PDD Q1 Earnings Preview: Can Domestic Discounts and TEMU’s Global Push Coexist Profitably?

PDD Holdings ($PDD) is set to report its Q1 2025 earnings on May 27, and expectations are mixed. The consensus forecast points to revenue of RMB 103.4 billion, up 19.07% YoY, while EPS is expected to decline by 9.77% to RMB 17.11.

Despite solid top-line growth, the company’s aggressive discounting on its domestic platform and expansion strategy via TEMU may be weighing on margins. Year-to-date, PDD stock is up nearly 20%, but volatility has remained elevated. Here’s a breakdown of the key themes investors are watching:

Domestic Growth vs. Profit Pressure

PDD’s domestic platform is still its profit engine, but a RMB 10 billion merchant support plan announced in 2024 has raised concerns about margin sustainability. CFRA, in its latest note, flagged this as a headwind and now expects net margins to decline to 23% in 2025 and 26% in 2026, down from 29% in 2024.

The big question: can PDD continue to scale GMV and improve monetization while absorbing these costs?

Interestingly, macro signals are looking more upbeat. Citi recently surveyed around 2,500 Chinese consumers and found that a majority feel financially stable and expect to increase spending over the next 12 months. Nearly 63% reported shopping several times a week.

Official data also backs this up:

Total retail sales (Jan–Apr): +4.7% YoY
Online physical goods sales: +5.8% YoY
Food category: +14.6% YoY

So, demand appears to be there—but whether PDD can translate that into higher monetized GMV without eating too much margin is still unclear.

TEMU's Transition & Global Expansion

TEMU continues to be PDD’s most closely watched bet. After experimenting with a full-managed model, it's now shifting toward a semi-managed approach and diversifying its footprint beyond the U.S. into Europe and Latin America.

Goldman Sachs has downgraded its U.S. GMV forecast for TEMU, citing the platform’s recent halt on direct air shipments from China to the U.S. This shift was likely triggered by changes to U.S. de minimis import rules, prompting PDD to consider building local warehouses and even partnering with local sellers.

Similar regulatory headwinds are also emerging in Europe, where small-package tax exemptions are under review.

So the core challenge here is whether TEMU can maintain its low-price edge while restructuring its logistics and fulfillment model. If it can't, rising costs could start to erode its appeal.

Balancing Investment and Shareholder Return

PDD management has been vocal about focusing on long-term fundamentals—improving supply chain and compliance capabilities—over short-term profitability. This might explain some of the expected margin compression this quarter.

Goldman also points out two more investor concerns:

ADR delisting risks: Ongoing geopolitical tensions continue to make this a lingering overhang.
Capital return policy: With strong free cash flow generation, some investors are hoping PDD might consider shareholder returns in the future, especially given rising strategic investments.

Goldman estimates Q1 online marketing revenue at RMB 48.9B (+15% YoY), transaction service revenue at RMB 59.6B (+34% YoY), and adjusted net income at RMB 26.2B (–14% YoY).

Final Thoughts

Overall, expectations are cautiously optimistic. Revenue growth seems solid, supported by both domestic demand and TEMU’s scale, but margin pressure and strategic uncertainty are real.

For investors, the post-earnings call webcast will undoubtedly provide valuable insights into these focal points.