---
endpoint: analytics
pattern: Internet
status: done
latency_ms: 177243
conversation_id: a12b4609-754f-4966-8a29-d3609c69d049
citations: 13
created: 2026-05-31 22:16:54Z
---

# What are the key risks to PDD’s growth trajectory?

# Key Risks to PDD's Growth Trajectory

PDD's growth trajectory is being challenged on multiple fronts simultaneously — a dual squeeze on domestic margins and overseas (Temu) operations, exacerbated by regulatory exposure on both sides of the Pacific. The 1Q25 print, in which adj. EBIT fell 36% YoY despite 10% revenue growth, crystallized these risks for the market [1].

## 1. Domestic Margin Compression from Self-Funded Merchant Subsidies

PDD has structurally lowered its monetization in order to defend the merchant ecosystem, which directly erodes the very lever that historically powered profit growth.

- **Take rate decline**: Domestic take rate (ads + commission) fell 0.7ppt YoY to 5.3% in 1Q25, slowing online marketing revenue growth to 15% YoY despite ~20% GMV growth [3].
- **Rmb100bn merchant support program**: PDD scaled its previous Rmb10bn fee-reduction initiative tenfold into a Rmb100bn merchant support program, explicitly framed by CLSA as a "further pressure on margin" — the broker cut 25/26CL adj. NP estimates by 29%/36% on these higher merchant subsidies and S&M expenses [1][5].
- **Trade-in subsidy disadvantage**: PDD does not benefit from national trade-in subsidies the way peers like JD and Alibaba do, forcing it to subsidize SME merchants "out of its own pocket" to match peer pricing on appliances, 3Cs and daily goods. S&M expenses jumped 34% YoY, GPM fell 5ppt to 57%, and adj. NP collapsed 45% YoY to Rmb16.9bn [2].
- **Management endorses ongoing margin volatility**: PDD's own CFO has guided that "between short-term financial performance and the long-term value of the platform ecosystem, we will resolutely choose the latter," explicitly warning investors that "it could be normal to see fluctuations in our profit margins from quarter-to-quarter" [10]. Total cost of revenues rose 15% in Q1 2026 (RMB 40.9bn → RMB 46.9bn) on higher fulfillment, bandwidth and payment processing fees [13].

## 2. Intensifying Domestic Competition — Including New Verticals

The Chinese e-commerce battlefield is no longer just about traditional shelf-style commerce, and PDD's value-for-money moat does not automatically extend to new front-end formats.

- **Mature peer counter-attack**: Competitors have "upgraded apps and launched new channels to penetrate mass users and low-tier cities" and rolled out Billion Subsidies Programs around shopping festivals and daily promotions — directly contesting PDD's core demographic [6].
- **Live streaming + quick commerce**: Analysts pressed management on the impact of "live streaming commerce and quick commerce" on the broader industry landscape [11], a sign that the next wave of competition (Douyin live commerce, JD/Meituan instant retail) has emerged as a recognized headwind on the sell-side.
- **JD-led food-delivery subsidy war read-through**: CLSA flagged that JD's Rmb10bn subsidy program in adjacent verticals is already "intensifying competition" and "compressing margins of industry leaders" in catering — a parallel signal that the broader Chinese internet competitive environment is reflating subsidy intensity [5].

## 3. Temu — De Minimis Removal and US Tariff Disruption

The overseas growth engine that was supposed to offset domestic deceleration is now itself the most volatile risk vector.

- **US user collapse**: Temu's US MAU fell to 41m in May 2025, **down 30% from March** after the US announced the removal of the De Minimis Tax Exemption and tariff hikes in early April [4].
- **GMV collapse + price pass-through backlash**: Temu reportedly passed the tariff hikes to consumers in April, triggering widespread social-media dissatisfaction and producing a **30% decline in user traffic and 50% decline in daily GMV** post-hike [4].
- **Forced model pivot**: Temu has stopped selling Chinese-imported products directly to US customers and is now routing US sales through local sellers, accelerating its migration to a semi-consignment model that now represents 80–90% of US GMV — a model that structurally lowers overseas revenue per order [4][1].
- **Global regulatory contagion**: The de minimis attack is not US-only. In early May, G7 countries discussed de minimis tariffs on Chinese goods, **EU markets are considering a flat fee on small packages, and Japan is reviewing its tax exemption rules** [5]. Temu's globally-distributed user base (Europe 28%, South America 26%, US 14%) limits but does not eliminate this risk.

## 4. Cross-Border Regulatory & Compliance Burden

Beyond tariffs, PDD has signalled that overseas regulatory scrutiny is now a structural — not transitory — operating cost.

