PDD Holdings Inc. is exchanging immediate profitability for a steeper, long-term growth trajectory. The latest quarterly earnings fell short of market expectations, but the signals from management were more critical. The company is preparing for larger-scale investments in its own brands, co-building supply chains, and merchant ecosystems to secure growth over the coming years.
For the first quarter of 2026, PDD's total revenue reached RMB 106.2 billion, an 11% year-over-year increase, which was below the market consensus of RMB 108.6 billion. Non-GAAP net profit was RMB 14.1 billion, down 17% year-over-year, significantly missing the market estimate of RMB 24.6 billion. Following the earnings release, PDD's U.S.-listed shares fell nearly 4% in pre-market trading, as investors initially reacted to the profit shortfall and the near-stagnation of online marketing services revenue.
On the earnings call, Co-CEO Zhao Jiazhen stated that continuing to make heavy investments in the supply chain will be the company's core strategy for the next decade. Compared to short-term performance, the company prefers to focus on nurturing the ecosystem and long-term value creation. Co-CEO Chen Lei added that brand-building represents a key opportunity for the next phase of upgrading China's supply chains.
According to market analysis, interpretations from three major investment banks point to the same tension: short-term pressure on the profit statement, while the strategic narrative is reopening. Morgan Stanley and J.P. Morgan focused on downward revisions to profit expectations. Goldman Sachs, however, argued that investments in "New Pinduoduo Mall" and self-operated brands bring PDD closer to its long-term vision of becoming a "Costco + Disney." For investors, the core question has shifted from "why profits missed expectations" to "whether PDD can trade short-term profit volatility for stronger long-term competitive moats."
Earnings Signals: Profit Pressure, But Core Operations Not Stalling
PDD's Q1 performance showed clear divergence. On the revenue side, total revenue of RMB 106.2 billion grew 11% year-over-year but missed expectations. On the profit side, Non-GAAP net profit of RMB 14.1 billion fell 17% year-over-year, far below consensus. Net profit attributable to shareholders decreased 15% year-over-year to RMB 12.5 billion, primarily dragged down by non-operating items such as a swing to investment losses and foreign exchange losses.
Meanwhile, the efficiency of core business operations remained supportive. The company's operating profit grew 22% year-over-year to RMB 19.6 billion. J.P. Morgan also noted that adjusted operating profit increased 16% year-over-year, with the adjusted operating profit margin reaching 20%, up 1 percentage point year-over-year, indicating sound core operational efficiency.
The real pressure came from two ends. One was the slowdown in online marketing services revenue. This segment grew only 2.5% year-over-year to RMB 49.9 billion in Q1, significantly lower than the growth rate of transaction services revenue. The near-stagnation in ad growth suggests the platform's traditional monetization engine is downshifting. The other end was the drag on net profit from non-operating items. J.P. Morgan stated that adjusted net profit was 43% below its forecast and the market consensus, mainly due to larger-than-expected losses from non-recurring items, including interest and investment losses of RMB 632 million and other losses of RMB 2 billion.
This makes PDD's Q1 report not simply a story of "slowing growth," but rather the starting point of a structural shift: advertising slows, transaction services take over, profit volatility increases, and supply chain investments heat up.
Earnings Call Sets Tone: Billions Allocated to Supply Chain
On the Q1 earnings call, PDD's management provided a clearer strategic path. Responding to analysts' questions about "where the hundreds of billions are going and when results will appear," Co-CEO Zhao Jiazhen stated that continuing heavy investment in the supply chain will be the company's core strategy for the next decade. "Compared to short-term performance, we are more willing to focus on the long-term value brought by nurturing the ecosystem and heavily investing in the supply chain."
This statement continues the goal of "rebuilding Pinduoduo in three years" proposed by the company at the end of last year. According to previous disclosures, the specialized "New Pinduoduo Mall" company has been established in Shanghai with an initial cash injection of RMB 15 billion. Plans for the next three years involve cumulative investments of RMB 100 billion to integrate supply chain resources for "Pinduoduo + Temu," launch a self-operated brand model, and systematically incubate brands for the global market.
