UOB Kay Hian
Date of Report: Tuesday, 26 August 2025
PDD Holdings Earnings Review: Merchant Support Push Fuels Resilience Amid Margin Pressure
Overview: PDD Holdings Surpasses Earnings Expectations Amid Competitive Headwinds
PDD Holdings, a global e-commerce powerhouse, delivered a robust set of results for the second quarter of 2025. Despite facing margin compression and a highly competitive environment, PDD’s earnings outpaced analyst forecasts, supported by its strategic merchant support initiatives and aggressive expansion. However, the report also revealed moderating revenue growth and shrinking margins, prompting UOB Kay Hian to update its rating to HOLD with a revised target price of US$117.00.
Stock Snapshot
| Stock Data |
Figures |
| Share Price |
US\$127.11 |
| Target Price |
US\$117.00 (down from US\$130.00) |
| Upside |
-8% |
| Market Cap |
US\$180.45 billion |
| 52-week High/Low |
US\$155.67 / US\$87.11 |
| Major Shareholders |
Baillie Gifford & Co (2.5%), Vanguard Group (2.0%), BlackRock (1.9%) |
Q2 2025 Financial Performance: Key Highlights
| Metric |
2Q25 |
1Q25 |
2Q24 |
YoY Change |
QoQ Change |
| Total Revenue (Rmb m) |
103,985 |
95,672 |
97,060 |
+7% |
+9% |
| Online Marketing Revenue (Rmb m) |
55,703 |
48,722 |
49,116 |
+13% |
+14% |
| Commission Fee Revenue (Rmb m) |
48,282 |
46,950 |
47,944 |
+1% |
+3% |
| Non-GAAP Net Profit (Rmb m) |
32,708 |
16,916 |
34,432 |
-5% |
+93% |
| Non-GAAP Net Margin |
31.5% |
17.7% |
35.5% |
-4ppt |
+14ppt |
| Gross Margin |
55.9% |
57.2% |
65.3% |
-9ppt |
-1ppt |
Growth Trends: Revenue Moderates, Margins Under Pressure
- Revenue growth slows: Total revenue was up 7% year-over-year to Rmb104 billion, a deceleration from 10% in Q1. Online marketing rose 13% YoY, down from 15% in Q1 and 29% in Q2 last year, mainly due to increased competition and a softer macroeconomic backdrop.
- Commission revenue stagnates: Transaction commissions grew just 1% YoY, weighed by slowing Temu contributions and domestic merchant support efforts, which offset strong gross merchandise value (GMV) growth.
- Margin erosion: Gross margin dropped by 9 percentage points YoY to 55.9%, reflecting higher fulfillment and payment processing costs. Non-GAAP operating margin shrank to 27% (down 9ppt YoY) as the company doubled down on merchant support.
- Net profit resilience: Despite these headwinds, non-GAAP net profit of Rmb32.7 billion exceeded consensus by 46%, driven by disciplined cost management and rebounding operating leverage QoQ.
Initiatives Driving Strategic Positioning and Merchant Support
- Merchant support initiatives: Since the second half of 2024, PDD launched the Rmb10 billion Fee Reduction Programme, the Quality Merchant Support Programme, and logistics enhancements, all designed to lower merchant costs and improve platform efficiency.
- Rmb100 billion support programme: Management committed massive resources to this initiative, prioritizing long-term ecosystem health over short-term profits. Over the past year, promotional fee rebates alone reached tens of billions of renminbi, with many merchants saving several million renminbi annually.
- 618 shopping festival: The Super Double Subsidy campaign generated over 3.76 million orders in a single day, setting new sales records across multiple categories.
Westward Expansion and Agricultural Synergies
- Westward expansion: PDD’s e-commerce push into western China, including waiving logistics transfer fees, drove a >40% increase in order volume YoY. Key categories like daily necessities doubled, while trendy collectibles and pet supplies grew over 60%.
- Duoduo Grocery coverage: After five years of investment, Duoduo Grocery now covers 70% of China’s villages, facilitating last-mile delivery and connecting rural producers to urban buyers. Agricultural product sales surged 47% YoY, with seasonal fruits up 51% and seafood up 48%. Post-2000s-generation agricultural merchants grew by over 30%.
Earnings Revision and Risks
2025 revenue forecast trimmed by 1% as top-line growth moderates; 3Q25 revenue forecasts remain largely unchanged.
Non-GAAP net profit forecasts for 3Q25 and full-year 2025 are raised by 27% and 16% respectively, anticipating net margins of 29% and 26%.
Key risks: Heavy investment may further pressure margins, while policy risks loom from potential bans of Temu in the US, EU, and Southeast Asia.
Valuation and Recommendation
The rating is upgraded to HOLD, with a lower target price of US$117.00, reflecting better-than-expected earnings but ongoing margin concerns.
The target price is based on a 10x 2026F PE for the core business and 1x EV/Sales for Temu, yielding a 2026 SOTP (sum-of-the-parts) valuation.
PDD trades at 11x 2026F PE, against an 18% EPS CAGR expected over 2026-2029.
| Business Segment |
2026F Revenue (US\$ mn) |
2026F NOPAT (US\$ mn) |
Implied EV/Rev. / P/E |
Valuation to PDD (US\$ mn) |
Per Share (US\$) |
| Main business |
36,842 |
11,981 |
4x EV/Rev., 10x P/E |
119,808 |
87 |
| Temu |
22,103 |
— |
1x EV/Sales |
14,684 |
11 |
| Duoduo Grocery |
6,641 |
361 |
1x EV/Sales, 14x P/E |
5,055 |
4 |
| Net cash |
— |
— |
— |
39,788 |
29 |
| NAV |
— |
— |
— |
179,336 |
130 |
| Less: Holdco discount 10% |
— |
— |
— |
17,934 |
|
