PDD Earnings: Raised Revenue Growth and EBIT Acceleration

Key Morningstar Metrics for PDD Holdings

• Fair Value Estimate: $154.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of PDD Holdings’ Earnings

PDD Holdings’ PDD third-quarter EBIT rose 3% year on year versus a 21% decline in the second quarter. Revenue growth from its online marketing services and others segment slowed sequentially to 8% from 13%.

Why it matters: We estimate that reduced subsidies at the domestic platform Pinduoduo contributed to EBIT acceleration, despite ongoing investments in Temu. We raise our EBIT forecasts by an average of 23% during 2025-34, reflecting better-than-expected margins.

• The deceleration in online marketing services and others’ revenue likely indicates slower gross merchandise volume growth or a lower monetization rate (or both) at PDD.
• Transaction services revenue exceeded expectations, suggesting better performance from Temu. We estimate Temu’s revenue grew at a high-single-digit percentage. Our total revenue forecasts for 2025-34 are largely intact, as upward revisions for Temu offset downward adjustments for Pinduoduo.

The bottom line: We raise narrow-moat PDD’s fair value estimate by 25% to $154 per share. The the stock is undervalued. We think the market is overly cautious due to management’s repeated comments on unpredictable quarterly profitability and intense competition.

• PDD has scaled back subsidies as more merchants qualify for national support. Its monetization rate appears to have stabilized following over a year of merchant support programs. Hence, we anticipate margin expansion ahead.
• With the United States ending the de minimis policy and implementing a more predictable tariff regime, Temu has adopted a more stable half-assignment model and expanded beyond the US, paving the way for better margins.