Zhao Jiazhen further explained on the call that brand building is not simply about traffic support, but a long-term project covering the entire chain from product design, standard setting, collaborative manufacturing, quality control and warehousing, to fulfillment and after-sales service. The platform aims to inject sales certainty into the industrial chain, with the platform assuming more risk, while manufacturing focuses on high-quality production.
Co-CEO Chen Lei also stated that there remains a vast amount of unmet consumer demand in the global market, and brand-building is a key opportunity for the next phase of upgrading China's supply chains. The company's goal is to systematically incubate a portfolio of brands recognized globally, driving a leap in value for the supply chain.
This means PDD's investment direction has moved beyond traditional subsidies and traffic distribution into heavier industrial chain segments. Self-operated brands, supply chain co-building, and manufacturing collaboration will become the focus of a new round of capital and resource allocation.
Goldman Sachs: Closer to "Costco+Disney," But Profits Will Fluctuate
Goldman Sachs's interpretation of PDD most closely aligns with the "Costco + Disney" logic referenced in the title. Goldman Sachs noted in its report that although Q1 results missed expectations, with weak online marketing services revenue growth and a 17% year-over-year decline in EPS, transaction services revenue grew 20% year-over-year, indicating Temu's GMV growth is accelerating. Group operating profit also grew 16% year-over-year, reflecting a significant year-over-year improvement in Temu's GMV margin.
More importantly, Goldman Sachs believes that PDD's launch of a three-year investment cycle for its self-operated brand initiative, "New Pinduoduo Mall," will become a multi-year growth driver for both Temu and Pinduoduo, bringing the company closer to the "Costco + Disney" vision it proposed at its 2018 IPO.
The logic behind this view is that PDD is no longer just a platform matching buyers and sellers but is delving deeper into the supply chain, incubating self-operated global brands, and driving the upgrade of Chinese manufacturing from low-cost mass production to high-value-added production. If executed successfully, the company could gain stronger product differentiation and supply chain moats.
However, Goldman Sachs also lowered its profit forecasts. It reduced its 2026-2028 revenue estimates by 2% to 5% and its adjusted net profit forecasts by 11% to 12%. Goldman Sachs now expects PDD's group adjusted net profit for 2026 and 2027 to be RMB 105 billion and RMB 126 billion, representing year-over-year growth of 0% and 20%, respectively.
Goldman Sachs also lowered its 12-month price target from $158 to $145 but maintained a Buy rating. Its rationale is that the current valuation corresponds to about 8x 2026 P/E, or approximately 4x excluding cash, and the risk-reward remains attractive.
In other words, Goldman Sachs acknowledges that short-term profits will be weighed down by reinvestment but believes the market's negative reaction to the miss on marketing services and EPS is overdone. For Goldman, PDD's investment focus is shifting from short-term profit margins to long-term GMV, brand equity, and supply chain capabilities.
Morgan Stanley: Entering New Investment Cycle, Lowering Price Target
Morgan Stanley struck a more cautious tone. The firm stated in its report that despite PDD's Q1 operating profit growing 15% year-over-year, online marketing services revenue grew only 2.5%, and net profit missed expectations by 41%, raising market concerns. As the company embarks on a deep business transformation, Morgan Stanley expects the new investment cycle in supply chain and self-operated brands to continue weighing on financial performance in Q2 and the second half.
Morgan Stanley forecasts PDD's Q2 total revenue to grow 10% year-over-year, with online marketing services revenue largely flat and transaction services revenue growing 20%. For full-year 2026, it expects total revenue to grow 10%, online marketing services revenue to grow 5%, transaction services revenue to grow 16%, Non-GAAP operating profit to grow 17% to RMB 119 billion, and Non-GAAP net profit to decline 6% to RMB 100.6 billion.