- **Direct admission from management**: Co-CEO Chen Lei acknowledged on the Q4 2025 call that "we have indeed received inquiries from regulatory authorities. As our global business grew rapidly and reach a meaningful scale in different countries, it is understandable that this has drove supply concerns and closer scrutiny" [9].
- **Structural risks called out by sell-side**: "Existing and potential regulations on antitrust, data security, ecommerce and employee welfare may challenge business arrangements and hinder financial outcomes" [6].
- **Strategic capital reallocation toward compliance**: Management has effectively reframed the company's mission to be measured "from the broader perspective of public interest and the long-term health of the industry ecosystem" rather than near-term financials [10] — and is reorganizing leadership/governance to manage the new environment [12]. This implies further opex headwinds before revenue benefits materialize.

## 5. ADR Delisting Risk — A Tail Risk With No Hedge

PDD sits in the worst structural cohort on US-China listing risk.

- **Highest-risk bucket**: PDD is explicitly classified as facing the **biggest** ADR delisting risk alongside Vipshop, JOYY, iQiYi and Huya, because it has **no Hong Kong listing** to fall back to (unlike Alibaba, Bilibili, Kanzhun, etc., which have dual-primary listings) [7][8].
- **Quantified worst-case**: In the worst-case scenario where US investors are forced to sell Chinese stocks, CLSA estimates **40–50% share correction** [7].
- **Disclosed US-investor ownership**: ~28.8% of PDD's float is disclosed, with **14.6% held by US investors** of that disclosed stake — making the forced-selling risk concrete rather than theoretical [8].

## 6. Quality-of-Growth: Front-Loaded Investment Without Near-Term Payback

The "Build Another Pinduoduo" 3-year supply-chain strategy is by management's own framing a long-duration investment cycle.

- The Rmb100bn support program and first-party brand initiative require "the platform to commit substantial resources in its early stages" with explicit timing differences between investment and return — meaning the financial drag is loaded into the present, while benefits remain unproven [12].

---

## Risk Summary Table

| Risk Category | Manifestation | Quantified Impact |
|---|---|---|
| Domestic margin pressure | Self-funded merchant subsidies; S&M ramp | Adj. EBIT -36% YoY, adj. NP -45% YoY in 1Q25 [2] |
| Take rate erosion | 0.7ppt cut to support merchants | Domestic take rate to 5.3% [3] |
| Temu US disruption | De Minimis removal + tariff hikes | US MAU -30% from Mar, daily GMV -50% post-hike [4] |
| Global tariff contagion | G7/EU/Japan de minimis reviews | Multiple jurisdictions in motion [5] |
| Regulatory scrutiny | Antitrust, data security, ecommerce, labor | Acknowledged by management [9][6] |
| ADR delisting | No HK listing fallback | 40–50% worst-case correction; ~14.6% US-investor ownership [7][8] |
| New verticals competition | Live streaming + quick commerce, JD subsidy war | Margin compression industry-wide [11][5] |
| Earnings volatility | Mgmt acknowledges margin fluctuations | "Normal to see fluctuations…quarter-to-quarter" [10] |

---

**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
[3] PDD - O-PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF
[4] PDD - O-PF (Challenging time) — CLSA (27 May 2025) — 607960697LinqAlpha.PDF
[5] All Things China (CLSA ATC Daily – PDD | CN Catering | Xiaomi | Kuaishou) — CLSA (28 May 2025) — 607960718LinqAlpha.PDF
[6] PDD - O-PF (Challenging time) — Investment Risks — CLSA (27 May 2025) — 607960697LinqAlpha.PDF
[7] China internet (Escalating ADR delisting risk) — CLSA (21 Apr 2025) — 607956367LinqAlpha.PDF
[8] China internet (Escalating ADR delisting risk) — ADR risk table — CLSA (21 Apr 2025) — 607956367LinqAlpha.PDF
[9] PDD Holdings Q4 2025 Earnings Call — 25 Mar 2026
[10] PDD Holdings Q4 2025 Earnings Call — 25 Mar 2026
[11] PDD Holdings Q1 2026 Earnings Call — 27 May 2026
[12] PDD Holdings Q4 2025 Earnings Call — 25 Mar 2026
[13] PDD Holdings Q1 2026 Earnings Call — 27 May 2026

## Citations

- [1] **607960697LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960697LinqAlpha.PDF>
- [2] **607960697LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960697LinqAlpha.PDF>
- [3] **607960697LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960697LinqAlpha.PDF>
- [4] **607960697LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960697LinqAlpha.PDF>
- [5] **607960718LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960718LinqAlpha.PDF>
- [6] **607960697LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607960697LinqAlpha.PDF>
- [7] **607956367LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956367LinqAlpha.PDF>
- [8] **607956367LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956367LinqAlpha.PDF>
- [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., Q4 2025 Earnings Call, 25-March-2026 7** · external
- [13] **PDD Holdings, Inc., Q1 2026 Earnings Call, 27-May-2026 7** · external

