PDD Holdings reported second-quarter results that exceeded earnings expectations while falling short on revenue, as the Chinese e-commerce group grappled with decelerating growth and margin compression.
The company posted adjusted earnings per share of RMB 19.33, topping the consensus estimate by 5.34%. Revenue reached RMB 112.36 billion, missing expectations by 1.35% but still rising 8% year-over-year. Net income fell 12-13% from a year earlier to RMB 27.2-28.5 billion, reflecting higher sales and marketing expenses and increased investment in research and development.
Transaction services revenue grew 13% to RMB 54.7 billion, while online marketing revenue increased 3.4% to RMB 57.6 billion. Adjusted operating profit rose 5% YoY to RMB 29.1 billion, despite a 40% jump in R&D spending to RMB 4.3 billion. Operating cash flow improved 19% to RMB 25.7 billion, while cash and short-term investments totaled RMB 456.4 billion, up from RMB 422.3 billion at year-end 2025.
Gross margin narrowed to 56.3% in the quarter from 63.0% in fiscal 2023, a decline of 670 basis points, while operating margin fell from 28.5% to 22.7% over the same period. Growth has slowed sharply from 86% in the second quarter of 2024 to 8% in Q2 2026, underscoring the challenges facing PDD’s expansion beyond its core domestic market.
PDD’s first-party brand business, launched in March 2026, has progressed more slowly than expected due to external factors, with initial capital of RMB 15 billion and a total allocation of RMB 100 billion earmarked over three years. The company operates in nearly 100 markets globally, but new EU customs duties on low-value cross-border shipments, effective July 2026, are expected to pressure Temu’s European expansion economics.
Looking ahead, PDD’s next earnings release is scheduled for November 2026, with consensus estimates calling for adjusted EPS of RMB 18.72 and revenue of RMB 121.72 billion. Analysts remain divided on valuation, with targets ranging from $100 to $165, though recent revisions have trended lower, with EPS estimates falling 11.99% and revenue estimates declining 4.65% over the past 90 days.
The stock, quoted at $87.31 in domestic receipts, has a market capitalization of $125.8 billion and trades at forward P/E of 8.1x, with a long-term multiple of 8.7x. Analysts at Morgan Stanley and Barclays maintain overweight ratings with price targets of $148 and $165, respectively, while Bernstein and US Tiger Securities have more cautious outlooks.
