Pinduoduo's Embarrassment: Rapid 'Aging,' Yet No Repurchase

Before the U.S. stock market opened on November 18,$PDD(PDD.US) announced its Q3 2025 earnings. Few could predict the performance at the time, and the once 'forever young' Pinduoduo now seems to have entered a mature phase from various perspectives. This quarter's performance is mixed, with positives and negatives. The positive is that after the decline in the impact of state subsidies, the main site's profit began to recover. The negative is that Pinduoduo seems to have completely lost its previously most dazzling 'growth potential.' Specifically:

1. Revenue seems okay, but actually isn't: This quarter, Pinduoduo's total revenue was approximately RMB 108.3 billion, up 9% year-on-year, slightly above market expectations. At first glance, the growth seems to have accelerated compared to the previous quarter, but the more important advertising revenue in the actual structure has significantly slowed down. The acceleration is only due to the expected recovery of Temu after the tariff impact, an anticipated growth recovery.

2. Core advertising growth falls to single digits: The advertising revenue reflecting the main site's performance slowed significantly for the first time in history to just 8% year-on-year growth this quarter.

The signal conveyed is that either the GMV growth rate of Pinduoduo's main site is slowing faster than expected, or under the merchant support plan, the year-on-year decline in the domestic main site's monetization rate expanded again this quarter (from last quarter's performance, the main site's monetization rate should have stabilized).

Regardless of the actual cause, or if both are true, it counts as bad news, indicating that even after the decline in the disadvantages caused by state subsidies, Pinduoduo's domestic main site still hasn't regained its original growth advantage.

3. Temu's growth returns, but not as strong as expected: This quarter, transaction commission income was approximately RMB 54.9 billion, with year-on-year growth rebounding to 10%, about 7% higher than Bloomberg's consensus expectations. The main reason is that the U.S. tariff impact has been largely digested, and Temu's business in the U.S. has returned to normal, rapidly expanding in markets worldwide, including Europe, South America, etc., driving revenue growth recovery.

However, due to high-frequency data showing Temu's growth in the third quarter was quite strong, the market's real expectations might be higher, such as Goldman's expectation for this quarter's transaction income reaching RMB 59 billion, which wasn't as strong in reality.

4. State subsidies decline, marketing expenses fall more than expected: This quarter's gross profit indicators were almost entirely in line with expectations, generally continuing to decline slightly with changes in the revenue structure, with little to interpret. The main and only bright spot in this performance is the lower-than-expected expense input.

The main reason is that actual marketing expenses were RMB 30.3 billion, about RMB 2.6 billion less than expected, down 0.5% year-on-year. The main reason should be that after the decline in state subsidies, platforms like JD.com, which received more subsidies, no longer have the subsidy advantage, and Pinduoduo's self-funded response to other platforms receiving more state subsidies should have eased. Additionally, a secondary reason might be that the increase in customer acquisition costs for Temu wasn't as high as expected.

5. Profit continues to recover, but at what cost?: Due to the reduction in marketing input mentioned above, this quarter's operating profit was RMB 25 billion, turning positive year-on-year to +3%, about RMB 2.3 billion higher than Bloomberg's consensus expectations, corresponding to the lower-than-expected marketing input.

Although it's impossible to accurately split by segment, it should mainly be the improvement in the main site's profit after the decline in state subsidies. As for Temu, due to its return to growth & investment phase this quarter, combined with foreign banks' forecasts, the loss should have expanded compared to the previous quarter.

Due to the confirmation of other income as high as RMB 8.6 billion this quarter (gains from stock and other investments), net profit was as high as RMB 29.4 billion, but there's no need to focus too much on this non-operating profit.

Dolphin Research's View:

Overall, the signal conveyed by Pinduoduo's performance this time is actually negative. Although with the decline in state subsidies, the benefits to competitors like JD.com and the drag on Pinduoduo have significantly faded, leading to a decrease in main site subsidies and profit recovery this quarter. But this can be said to be a narrative that the market had already expected, not a real surprise.

In contrast, the unexpected slowdown in advertising revenue growth is truly a bad signal. As JD.com and Alibaba's attention and funds are invested in the food delivery war or other areas, and the negative impact of state subsidies has also eased, it should have created a relatively improved industry environment window for Pinduoduo, but Pinduoduo's domestic main site's growth seems not only unimproved but further worsened.

Although the growth of Pinduoduo's domestic business will return to the industry average, which has always been Dolphin Research's view, we believe the logic behind this underperformance is -- although Pinduoduo did not participate in the food delivery war, on the one hand, the company's profit did not 'reset to zero' like its peers. But the cost is that, as competitors use food delivery to attract traffic, which indeed led to a significant increase in active users and higher frequency of user engagement (according to QM, Taobao App's DAU/MAU has indeed surpassed Pinduoduo), Pinduoduo's user traffic has been partially taken by its competitors.

