PDD Holdings Inc is positioned at the outset of a new growth phase as Temu approaches its profitability turning point and domestic revenue growth reaccelerates.
According to Goldman Sachs' review of PDD's fourth-quarter 2025 results, the firm maintains a Buy rating and a 12-month price target of $158. Goldman Sachs forecasts adjusted net profit for the first quarter of 2026 to reach 26 billion yuan, representing a 55% year-over-year increase. For the full year 2026, adjusted net profit is projected to be 119 billion yuan, up 11% year-over-year.
Goldman Sachs has named PDD as one of its top large-cap picks in the Chinese internet sector for 2026. The company currently trades at approximately 9 times its projected 2026 earnings, a significant discount to the median of 16 times for Goldman's covered Chinese internet stocks. As of the end of 2025, PDD held net cash of approximately $70 billion, accounting for roughly 50% of its recent market capitalization. The current market valuation assigns almost no value to the Temu business.
PDD's stock price has declined approximately 23% over the past 12 months, underperforming the Nasdaq Composite Index by more than 37 percentage points. Goldman Sachs believes that at the current price level, the company offers a highly favorable risk-reward profile, driven by multiple catalysts including revenue reacceleration, Temu's approaching profitability inflection, potential for AI application, and strong advertising technology capabilities.
Temu's business model transformation is nearing completion, with a profitability inflection point anticipated for 2027. According to Goldman Sachs research, the platform has largely completed its shift to a "local-to-local" delivery model in developed markets such as the US and Europe, significantly enhancing business resilience. Goldman estimates that Temu's global Gross Merchandise Volume (GMV) will exceed $100 billion in 2026, establishing the scale necessary to enter a monetization phase.
Goldman Sachs projects that Temu's EBIT will shift from an estimated loss of 7.7 billion yuan in 2026 to a projected profit of 3.2 billion yuan in 2027, marking the profitability turning point. In terms of user data, Temu's global Monthly Active Users (MAU) reached 516 million in February 2026, covering multiple regions including the US, Europe, and Asia.
Strong performance in transaction services revenue supports this outlook. In the fourth quarter, this revenue stream grew 19% year-over-year, accelerating from 10% growth in the third quarter and exceeding expectations. This was primarily driven by a recovery in US operations following a temporary easing of tariff policies and the continued growth of "Duoduomaicai" amid scaling back by competitors like Meituan优选.
Goldman Sachs expects transaction commission revenue growth rates of +19% and +20% for the first quarter and full year of 2026, respectively.
PDD recently announced the establishment of "Xin Pin Mu" with an initial scale of 15 billion yuan, planning cumulative investments of 100 billion yuan over the next three years. This initiative aims to incubate self-operated global brands, promote the upgrade of Chinese manufacturing towards higher value-added production, and deepen the shared supply chain infrastructure for both PDD and Temu.
Goldman Sachs analysis suggests this strategic deployment will strengthen the company's overall differentiated advantages and competitive barriers, helping it to consistently outperform peers in the long term. Notably, management has reiterated for the sixth consecutive quarter its commitment to increased reinvestment in the near term, indicating that quarterly profits may experience fluctuations.
Against this backdrop, Goldman Sachs has slightly lowered its 2026 profit forecast for the domestic core business by 1% to 114 billion yuan and reduced the domestic main platform valuation multiple from 12x to 10x. However, the price target remains unchanged due to the increased net cash position. Goldman projects group EBIT for the first quarter and full year 2026 to be 25 billion yuan and 115 billion yuan, respectively.
Additionally, the company launched a "Free Delivery to Villages" program in the fourth quarter, building its own last-mile logistics infrastructure and covering transportation costs to village levels, thereby further strengthening its penetration in lower-tier markets.
PDD holds substantial net cash, making its valuation particularly attractive. As of the end of 2025, PDD held net cash of approximately $70 billion (approximately $60 billion after deducting restricted funds), equivalent to about 50% of its market capitalization, providing ample resources for continued strategic reinvestment.
From a valuation perspective, PDD's current trading multiple of approximately 9x projected 2026 earnings represents a significant discount to the median of 16x for Goldman's covered Chinese internet stocks. The current market capitalization incorporates almost no valuation premium for Temu.
Using a sum-of-the-parts (SOTP) valuation method, Goldman Sachs arrives at the 12-month price target of $158. The firm believes there is significant potential for valuation re-rating as Temu's profit inflection point nears, AI application potential is realized, and synergies are leveraged between its powerful advertising technology capabilities—where PDD is a pioneer in ROI-oriented marketing tools—and its cost-competitive Chinese supply chain advantages.
Comments