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    PDD
    Earnings call· Jun 2025(Q2 FY25)

    PDD Holdings Inc. PDD

    Aug 25, 2025 Source

    Executive summary

    PDD Holdings Q2 FY25 — Strategic Investments Impact Short-Term Profitability for Long-Term Ecosystem Health

    PDD Holdings reported moderated revenue growth and a significant decline in operating profit in Q2 FY25, reflecting substantial investments in its 100 billion support program aimed at strengthening the merchant ecosystem and driving high-quality development. The company prioritizes long-term value creation over short-term financial results, expecting continued profitability fluctuations as it navigates intensified competition and expands its global business and total grocery operations.

    Highlights

    5

    • The 10 billion fee reduction initiative brought substantial savings for merchants, creating room for innovation and wider product selection.

    • The logistics support initiative significantly reduced shipping costs to remote areas, leading to a 40% growth in order numbers from these regions.

    • The June 18 shopping festival drove record sales across multiple categories, including fresh produce, electronics, and apparel, with the super double discount event reaching over 3.76 million orders in a single day.

    • The total grocery business now covers 70% of regions nationwide, addressing last-mile delivery and meeting consumer demand for high-quality, affordable products.

    • The smart agriculture competition is in its fifth iteration, showcasing cutting-edge technology in AI farming, hydroponics, and systems, with 46 global teams competing.

    Concerns

    5

    • Revenue growth further moderated to 7% year-over-year.

    • Operating profit declined by 21% year-over-year to RMB 25.8 billion (GAAP) and RMB 27.7 billion (non-GAAP).

    • Net income attributable to all shareholders decreased 4% year-over-year to RMB 30.8 billion (GAAP).

    • Non-GAAP diluted EPS declined to RMB 22.07 from RMB 23.24 in Q2 2024.

    • Intensified industry competition and significant investments in the 100 billion support program are expected to cause continued fluctuations in profitability in coming quarters.

    Guidance & targets

    1
    CategoryTargetConfidence
    Profitability
    Fluctuations in profitability likely to continue
    high materiality
    High

    Operational metrics

    23
    Total Revenues
    RMB 104 billion7% growth YoY
    Q2 FY25

    Driven by an increase in revenues from online marketing services and transaction services, but growth moderated due to intensified competition and merchant support.

    Revenues from online marketing services and others
    RMB 55.7 billionup [indiscernible] from the quarter
    Q2 FY25

    Contributed to total revenue.

    Revenues from transaction services
    RMB 48.3 billionup 1% from the same quarter last year
    Q2 FY25

    Contributed to total revenue.

    Total Cost of Revenues
    RMB 45.9 billionincreased 36% from RMB 33.7 billion in Q2 2024
    Q2 FY25

    Mainly due to increase in fulfillment fees, bandwidth and server costs and payment processing fees.

    GAAP Operating Expenses
    RMB 32.3 billionincreased 5% to RMB 32.3 billion from RMB 30.8 billion in Q2 2024
    Q2 FY25

    Reflects significant resources in rolling out merchant support initiatives.

    Non-GAAP Operating Expenses as % of Total Revenues
    29%in line with the same quarter last year
    Q2 FY25

    Despite increased investments, the ratio remained stable.

    Non-GAAP Sales and Marketing Expenses
    RMB 26.7 billionup 5% versus the same term last year
    Q2 FY25

    Part of the overall investment strategy.

    Non-GAAP Sales and Marketing Expenses as % of Revenues
    26%in line with the same quarter last year
    Q2 FY25

    Stable ratio despite increased spending.

    Non-GAAP General and Administrative Expenses
    RMB 667 millionversus RMB 594 million in Q2 2024
    Q2 FY25

    Increased year-over-year.

    Research and Development Expenses (Non-GAAP)
    RMB 3.1 billion
    Q2 FY25

    Part of the investment in technology and innovation.

    Research and Development Expenses (GAAP)
    RMB 3.6 billionup 23% year-over-year
    Q2 FY25

    Part of the investment in technology and innovation.

    GAAP Net Income Attributable to Ordinary Shareholders
    RMB 30.8 billiondown 4% year-over-year compared to RMB 32 billion in Q2 2024
    Q2 FY25

    Impacted by increased investments.

    Non-GAAP Net Income Attributable to Ordinary Shareholders
    RMB 32.7 billionversus RMB 34.4 billion in Q2 2024
    Q2 FY25

    Impacted by increased investments.

    Net Cash Generated from Operating Activities
    RMB 21.6 billioncompared with RMB 43.8 billion in Q2 2024
    Q2 FY25

    Reflects the significant investments made during the quarter.

    Cash, Cash Equivalents and Short-Term Investments
    RMB 387.1 billion
    as of June 30, 2025

    Strong liquidity position.

    100 Billion Support Program
    —
    Q2 FY25

    Significant commitment to high-quality development, involving substantial resources to support the merchant ecosystem. It is very broad in scope and focuses on support measures where merchants needed most.

    10 Billion Fee Reduction Initiative
    —
    since August last year

    Brought substantial savings for merchants, creating room for innovation and wider selection of high-quality products.

    Logistics Support Initiative
    40%growth in order numbers from remote regions
    Q2 FY25

    Significantly reduced the cost of shipping to remote areas, injecting new energy into the economy.

    June 18 Shopping Festival Orders
    3.76 million
    single day during June 18 promotion

    Super double discount event reached this many orders, meeting consumers' evolving needs.