As JD.com and Alibaba at least 'intend' to build a comprehensive consumer platform in China that includes e-commerce, food delivery/instant retail, reviews, and travel, although it cannot be said that they will definitely succeed, in Pinduoduo, with fewer business layouts, it is indeed likely to be at a disadvantage in user traffic.

Additionally, for Temu, which has more room for imagination and is the main source of the company's future growth, although it has now entered a faster and more diverse growth track, the signal conveyed by this performance is that Temu's growth may not be as strong as expected, which is negative information.

Looking ahead to future performance trends:

1. Currently, in terms of domestic business, as the impact of state subsidies gradually declines, the pressure on Pinduoduo's domestic main site profitability has eased, and this logic has been verified. The trend of marginal improvement is likely to continue.

However, from this quarter, competitors Alibaba and JD.com are aggressively expanding and developing new businesses, while Pinduoduo chooses to focus more on e-commerce business, which has changed from the previous market understanding of all benefits for Pinduoduo to having both advantages and disadvantages. Perhaps ironically, the once high-growth Pinduoduo has become a 'mature company' more focused on efficiency and profit in the current domestic e-commerce industry (of course, this is not necessarily a bad thing).

As Dolphin Research has mentioned many times, the imagination space for Pinduoduo's domestic business is no longer as large.

2. Therefore, Pinduoduo's imagination space comes more from Temu. After the impact of the U.S. government's tariff increase and the cancellation of small package tax exemptions in the second quarter quickly passed, Temu has quickly returned to normal growth. According to recent market research, Temu's GMV growth rate in the third quarter has recovered to levels close to the first quarter of this year (approximately 40%, for reference only), and has resumed increasing marketing investment.

Thanks to the 'assistance' of this impact, Temu's business model and market have become more diversified. Firstly, in terms of model, after the tariff impact, according to research, the proportion of semi-managed has reached about 35%~40%, with more local goods supply, and Temu has also started building local warehouses in global markets to enhance fulfillment efficiency and local stocking capabilities overseas.

In addition, Temu has also begun to tentatively try pure platform mode (marketplace) and advertising monetization methods. Temu's model is gradually becoming more diverse, and the degree of localization is increasing.

At the same time, Temu is rapidly expanding into global markets, reducing its reliance on the U.S. According to research, the GMV share of the European market is currently the largest (about 40%), while the U.S. market share has dropped to just over 30%. The rest is contributed by new markets such as South America, the Middle East, and Southeast Asia.

In this regard, Dolphin Research maintains its previous view that more diverse models and markets undoubtedly raise Temu's long-term ceiling, but at the same time, operating multiple more fragmented markets increases operational difficulty and reduces overall scale effects.

3. In terms of valuation, Dolphin Research still adopts the valuation method of domestic main site and overseas Temu division. Specifically:

For the main site, although the subsequent growth rate may slow down, the improvement in profit margin will be better. With both offsetting each other, we believe that Pinduoduo's domestic main site + grocery business, with an operating profit growth of about 15% to RMB 120 billion in 2026, should not be difficult (considering interest income and other income can basically offset taxes, no further tax deduction is needed), then the pre-performance market value corresponds to a domestic business profit of about 11x PE, which is still roughly the average valuation level in the domestic e-commerce field. That is, the current company's valuation can still be understood as only considering the support of domestic business.

For the Temu business, its long-term business scale space and profit margin level are still unclear. Considering the upward option, combined with its more diversified business after tariffs, but short-term growth doesn't seem that strong, we slightly raise the mid-term GMV target to $120 billion, referring to Sea's 0.5x P/GMV valuation, then the incremental valuation that Temu is expected to bring is $60 billion, still equivalent to about 1/3 of the current market value. There is undoubtedly space, but this requires Temu to first turn a profit and be able to expect a relatively visible steady-state profit expectation before the market may price this part of the valuation.

In addition, it depends on when Pinduoduo can consider shareholder returns such as buybacks or dividends to release the value of its considerable cash flow and cash on hand.

Detailed interpretation of this quarter's financial report:

I. Advertising growth falls to single digits, is Pinduoduo truly mature?

This quarter, Pinduoduo's total revenue was approximately RMB 108.3 billion, up 9% year-on-year, slightly above market expectations. The trend seems to have accelerated compared to the previous quarter, but the more critical advertising revenue growth rate actually slowed significantly to just 8% (for the first time in history).

The signal conveyed is that either the GMV growth rate of Pinduoduo's main site is slowing faster than expected, or under the merchant support plan, the year-on-year decline in the domestic main site's monetization rate expanded again this quarter (the main site's monetization rate implied by last quarter's performance should have stabilized).

