PDD Holdings Q3 Earnings Down Amid Intense Competition; Temu Parent Flags Profitability Woes

PDD Holdings, parent company of Temu, reported quarterly earnings that fell amid intense competition. The company specializes in mobile e-commerce in China and offers various products such as apparel, electronics, and home goods. Net sales were primarily generated from online marketing services and transaction fees. With 14.2 million active merchants, PDD Holdings faces profitability headwinds due to increasing competition.

PDD Holdings, the parent company of Temu, reported its second-quarter earnings on July 02, 2025, revealing a mixed performance amid intense competition and trade challenges. The e-commerce giant saw its revenues grow by 8.7% year-over-year to $14.5 billion, slightly exceeding consensus estimates by $160 million [3]. However, net sales were primarily generated from online marketing services and transaction fees, which saw a 36% increase in total cost of revenues [3].

The company's adjusted diluted earnings per share (EPS) of $3.08 USD topped the consensus estimate by $1.02 and was ahead of last year's mark of $2.90. Despite the positive EPS, PDD Holdings faced a 21% decline in non-GAAP operating profit, primarily due to increased sales and marketing expenses [3]. This decline was attributed to the company's sustained investments in its platform, which are aimed at long-term value creation rather than short-term profitability [3].

PDD Holdings' co-CEO Jiazhen Zhao warned that the company's Q2 profit levels were not sustainable, attributing the strong results to positive e-commerce seasonality and the end of the "de minimis" exemption that allowed inexpensive shipments into the US duty-free [1]. The company had to adapt to the new 90% tariffs on Chinese goods, which led to a significant shift in its supply chain strategy. PDD Holdings adopted a "semi-managed" warehouse strategy, blending Amazon's inventory-heavy model with traditional e-commerce agility. This approach reduced tariff exposure and last-mile delivery costs [2].

The company also expanded its regional presence, shifting 50% of its U.S. sales to local warehouses by year-end 2025 and expanding into Europe and Brazil. This regional diversification offset U.S. challenges and maintained global transaction revenue at $6.7 billion amid 8% annual e-commerce growth projections [2]. Despite these challenges, PDD Holdings remains committed to long-term growth and platform sustainability, investing heavily in logistics, marketing, and merchant support [2].

Investors should note that while PDD Holdings faces short-term profitability headwinds, its supply chain agility and long-term growth strategy position it as a leader in the post-tariff e-commerce landscape. The company's stock is currently trading at $115, up 7% pre-market, and is priced for a 5% earnings decline, not the 20% growth it's delivering [2]. Analysts rate PDD a "Moderate Buy" with a $124.26 price target, citing its adaptive supply chain and first-mover advantage in post-tariff e-commerce [2].

References:
[1] https://sherwood.news/markets/cost-controls-by-temu-parent-pdd-holdings-fuel-big-q2-profit-beat/
[2] https://www.ainvest.com/news/pdd-holdings-q2-earnings-beat-tariff-reversal-supply-chain-revolution-action-2508/
[3] https://seekingalpha.com/news/4488652-pdd-holdings-rallies-after-battling-through-tariffs-to-post-a-better-than-feared-q2