Wall Street Interprets Pinduoduo's Earnings: Short-term Profit Pressure, but Self-operated Business and Supply Chain Investment Target Long-term Moat

Wall Street's consensus on the latest Pinduoduo earnings report is out: it's a mixed report card. Facing an evolving global regulatory environment and fierce domestic competition, Pinduoduo is proactively choosing a difficult path of “sacrificing short-term profits for long-term barriers.”

Wall Street Insights article previously reported that Pinduoduo's Q2 2026 revenue grew 8% year-on-year, about 2.5% below market consensus. Online marketing services revenue grew 3.5% y/y, exceeding expectations; however, transaction services revenue grew only 13.3% y/y, far below market expectations of 21%-22%, with the main drag coming from Temu. Net profit attributable to parent fell 12% to 27.2 billion RMB.

According to Chasing Wind Trading Desk, the latest research reports from Goldman Sachs, Jefferies, and Morgan Stanley on August 25 send a clear signal: investors must brace for Pinduoduo’s near-term profit fluctuations and margin compression.

The reports indicate that new regulations such as the EU’s removal of tax exemptions have already dealt a substantial blow to Temu’s short-term growth and fulfillment efficiency. Europe accounts for about one-third of Temu’s GMV (Goldman estimate), leading to a significant drop in European GMV, decreased overall fulfillment efficiency for Temu, and rising operational costs. At the same time, Pinduoduo is investing 100 billion RMB to support merchants in China, and aggressively investing in global local supply chains, warehousing, and its own 1P (first-party) business.

Wall Street has broadly lowered short-term earnings expectations and target prices for Pinduoduo (Goldman to $134, Jefferies to $118), but generally maintained a "Buy/Overweight" rating. The core logic is that: Pinduoduo’s extremely low valuation (Goldman predicts a 2026 P/E of only 9x) already reflects the pressures from recent regulations and investments. Management refuses to blindly expand into Quick Commerce, choosing instead to double down on core e-commerce and supply chain, and this “action speaks louder than words” strategy is building an almost insurmountable long-term moat.

Earnings Analysis: Marketing Beats Expectations, Transaction Revenue Misses by a Mile

The core contradiction in Q2 earnings lies in the sharp divergence between the two main revenue streams.

Online marketing services revenue delivered a relatively strong performance, up about 3.5% year-on-year to 57.6 billion RMB, exceeding market consensus (+1.6%) and Jefferies’ forecast (+1%).

Goldman Sachs points out that this growth not only outpaced Taobao Tmall’s +1% for the same period (on Alibaba’s new merchant rebate accounting, it’s -7%), but also exceeded Kuaishou e-commerce ads at about +1%, showing Pinduoduo’s relative strength in domestic GMV and merchant ad demand. Goldman estimates Pinduoduo’s Q2 2026 domestic GMV grew about 5% y/y, better than the industry’s overall 2%.

Transaction services revenue became this quarter’s biggest “minefield.” It rose just 13.3% y/y to 54.7 billion RMB, slowing from Q1’s +20% and falling far short of Goldman’s +21% and the market’s +22% forecasts. All three institutions attributed this shortfall mainly to Temu’s regulatory challenges in Europe.

Gross profit for Q2 2026 reached 64.3 billion RMB, with a gross margin of about 57.3%, higher than the market consensus of 55.5%, up 11% y/y—beating Goldman’s forecast and showing some cost control effectiveness.

Adjusted net profit for Q2 2026 (non-GAAP) was about 28.5 billion RMB, just above market expectations (28 billion RMB), but below Goldman’s forecast (26.3 billion RMB). Under GAAP, net profit attributable to ordinary shareholders was about 27.2 billion RMB, down about 12% y/y.

Notably, there was about 7.4 billion RMB in other losses this quarter, which Goldman believes is mainly related to domestic and Temu-related regulatory fines; in addition, management expenses were significantly higher due to the establishment of a new Xiongan subsidiary.

EU New Regulations: The Most Direct Pressure Facing Temu

Tighter EU regulatory policy is the most critical external variable this quarter and the main reason all three institutions cut their forecasts.

From July 2026, the EU will abolish the de-minimis exemption and impose a 3 euro customs handling fee per cross-border parcel. Since Europe accounts for about one-third of Temu’s GMV (Goldman estimate), this policy has a direct and profound impact on Temu.

Both Morgan Stanley and Jefferies emphasized in earnings calls that management acknowledged this regulatory cloud: new tax rules on cross-border parcels have affected order volume, leading to reduced fulfillment efficiency and higher operating costs.

Additionally, media reports indicated Temu’s European GMV saw a significant decline in Q2 2026. Goldman thus sharply lowered Temu-related forecasts:

Cut Temu’s FY2026/FY2027 GMV growth forecasts from 33%/25% to 15%/25%;

Cut Q3 and FY2026 transaction commission income growth forecast from +21% and +20% to +6% and +10%;

Now expects Temu EBIT of -11.8 billion RMB/-2.8 billion RMB for FY2026 and FY2027 (previously -9.4 billion/+2.7 billion), meaning the path to profitability will be slower.