As a reference, Goldman Sachs' expectation for Pinduoduo's domestic main site's GMV growth rate in Q3 is 14%. Dolphin Research has always held the view that Pinduoduo's domestic main site's growth will return to the industry average. However, originally, with the decline in state subsidies starting this quarter, the benefits to competitors like JD.com and the drag on Pinduoduo would be alleviated. The market might have expected Pinduoduo's relative growth advantage to return, but it doesn't seem to be the case.

It seems that JD.com and Alibaba, with massive food delivery subsidies, have brought active users and engagement frequency, which should have taken away some of Pinduoduo's users.

II. Tariff impact is over, but Temu doesn't seem as strong as expected?

This quarter, transaction commission income was approximately RMB 54.9 billion, with year-on-year growth rebounding to 10%, about 7% higher than Bloomberg's consensus expectations. The main reason behind this is that the impact of U.S. tariffs and the cancellation of small package tax exemptions in Q2 has been largely digested, and U.S. business has returned to normal operations (the fully managed model is back online). At the same time, Temu is rapidly expanding in global markets, including Europe, South America, the Middle East, and Southeast Asia, driving revenue growth recovery.

However, Dolphin Research also noted that most market research before the performance showed that Temu's growth in Q3 was quite strong. Therefore, some leading sellers like Goldman Sachs expected this quarter's transaction income to reach RMB 59 billion. Therefore, for some optimistic funds, Temu's growth this quarter should not be as strong as imagined.

Due to the lack of accurate data, Dolphin Research also finds it difficult to accurately determine the reason, but tends to believe that the GMV growth rate is more likely to have a significant recovery as the research suggests. However, due to the more diversified business structure (such as semi-managed, even pure Marketplace mode), the market may have underestimated the proportion of semi-managed and other modes (only commission income is confirmed, and the income scale under the same GMV is lower than fully managed). Or due to competition or considerations to stimulate consumption, the market overestimated Temu's markup rate on goods.

If it's the former, the impact is not significant, but if it's the latter, it counts as bad news.

III. Gross margin meets expectations, no surprises

This quarter, Pinduoduo's gross profit was RMB 58.1 billion, up 3% year-on-year, and basically in line with Bloomberg's consensus expectations. Among them, due to the increase in the proportion of Temu business in the revenue structure, the gross margin still declined by 3.3% year-on-year, but the decline narrowed significantly. The reason behind this should be the slowdown in the increase of Temu's revenue and its proportion of the group's total revenue, as well as the increase in the proportion of higher-margin semi-managed in Temu.

IV. Marketing expenses lower than expected, state subsidy impact indeed reduced

This quarter's performance, revenue seems good, but actually poor, while gross profit is generally in line with expectations. The main bright spot of Pinduoduo's performance this quarter is still the significantly lower-than-expected expense expenditure, resulting in good profit.

Specifically, marketing expenses were lower than expected, with actual expenditure of RMB 30.3 billion, about RMB 2.6 billion less than expected, down 0.5% year-on-year. Dolphin Research believes that the main reason should be the significant reduction in the part of the investment that Pinduoduo previously needed to fund itself after the decline in state subsidies. In addition, from Temu's growth, it doesn't seem as strong as optimistic expectations, and the increase in its expense input may not be as high as expected.

In terms of other expenses, R&D expenditure continued to grow by 41% year-on-year this quarter, with the growth rate further increasing, and it is not due to the expansion of SBC. According to the company, it is mainly due to the increase in R&D manpower and service equipment, and bandwidth expenses. Dolphin Research believes it should be due to the cost of developing multi-version local applications and maintaining operations as Temu expands into new markets globally.

As for management expenses, they remain under control, with a negative growth of about 3% this quarter, still reflecting Pinduoduo's extreme human efficiency ratio.

V. Main site profit is back, but at what cost?

Mainly due to the reduction in state subsidies, the reduction in marketing expenses, this quarter's operating profit was RMB 25 billion, turning positive year-on-year to +3%, about RMB 2.3 billion higher than Bloomberg's consensus expectations. It is basically the difference between the saved marketing input and the unexpected R&D input. Correspondingly, the year-on-year decline in operating profit margin also narrowed to 1.4pct. By segment, it should mainly be the improvement in the main site's profit, as Temu should have increased customer acquisition input this quarter and opened new markets in multiple countries, the loss situation should have worsened compared to the previous quarter.

Due to the confirmation of other income as high as RMB 8.6 billion this quarter, Dolphin Research has already provided a more detailed explanation last quarter. It is mainly the gains from the company's stock investments (the U.S. stock market performed well in Q3). Net profit was as high as RMB 29.4 billion, but there is no need to focus too much on this non-operating profit.