PDD Holdings Inc. (NASDAQ: PDD) Q1 2025 Earnings Call | 05/27/2025

PDD Holdings Q1 2025 Earnings Call Summary

PDD Holdings, the parent company of e-commerce platforms Pinduoduo and Temu, held its Q1 2025 earnings call, emphasizing its "high-quality development strategy" through substantial investments in its platform ecosystem and merchant support, even at the cost of short-term profitability.

Financial Performance (Q1 2025)

• Total Revenues: Increased 10% year-over-year to RMB 95.7 billion. This growth was primarily driven by online marketing services and transaction services.
  • Online Marketing Services and Others: RMB 48.7 billion (up 15% year-over-year).
  • Transaction Services: RMB 47 billion (up 6% year-over-year).
• Costs and Expenses:
  • Total Cost of Revenues: Increased 25% to RMB 40.9 billion, mainly due to higher fulfillment and payment processing fees.
  • Total Operating Expenses (GAAP): Increased 37% to RMB 38.6 billion.
  • Non-GAAP Sales and Marketing Expenses: RMB 32.8 billion (up 44%), reflecting promotional programs and marketing support for merchants.
  • Research and Development Expenses (GAAP): RMB 3.6 billion (up 23%).
• Profitability Decline:
  • Operating Profit (GAAP): RMB 16.1 billion (down from RMB 26 billion in Q1 2024).
  • Non-GAAP Operating Profit: RMB 18.3 billion (down from RMB 28.6 billion in Q1 2024).
  • Non-GAAP Operating Profit Margin: 19% (down from 33% in Q1 2024).
  • Net Income Attributable to Ordinary Shareholders (GAAP): RMB 14.7 billion (down from RMB 28 billion in Q1 2024).
  • Diluted Earnings per ADS (GAAP): RMB 9.94 (down from RMB 18.96 in Q1 2024).
• Cash Flow: Net cash generated from operating activities was RMB 15.5 billion (down from RMB 21.1 billion in Q1 2024).
• Cash Position: PDD Holdings held RMB 364.5 billion in cash, cash equivalents, and short-term investments as of March 31, 2025.

Strategic Focus and Investments

• High-Quality Development Strategy: PDD is accelerating this strategy by broadening its ecosystem support for both supply and demand sides.
• Merchant Support: A key focus is on supporting merchants through challenging external environments.
  • Merchant Rights Protection Committee: Established to safeguard merchant interests.
  • "$100 Billion Support Program": This is an upgraded initiative from the previous "$10 Billion Fee Reduction Program." It commits significant resources to lower merchant fees, drive sales, and help merchants adapt to new challenges like intensifying competition in Chinese e-commerce and radical policy changes (e.g., tariffs) impacting global business. PDD views these as long-term investments that will weigh on short-term profitability due to a timing mismatch between expense recording and return realization.
• Supply Chain Transformation: Significant investments are being made to help merchants transition from traditional OEM/distribution mindsets to user-oriented and brand-driven approaches. Fee savings are being reinvested into new product development and warehouse upgrades.
• Agriculture Focus: The "$100 Billion Support Program" will enhance support for agricultural products, with initiatives like the 2025 Duoduo Specialty Initiative. This includes developing digital systems for agricultural product operations to address pricing issues and high return rates.
• Consumer Value: The company aims to provide price stability and abundant supply to consumers globally, benchmarking prices against national subsidy programs to stimulate demand.
• Global Business: Despite policy shifts, the global business is working with merchants to strengthen operations, grow local merchants, and fulfill more orders from local warehouses.
• Shopping Festivals: For events like the June 16th Shopping Festival, PDD emphasizes simplified mechanisms, real savings, high-quality products, and enhanced services (e.g., price drop protection).

Management Commentary

• Inevitability of Slowdown: Management stated that a slowdown in growth rate is "inevitable" as the business scales and faces new challenges.
• Prioritizing Merchants and Consumers: PDD believes it's its obligation to invest decisively to support consumers and merchants, putting their needs ahead of the platform's short-term profits.
• Long-Term Focus: The company reiterates its unconventional approach, not evaluating strategic decisions based on single-quarter financial results, but focusing on long-term intrinsic value over 5, 10, or more years.