Morgan Stanley forecasts Q3 2026 transaction services revenue growth of about 9% y/y (further slowing from Q2’s 13.3%), with full-year 2026 transaction services revenue growth at about 13% y/y.

Temu Localization Strategy: A Long-Term Solution to Regulation

Facing the EU’s new rules and a continually evolving global tariff environment, Temu is accelerating its localization transformation—a key reason the three institutions remain positive.

Management clarified on the earnings call Temu’s response:

• First, attract more local merchants to broaden local product supply and enhance assortment;

• Second, accelerate building local warehousing and fulfillment infrastructure to strengthen local-to-local fulfillment and reduce reliance on direct cross-border shipping;

• Third, increase penetration of local procurement and fulfillment to improve business resilience and regulatory compliance, while also expanding the global addressable market.

Goldman Sachs notes that the company is gradually moving to a “semi-trusted” and “local-to-local” business model—this transition will slow profitability ramp in the short term, but will boost Temu’s long-term competitiveness and compliance capabilities.

It’s also worth noting that while Europe remains under pressure, Temu’s US business is showing some recovery in a more favorable tariff environment.

"Xin Pin Mu" Private-Label Strategy: Strategic Extension of Supply Chain Strengthening

Pinduoduo’s development of its own private-label (1P) strategy is another important highlight this quarter and a core move to build a long-term moat.

Management positions “Xin Pin Mu” as a natural extension of supply chain capabilities—not just a brand expansion. The company’s first private label, "Bemuvo," officially launched in selected markets in June 2026, but management admitted the roll-out has been slower than expected initially.

The strategy is to focus on key categories where Pinduoduo has differentiated supply chain and global channel advantages, selectively launching its own brand, and emphasizing 1P (first-party) and 3P (third-party) products will be complementary.

Jefferies reports that the company works closely with factories during product planning and R&D to meet high quality standards. This model helps build deeper competitive barriers on the supply chain end.

Goldman has thus cut its Q3 and FY2026 EBIT forecasts to 22 billion/102 billion RMB (from 25 billion/106 billion RMB), reflecting the company’s ongoing commitment to ecosystem and supply chain investment.

Domestic Business: GMV Resilience, Rejecting Quick Commerce Expansion

In the domestic market, Pinduoduo has demonstrated relatively solid fundamentals and maintained clear strategic focus.

Goldman estimates Pinduoduo's Q2 2026 domestic GMV grew about 5% y/y, ahead of the industry’s overall +2%, despite stricter merchant tax requirements, heightened competition, and generally weak consumption.

Management said future growth will increasingly come from solving supply chain bottlenecks (spanning product development, manufacturing, and fulfillment), as well as continued investment in logistics to unlock spending in lower-tier cities and rural areas.

Goldman continues to forecast domestic GMV growth of +5% y/y for both Q3 and FY2026 (unchanged), and has slightly raised online marketing services revenue growth forecasts for Q3/FY2026 to +2%/+3% (previously +2%/+1%).

In addition, the strong continued performance of Duo Duo Grocery was also positively evaluated by Goldman Sachs.

On the topic of Quick Commerce, Morgan Stanley emphasized that management made it clear that Quick Commerce differs from traditional e-commerce in business model and supply chain requirements, with limited synergies. Therefore, Pinduoduo will not divert attention, instead focusing resources on its core e-commerce and supply chain strengths.

All Three Institutions Remain Bullish, Target Prices Slightly Lowered

Despite near-term performance pressure, all three top investment banks maintain positive ratings on Pinduoduo and see considerable upside from the current share price ($88.38).

Goldman Sachs: Maintains Buy, cuts 12-month SOTP target price from $145 to $134, mainly reflecting lower domestic platform multiples (due to slower profit growth) and lower Temu GMV growth forecasts.

Valuation: 9x 2026E P/E for the domestic main platform; 25x P/E for Temu (excluding US full-managed business); and a 15% holding company discount. The current share price equals about 9.2x 2026E P/E (excluding cash, about 4x).

Jefferies: Maintains Buy, cuts target price from $121 to $118, based on SOTP valuation, trims FY26E/FY27E revenue forecasts by about 6%/5%.

Morgan Stanley: Maintains Overweight, keeps the target price unchanged at $129, based on a DCF model (14% WACC, 3% perpetual growth), which corresponds to about 13.8x 2026E non-GAAP P/E, and considers this valuation reasonable for a ~6% earnings CAGR for 2026-2029.

Morgan Stanley expects full-year 2026 non-GAAP net profit to fall about 11% y/y to around 110 billion RMB, and non-GAAP net profit to fall about 12% y/y to around 95 billion RMB.