PDD Holdings reported Q1 revenue of RMB 106.2 billion—has its share price already hit bottom?

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Earnings & Options Strategy | PDD Holdings Plunges Post-Earnings: Market Reassesses Growth Quality; Recovery Signals Still Awaited

$PDD Holdings (PDD.US)$ Following the earnings release, the stock price dropped by 10%.The market reaction this time was significant. The immediate cause was that revenue and profit fell short of expectations, while a deeper reason is that investors have started re-evaluating the quality of PDD Holdings’ growth.

Looking at core metrics, PDD Holdings reported first-quarter revenue of RMB 106.2 billion, an 11% year-over-year increase. Of this, online marketing services and other revenue amounted to RMB 49.9 billion, up just 2.5% year-over-year, while transaction services revenue reached RMB 56.3 billion, rising 20% year-over-year.

On the profitability front, the company reported first-quarter operating profit of RMB 19.6 billion, up 22% year-over-year; Non-GAAP operating profit was RMB 21.1 billion, an increase of 15% year-over-year. However, net income attributable to shareholders was RMB 12.5 billion, down 15% year-over-year; Non-GAAP net income attributable to shareholders was RMB 14.1 billion, down 17% year-over-year. Non-GAAP diluted earnings per ADS were RMB 9.51, below RMB 11.41 in the same period last year.

These figures indicate that PDD Holdings did not experience a revenue decline, and its operating profit continued to grow.However, the market was disappointed because revenue growth did not significantly exceed expectations, advertising monetization slowed, net profit declined year-over-year, and adjusted earnings per ADS also missed market expectations.For a company previously viewed by the market as a 'high-efficiency growth stock,' such performance directly impacts its valuation.

Over the past few years, PDD Holdings has stood out among Chinese e-commerce firms for its high efficiency and strong profit elasticity, benefiting both from the high monetization capability of its domestic main platform and the overseas growth potential driven by Temu.But the signals from the first-quarter earnings report are more nuanced: the company is still growing, and profits have not decelerated sharply—yet the growth composition has shifted, and the pace of profit recovery has been weaker than previously anticipated.

For investors, this means PDD Holdings is transitioning from a phase of 'high-growth premium' to one of 'growth quality validation.'

Domestic Main Platform: Slowing ad revenue is the most sensitive signal in this earnings report

The metric most worth watching this quarter is online marketing revenue.

PDD Holdings reported RMB 49.9 billion in online marketing services and other revenue for the first quarter, compared to RMB 48.7 billion a year earlier, representing year-over-year growth of only about 2.5%.Compared to the 20% growth in transaction services revenue, this segment is clearly weaker.

Online marketing revenue can be viewed as a key indicator of the platform's advertising monetization capability. In the past, PDD Holdings' core strength lay in its high traffic conversion efficiency—merchants were eager to advertise on the platform, enabling ad revenue to grow steadily alongside GMV.The notable slowdown in advertising revenue growth now suggests that the market needs to reassess the quality of growth on PDD Holdings' domestic main platform.

There may be several underlying reasons for this.

First, competition in China's e-commerce sector has intensified again.Platforms such as Alibaba, JD.com, and Meituan are all competing aggressively on price, service, instant retail, and subsidies to win back users. While PDD Holdings still maintains a strong perception of low prices, its once-significant competitive edge has narrowed as rivals ramp up investments.

Second, the operating environment for merchants is changing.Platform governance, tax compliance, fulfillment responsibilities, and pricing rules are gradually becoming more standardized. While this benefits the long-term health of the industry ecosystem, it may squeeze profit margins and advertising budgets for some small and medium-sized merchants. Reduced merchant spending capacity ultimately shows up in the platform’s advertising revenue.

Third, PDD Holdings’ domestic main platform itself has entered a more mature phase.The mature stage is characterized by continued profitability, but growth rates and profit elasticity will gradually return to normal levels. What the market truly worries about is not that PDD Holdings' domestic business suddenly loses competitiveness, but rather that it can no longer easily outperform the broader e-commerce sector as effortlessly as it did in the past.

Temu remains a source of valuation upside, but still needs to demonstrate a viable path to profitability.

Transaction services revenue was a relatively stronger component this quarter.

In the first quarter, PDD Holdings generated RMB 56.3 billion in transaction services revenue, up 20% year-over-year, significantly outpacing the overall revenue growth rate. This reflects contributions from both domestic transaction-related services and ongoing overseas expansion.For PDD Holdings, Temu remains the most critical variable for future growth.