Morgan Stanley lowered its price target for PDD from $148 to $129 but maintained an Overweight rating. The downgrade primarily reflects the Q1 profit miss and reductions of 14%, 13%, and 14% to its 2026, 2027, and 2028 EPS forecasts, respectively.
Morgan Stanley also highlighted that PDD has established a dedicated entity in Shanghai with an initial cash injection of RMB 15 billion and a commitment to invest RMB 100 billion over three years. Currently, the company is delving into industrial clusters, accelerating the integration of supply chain resources, and jointly incubating new brands suited to different markets and categories.
In Morgan Stanley's framework, PDD's story is becoming heavier and longer-term. In the short term, investments will suppress profits and forecasts; in the long term, self-operated brands and supply chain integration could bring a new growth curve.
J.P. Morgan: Core Operational Efficiency Acceptable, But Consensus Estimates May Be Revised
J.P. Morgan focused on the gap between financial performance and market expectations. The firm stated that PDD's Q1 results were "mixed," with both revenue and net profit below market consensus. Revenue of RMB 106 billion, up 11% year-over-year, was 3% and 2% below J.P. Morgan's forecast and market consensus, respectively. Online marketing services revenue growth further slowed to 2% year-over-year, below its forecast and consensus.
However, J.P. Morgan also pointed out that adjusted operating profit grew 16% year-over-year, with the adjusted operating profit margin at 20%, up 1 percentage point year-over-year, indicating that core operational efficiency remains acceptable.
The real issue lies at the net profit level. Q1 adjusted net profit of RMB 14 billion was 43% below its forecast and market consensus. The adjusted net profit margin was 13.2%, down 4 percentage points year-over-year and 9 percentage points below expectations, mainly due to larger-than-expected losses from non-recurring items. The firm expects market consensus estimates for PDD's revenue and net profit on Bloomberg to be revised downward after the earnings release and anticipates a negative stock price reaction to the results.
Compared to Goldman Sachs emphasizing the long-term vision and Morgan Stanley highlighting the investment cycle, J.P. Morgan's conclusion leans more towards short-term financial impact: the profit gap is significant, and market expectations need recalibration.
Core Divergence: Short-Term Profit vs. Long-Term Moat
PDD is making a classic reinvestment choice. Looking solely at the Q1 earnings, investors see revenue missing expectations, net profit significantly below expectations, and online marketing services growth nearly stalling. For a platform company once known for high efficiency and strong profit elasticity, these signals are enough to trigger valuation pressure.
However, combining the earnings call and analyst reports reveals another clear thread: PDD is proactively directing resources toward the supply chain, self-operated brands, and the merchant ecosystem. Transaction services revenue has already surpassed advertising as the largest revenue source, and the company has explicitly stated it will commit significant resources to building its First-party Brand Business.
This signifies a shift in PDD's business model from a lightweight platform towards deeper supply chain participation. It hopes to extend platform capabilities into product design, manufacturing, quality control, fulfillment, and after-sales service through sales certainty, brand incubation, and manufacturing collaboration.
This path could lead to two outcomes. In the short term, costs, R&D, sales and marketing expenses, and supply chain investments are likely to increase, leading to greater quarterly profit volatility. In the long term, if self-operated brands and supply chain integration succeed, the company could achieve higher differentiation, stronger merchant and user stickiness, and a more solid foundation for global growth.
Goldman Sachs's notion of moving closer to "Costco + Disney" essentially points to the same logic: possessing both the supply chain efficiency and pricing power akin to Costco, while also incubating a product portfolio with brand recognition and long-term consumer loyalty. PDD is trading short-term pressure on the income statement for long-term capabilities beyond the balance sheet.
For the market, the key going forward is not just when net profit will recover, but whether the three-year, RMB 100 billion investment can translate into verifiable growth, whether the supply chain synergy between Temu and Pinduoduo can materialize, and whether transaction services and self-operated brands can become new growth pillars following the slowdown in online marketing.
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