China internet (Still at full steam) — CLSA, 12 Aug 2024 — 607936072LinqAlpha.PDF (Local supply onboarding, 80% front page)
[11] China internet (Still at full steam) — CLSA, 12 Aug 2024 — 607936072LinqAlpha.PDF (Investment thesis takeaways)
[12] China internet (Still at full steam) — CLSA, 12 Aug 2024 — 607936072LinqAlpha.PDF (Temu pricing requirements vs Amazon)
[13] PDD - O-PF (Expecting more investments) — CLSA, 26 Aug 2024 — 607937466LinqAlpha.PDF (GMV share gains, take rate)
[14] PDD - O-PF (Expecting more investments) — CLSA, 26 Aug 2024 — 607937466LinqAlpha.PDF (Rmb10bn merchant fee cut, growth priority, no buyback)
[15] PDD - O-PF (Expecting more investments) — CLSA, 26 Aug 2024 — 607937466LinqAlpha.PDF (Record 36% margin, domestic >50%, overseas losses)