However, investor expectations for Temu have risen.

Previously, the market focused more on whether Temu could rapidly scale up.Now, the market is asking further questions: After scaling up, can fulfillment costs decline? Can marketing expenses be contained? Will changes in overseas regulations and tariffs affect the business model? And ultimately, what level of profitability can be achieved?

This is also where Temu currently finds itself in a delicate position. It remains the largest source of valuation upside for PDD Holdings, yet it continues to consume marketing, fulfillment, and management resources in the short term—especially as it expands simultaneously across multiple markets such as Europe, Latin America, and Southeast Asia, requiring sustained investment in logistics, subsidies, compliance, and supply chain capabilities.

Therefore,The market has not dismissed Temu’s long-term value; rather, it now demands a shift from a 'growth story' to 'profitability proof.' If transaction services revenue continues to grow at a robust pace and losses narrow, Temu could still drive a re-rating of PDD Holdings’ valuation.; if the investment cycle continues to lengthen, the market will likely keep repricing the drag from overseas operations on the group's profit margin.

Profitability: Net profit pressure persists, with marketing expenses showing no significant decline

The profitability figures need to be broken down further.

The company’s cost base continues to rise. Operating costs reached RMB 46.9 billion in the first quarter, up 15% year-over-year, outpacing revenue growth of 11%. Gross margin stood at approximately 55.9%, down from roughly 57.2% a year earlier. Fulfillment expenses, server costs, payment processing fees, and other items continued to increase, reflecting ongoing platform expansion and investments in overseas operations that are still weighing on profitability.

Why did operating profit grow while net profit declined? Let’s break down the expense-side performance in detail.

PDD Holdings reported sales and marketing expenses of RMB 33.8 billion in the first quarter, compared to RMB 33.4 billion a year ago, representing a modest year-over-year increase.This figure isn’t particularly aggressive, but the market had likely anticipated a more noticeable decline in marketing expenses following some easing of subsidy pressures. The actual results indicate limited expense reduction.

Given that Temu is still expanding across multiple markets, marketing and fulfillment spending overseas is likely to remain elevated.The domestic main app may have already entered a phase of more restrained spending, but the lack of a meaningful decline in group-level marketing expenses suggests that overseas expansion continues to consume resources.

On R&D expenses, the company spent RMB 4.4 billion in the first quarter, up approximately 24% year-over-year—significantly faster than revenue growth. Management noted that the company is advancing deep transformation efforts in business operations, organizational structure, and internal processes, and is prioritizing supply chain investments as a key strategic focus. The increase in R&D spending can also be linked to initiatives such as AI-powered search, platform efficiency improvements, and supply chain digitization.

Non-operating items also weighed on net profit.In the first quarter, the company recognized other losses of approximately RMB 2 billion, compared to other gains of about RMB 3.3 billion in the same period last year. This swing from gain to loss significantly impacted the year-over-year change in net profit.

Costs, investments, and non-operating items collectively dampened final profitability. Over the long term, these investments are expected to enhance fulfillment efficiency, merchant quality, and user experience. However, capital markets are more focused on the payback period of these investments.Especially against the backdrop of slowing revenue growth, the company needs to demonstrate that these investments can translate into more stable user engagement, a healthier merchant ecosystem, and a clearer path to profit growth.

Valuation recovery requires three signals.

Following post-earnings adjustments, PDD Holdings’ valuation has already compressed significantly, with its forward price-to-earnings ratio declining to 8.3x. However, cheapness alone is not sufficient—markets need to see new catalysts.

First, whether domestic core-platform advertising revenue can rebound.If online marketing revenue resumes rapid growth, it would indicate sustained advertiser willingness to spend and healthy platform monetization capability—key factors underpinning the domestic core platform’s valuation stability.

Second, whether Temu can demonstrate a viable path to profitability.Transaction services revenue has already maintained strong growth. Next, the market will focus on narrowing losses, fulfillment efficiency, and regulatory risks in overseas operations. If Temu can transition from scaling up to delivering profits, PDD Holdings’ international business still has room for re-rating.

Third, whether the company will enhance shareholder returns. The RMB 436.1 billion in cash and short-term investments provides a strong cushion, but investors are eager to see this cash value unlocked. Share buybacks, dividends, a Hong Kong listing, or clearer capital markets communication could all serve as key catalysts for valuation recovery.

