Goldman Sachs Reiterates Buy on PDD: Temu Accelerating Growth, Trading at Just 8x PE

Overview

Goldman Sachs released its Q1 2026 earnings review for PDD Holdings. Despite marketing services revenue growth slowing to 2% and EPS slightly missing expectations, the firm is encouraged by Temu’s accelerating transaction services revenue (+20% YoY) and improved group operating profit (+16% YoY). The report argues that the company’s newly launched three-year 'New Brands' (Xin Pin Mu) investment plan will bring it closer to its long-term 'Costco + Disney' vision and provide multi-year growth momentum for both Temu and Pinduoduo. Given the current valuation of just 8x FY26E P/E, the risk-reward profile is highly attractive. Goldman Sachs reiterates its 'Buy' rating and slightly adjusts its 12-month price target to $145.

Core views

Core View 1: Short-term volatility does not alter the long-term growth thesis. The slowdown in marketing services revenue was primarily driven by one-off factors, including SME e-commerce tax impacts and merchant rebate policies, while GMV growth remained in line with or above industry levels. Additionally, timing of interest income recognition and regulatory fines affected other revenue lines. In contrast, transaction services revenue grew 20% YoY, accelerating from 19% in Q4, indicating faster GMV growth for Temu and significantly improved GMV margins. Core View 2: The 'New Brands' strategy initiates a new multi-year growth cycle. The company announced a 'New Brands' (Xin Pin Mu) initiative with an initial RMB 15 billion allocation and a total planned investment of RMB 100 billion over three years, aimed at decisively investing in supply chains and merchant ecosystems to incubate proprietary global brands and upgrade Chinese manufacturing toward higher-value production. Goldman Sachs views this as a multi-year growth driver for both Temu and Pinduoduo, bringing the company closer to its 'Costco + Disney' vision articulated at its 2018 IPO. Although supply chain investments may cause quarterly profit volatility, they will strengthen long-term differentiation and competitive moats. Core View 3: Temu’s business model transformation and path to profitability are clear. Temu’s operations in developed markets like the U.S. and Europe have largely shifted to a local-to-local fulfillment model. Temu’s GMV is expected to exceed $100 billion in 2026. This scale and localization will enhance business resilience and point toward long-term profitability. Goldman Sachs forecasts Temu’s FY26 and FY27 EBIT at -RMB 9.4 billion and +RMB 2.7 billion, respectively, showing a clear path to profitability. Core View 4: Domestic business remains stable, with strong performance from Duo Duo Grocery. Despite competition from Douyin and incumbents’ advantages in trade-in categories, domestic GMV is expected to grow modestly. Duo Duo Grocery has shown robust performance, offsetting some competitive pressures. The company is undergoing an organizational restructuring centered on safety, compliance, and social responsibility in response to recent food safety regulatory scrutiny.

Analysis framework

Goldman Sachs’ analysis follows a logical framework of 'short-term earnings dissection – medium-to-long-term strategic validation – valuation reassessment.' First, it breaks down Q1 results through volume-price decomposition and segment-level analysis, separating domestic marketing services (impacted by one-off tax and policy effects) from international transaction services (driven by Temu’s acceleration), thereby identifying market overreactions to negative factors and underappreciated positive momentum. Second, it deeply analyzes the newly announced 'New Brands' strategic investment within the context of the long-term 'Costco + Disney' vision, evaluating its contribution to supply chain moats and brand premium rather than viewing it merely as a short-term cost burden. Finally, it applies a Sum-of-the-Parts (SOTP) valuation approach, assigning different multiples to the domestic core platform and Temu, and adjusting for net cash to derive the price target. This methodology emphasizes valuation differences across business stages (mature vs. growth) and anchors valuation in cash flow and asset quality.

Methodology notes

• Valuation MethodSOTP Valuation

  Sum-of-the-Parts (SOTP) Valuation

  Treats different business segments (e.g., domestic e-commerce platform and overseas Temu) as independent entities, applying distinct valuation multiples (e.g., 10x P/E for domestic, 25x P/E for Temu), then summing them up and adjusting for holding company discount to more accurately reflect each segment’s intrinsic value.

• Competitive & Strategic FrameworkMoat / competitive advantage

  Supply Chain Moat & Differentiation

  Assesses whether massive reinvestment in supply chains and merchant ecosystems is building hard-to-replicate cost advantages and quality control capabilities, thereby creating long-term competitive moats.