    Total Grocery Business Coverage
    70%
    current

    Covers 70% of regions nationwide, addressing last mile delivery challenges.

    2025 Total Premium Produce Initiative
    —
    Q2 FY25

    Expanded support to merchants across hundreds of high-quality agricultural regions, helping them explore new ways to bring agricultural products online.

    Smart Agriculture Competition
    —fifth iteration
    current

    46 global teams competed in a preliminary in July, showcasing cutting-edge technology in AI farming, hydroponics and systems.

    10 Billion Coupon Program
    —
    Q2 FY25

    New long-term consumer campaign introduced in addition to the 10 billion program, offering more value for consumers.

    Industry KPIs

    2
    MetricValueDetails
    Regional market performance—
    Operating income EBIT and adjusted EBITDARMB 25.8 billion (GAAP); RMB 27.7 billion (Non-GAAP)RMB

    Risks & headwinds

    5
    Moderated Revenue GrowthQ2 FY25

    7% year-over-year growth

    Mitigation: Increased investments in merchant ecosystem and high-quality development through the 100 billion support program.

    Operating Profit DeclineQ2 FY25

    21% year-over-year decline (GAAP)

    Mitigation: Strategic decision to prioritize long-term value creation and ecosystem health over short-term financial results; continued investments in merchant support.

    Intensified Industry CompetitionOngoing

    Major market participants invested heavily in new business models; competition chose to exit total grocery business.

    Mitigation: Adopting a proactive and long-term approach, increasing investments in the platform ecosystem, and deepening merchant support measures.

    Profitability FluctuationsComing quarters

    Q2 profit levels not sustainable; fluctuations likely to continue

    Mitigation: Commitment to long-term value creation, sustained investments in ecosystem and merchant support.

    Short-Term Volatility in Global MarketsOngoing

    Significant changes across countries and regions and shifts in the global environment.

    Mitigation: Proactively adapting to changes, making timing adjustments, meeting changing regulatory requirements, and strengthening supply chain, service, and compliance capabilities.

    What to watch in Q3 FY25

    5

    Profitability Trend

    Next quarter
    CurrentOperating profit declined 21% YoY; Non-GAAP operating profit margin 27%
    TargetStabilization or improvement in operating profit margin

    Why it matters

    Management explicitly stated Q2 profit levels are not sustainable and fluctuations are expected, making the trajectory of profitability a key indicator of investment impact.

    We do not believe this quarter's profit level are sustainable and fluctuations in profitability is likely to continue in the coming quarters⏳.

    Q&A highlights

    3

    How is PDD navigating increased competition and what are the plans for the global business given the changing environment?

    Management acknowledges intensified competition and slowing revenue growth, stating they will adopt a proactive, long-term approach by increasing investments in the merchant ecosystem, even if it means foregoing short-term profits. For the global business, they will focus on strengthening supply chain, service, and compliance capabilities, adapting to regional changes, and localizing operations.

    “in response to the intensified competition, we will adopt a proactive and long-term approach, taking the competition as an opportunity to strengthen the high-quality development of the platform ecosystem.”

    asked by Alicia Yap · answered by Jiazhen Zhao

    2 min read6 chapters

    Detailed Narrative

    01

    100 Billion Support Program & Ecosystem Investment

    PDD Holdings launched the 100 billion core program, investing substantial resources to support its merchant ecosystem and drive high-quality development. This includes the 10 billion fee reduction initiative, which has provided significant savings for merchants, and a logistics support initiative that reduced shipping costs to remote areas, leading to a 40% increase in order numbers from those regions. These investments are seen as crucial for long-term value creation, even as they impact short-term financial results.

    02

    Global Business Strategy & Expansion

    The global business has seen significant changes and volatility across regions. PDD aims to proactively adapt to these changes, meet regulatory requirements, and diversify product offerings by working with local merchants. The focus is on strengthening supply chain, service, and compliance capabilities to support the next phase of growth, with an emphasis on localized operations and enhancing fulfillment experience.

    03

    Intensified Competition & Proactive Approach

    The e-commerce industry faces intensified competition from both traditional platforms and content platforms. PDD views this as an opportunity to strengthen its ecosystem by increasing investments and foregoing short-term profits. The company is deepening merchant support measures, collaborating with research teams for smart factories, and providing targeted assistance to SME merchants in agricultural regions and industrial belts.

    04

    Total Grocery Business Commitment

    Despite competitors exiting the market, PDD remains committed to its total grocery business, viewing it as a natural extension of its e-commerce operations. After five years of investment, the service now covers 70% of regions nationwide, connecting local farmers with consumers and creating local employment. The company plans to continue increasing investments in product, supply, service quality, and delivery efficiency for this segment.

    05

    Profitability Outlook & Investment Cycle

    The company's Q2 revenue growth moderated to 7% and operating profit declined by 21% year-over-year, reflecting the impact of increased investments. Management explicitly stated that Q2 profit levels are not sustainable and fluctuations in profitability are likely to continue as they prioritize long-term ecosystem health over short-term financial performance.

    06

    Consumer Market & Shopping Festival Performance

    China's consumer market shows remarkable potential and resilience, with steady growth in overall retail sales and online retail penetration. The June 18 shopping festival saw record sales across dozens of categories, with the super double discount event reaching over 3.76 million orders in a single day. The 10 billion program supported high-quality agriculture and national brands, enabling SME merchants to reach new milestones.

    AI-generated summary of the company’s earnings call. Not investment advice.