One of PDD Holdings' greatest strengths remains its balance sheet.

As of the end of Q1, the company held RMB 436.1 billion in cash, cash equivalents, and short-term investments, up from RMB 422.3 billion at the end of 2025. Operating cash flow was RMB 16.4 billion, higher than RMB 15.5 billion during the same period last year.

This means PDD Holdings is not short on cash.The company has the capacity to continue investing in its supply chain and supporting overseas expansion, and also holds the potential to boost shareholder returns through buybacks or dividends.

The issue is that the market currently demands a clearer capital allocation strategy.In the past, during periods of high growth, investors were willing to accept the company reinvesting most of its cash into expansion. However, as growth enters a transition phase, the market naturally pays closer attention to how cash is deployed—whether it translates into shareholder returns and whether management is willing to communicate more clearly with capital markets.

If the company can maintain its business investments while articulating a clearer plan for buybacks, dividends, or capital markets initiatives, resistance to valuation recovery would likely diminish. Conversely, if the company continues with minimal communication and low shareholder returns, its ample cash reserves may not immediately translate into a valuation premium.

Technically, the stock has been severely damaged by the earnings miss, exhibiting a classic 'breakdown on high volume' pattern. The consolidation range since mid-April has been broken to the downside, weakening the short-term technical trend. The most critical support level now lies at the 52-week and all-time low of USD 83.61. The moving averages are in a bearish alignment, indicating a downward short-term trend. The MACD histogram shows lengthening green bars, signaling strengthening downward momentum with no reversal yet in sight. On May 27, fund flows diverged: ultra-large orders recorded net inflows of USD 22.67 million, while large orders saw net outflows of USD 64.76 million, with medium and small orders also registering net outflows. This reflects institutional divergence—some large players may be accumulating positions at lower levels, but overall selling pressure still dominates the market.

In terms of options strategy, the current decline has already significantly exceeded the implied volatility expectation of approximately 6.56% priced into the options market ahead of earnings. From an options perspective, PDD Holdings currently has an implied volatility (IV) of around 36.57%, with an IV Rank of approximately 42%, placing it at a median level.The position is prone to sharp drops as well as sharp rallies, but overall remains fragile.structure. A put wall exists at USD 90, forming a resistance level for any rebound.

(1) Investors who already hold shares of PDD Holdings can use a Covered Call to lower their cost basis.

For investors who already hold the underlying stock but do not expect the share price to quickly recover above USD 95 in the near term, they may consider implementing aCovered Call.。

PDD Holdings has already broken below USD 90, which has shifted from a prior potential support level to the first layer of resistance on any bounce. The area near USD 95 represents a call wall on the chart and serves as a more significant overhead resistance zone. Therefore, selling deep-in-the-money calls via Covered Call at panic lows is not advisable; instead, it is better to wait for a price recovery before selling out-of-the-money calls.

(The figure below illustrates the simulated profit and loss scenario of this strategy on the expiration date. The design image displayed on the screen is for demonstration purposes only and does not constitute any investment advice or guarantee; market conditions fluctuate frequently, and the prices shown do not represent actual values.)

(2) Investors willing to accumulate shares at lower levels: can use Sell Put to await a cheaper entry point.

If investors still believe in PDD Holdings’ long-term cash flow generation, platform strength, and valuation attractiveness, but prefer not to directly buy the stock near USD 84–86, they may consider usingcash-secured put selling.Wait for a lower price to take delivery of the stock.

However, PDD Holdings has just broken below USD 90 and remains in a negative gamma zone, which will amplify short-term volatility. If you sell puts too close to the current price, a further decline in the stock could easily force you into an unwanted long position. A more prudent approach is to sell puts with a lower strike price.

However, this strategy is only suitable for investors who are genuinely willing to take delivery of the stock at the specified strike price. If an investor does not intend to buy PDD Holdings, they should not sell puts merely for the premium.

(3) Covered calls and put selling can be combined into a 'wheel strategy.'

If the put is assigned and you receive the underlying shares, you can then continue selling covered calls afterward, forming a 'Wheel Strategy.'

However, this wheel strategy has one prerequisite: the investor must be willing to hold PDD Holdings for the long term. Otherwise, if the stock continues to fall, being forced into a long position will leave the investor in a very unfavorable psychological and financial position.

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