• Industry / Sector Analysis FrameworkUpstream-Midstream-Downstream Industry Chain Transmission

  Upstream Manufacturing Upgrade

  Examines how the platform transmits influence upstream through the 'New Brands' initiative, driving Chinese manufacturing from low-value to high-value production. This vertical integration capability is a key source of the platform’s long-term competitiveness.

• Event Arbitrage & Behavioral FinanceExpectation Gap / Expectation Management

  Market Overreaction to One-off Items

  Identifies excessive market pessimism caused by one-off factors (e.g., tax impacts, fines) leading to earnings misses, while underlying fundamentals (e.g., Temu growth) remain intact, creating room for expectation correction.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• PDD Holdings (PDD.US)

  Direct beneficiary; Temu’s accelerating growth and stable domestic base drive long-term value recovery.

  Strengths

  Temu GMV accelerating with improving margins; strong Duo Duo Grocery performance domestically; extremely low valuation (8x P/E); 'New Brands' strategy builds long-term moat.

  Weaknesses

  Near-term slowdown in marketing services revenue growth; supply chain reinvestment causing quarterly profit volatility; lack of segment-level disclosure.

  Comparison

  Compared to Alibaba and JD.com, PDD demonstrates stronger growth momentum in cross-border (Temu) and a clearer profitability inflection outlook.

  Risks

  Geopolitical risks; intensifying domestic competition; reinvestment eroding short-term margins.

Key data

• Q1 2026 Transaction Services Revenue Growth+20% YoYAccelerated from +19% in Q4 2025, reflecting faster Temu GMV growth
• Q1 2026 Group Operating Profit Growth+16% YoYSuggests significant YoY improvement in Temu’s GMV margin
• Q1 2026 Marketing Services Revenue Growth+2% YoYBelow expectations, mainly impacted by SME e-commerce taxes and rebate policies
• FY26E Adjusted Net Profit ForecastRMB 105 billionFlat YoY (0% growth), down 11–12% from prior forecast
• FY27E Adjusted Net Profit ForecastRMB 126 billion20% YoY growth
• Current Valuation Multiple8x FY26E P/EOnly 4x ex-cash, far below the China internet coverage median of 13x
• Temu FY26E GMV Forecast>USD 100 billionBusiness model shifting to local fulfillment; economies of scale emerging
• New Brands (Xin Pin Mu) Investment ScaleRMB 100 billion cumulative over three yearsInitial tranche of RMB 15 billion allocated to supply chain and proprietary brand incubation

Impact & implications

Goldman Sachs believes the market overreacted negatively to the miss in marketing services revenue and EPS, overlooking the re-acceleration in Temu’s top-line revenue and the resulting valuation re-rating potential. As Temu’s business model shifts toward localization and scales up, its long-term profitability path is becoming clearer. Stable domestic growth, strong performance from Duo Duo Grocery, and enhanced organizational compliance are expected to reshape the stock’s narrative. Although supply chain investments may cause quarterly profit volatility, they will reinforce the company’s differentiation and long-term ability to outperform peers. For investors, the current ultra-low valuation offers a favorable risk-reward profile.

Risks

• Online marketing revenue below expectations: due to increased e-commerce ROI, higher sales-based ad inventory, and narrowing GMV growth gap between Alibaba and the broader sector.
• Escalating geopolitical headwinds: facing broader geopolitical resistance when entering Europe and other developed markets with high consumer spending power.
• Intensifying competition: if Alibaba’s new low-price ad tech initiatives gain traction, or if Douyin’s shelf-style expansion in low-ticket items accelerates faster than expected (Douyin offers zero-commission incentives).
• Reinvestment impacting margins: reinvestment to sustain growth could pose downside risk to core margins.
• Lack of granular disclosure: absence of segment-level performance data makes it difficult to analyze and estimate domestic vs. international (Temu) performance and profitability.

What to watch

• Temu’s strategic balance between profitability and GMV growth in the U.S. and EU markets.
• Temu’s expansion strategy in Latin American markets.
• Sustainability of domestic GMV and OMS revenue growth, especially amid competition from Douyin and incumbents’ advantages in trade-in categories.
• Development of PDD’s AI ad tech and agency capabilities and their impact on the long-term OMS growth trajectory.
• Progress on structural reforms and compliance investments implemented to ensure merchant quality and prevent future disruptions.