PDD Holdings reported second-quarter results that beat earnings estimates while falling short on revenue as rising costs weighed on margins.
The company posted adjusted earnings per share of RMB 19.33, exceeding analyst expectations by 5.34%. Revenue totaled RMB 112.36 billion, down 1.35% from estimates but up 8% from the same period last year. Shares rose nearly 3% in premarket trading to $91.12 before settling at $87.31, giving the group a market capitalization of $125.8 billion.
Transaction services revenue increased 13% year-over-year to RMB 54.7 billion, while online marketing revenue grew 3.4% to RMB 57.6 billion. Net income fell 12-13% to between RMB 27.2 billion and RMB 28.5 billion, reflecting higher spending on research and development and sales and marketing. R&D outlays climbed 40% to RMB 4.3 billion, and sales and marketing expenses rose to RMB 29.7 billion from RMB 27.2 billion a year earlier. Adjusted operating profit grew 5% to RMB 29.1 billion.
Cash and short-term investments stood at RMB 456.4 billion, up from RMB 422.3 billion at the end of 2025, while operating cash flow improved 19% year-over-year to RMB 25.7 billion.
Gross margin compressed to 56.3% in the latest quarter from 63.0% in fiscal 2023, a decline of 670 basis points. Operating margin fell from 28.5% to 22.7% over the same period. Revenue growth decelerated sharply from 86% in the second quarter of 2024 to 8% in the latest period.
Analysts trimmed their outlooks following the report. Consensus estimates for the third quarter, due in November, call for earnings of RMB 18.72 per share and revenue of RMB 121.72 billion. Over the past 90 days, EPS estimates have been cut by 11.99% and revenue estimates by 4.65%.
Regulatory headwinds remain a concern as new EU customs duties on low-value cross-border shipments take effect in July 2026, potentially pressuring Temu’s expansion in Europe. The group operates in nearly 100 markets globally.
Valuations remain subdued, with a trailing twelve-month price-to-earnings ratio of 8.7x and a forward P/E of 8.1x. Fair value upside is estimated at 26.5% based on current targets. Analysts’ price targets range from $100 to $165, with most maintaining overweight ratings despite margin pressure.
