PDD's second-quarter results were mixed, with regulatory pressure on Temu weighing on near-term earnings, but supply chain investment supporting the long-term Buy thesis

Overview

The report reviews PDD's 2Q26 results and analyzes supply chain reinvestment, domestic e-commerce resilience, and Temu's localization progress amid tariff and regulatory changes. Goldman Sachs believes that near-term revenue and profit are under pressure, but the building of long-term competitiveness remains underway. It therefore maintained its Buy rating after lowering its forecasts and target price.

Core views

2Q26 results showed clear divergence. Online marketing revenue grew 3% year over year, above Taobao and Tmall's 1% on a comparable basis; under Alibaba's new accounting treatment for merchant rebates, Taobao and Tmall customer management revenue declined 7% year over year. PDD's performance implies that domestic GMV and merchant advertising demand remain resilient. On the other hand, transaction services revenue grew 13% year over year, below Goldman Sachs' 21% forecast and the Visible Alpha consensus of 22%, and slowed from 20% in 1Q26, reflecting Temu's proactive adaptation to changes in global tariff and regulatory policies. Europe accounts for approximately one-third of Temu's GMV. Goldman Sachs expects related pressure to persist in 2H26 after the EU eliminates the low-value parcel exemption and implements a €3 customs handling fee per item beginning in July. Profit performance was also mixed. Adjusted net income declined 12% year over year, below Goldman Sachs' forecast but above the Visible Alpha consensus. Higher administrative expenses from the launch of a new subsidiary in Xiong'an, stronger-than-expected interest and investment income, and other losses that expanded to RMB7.4 billion collectively affected profit. Goldman Sachs believes the other losses were primarily related to regulatory fines involving the domestic business and Temu. After incorporating the second-quarter results, Goldman Sachs lowered its FY26E—FY28E revenue forecasts by 3%—6%, mainly due to slower Temu growth resulting from lower European GMV; adjusted net income forecasts were correspondingly reduced by 2%—9%. FY26E and FY27E group adjusted net income are now expected to be RMB96.0 billion and RMB123.0 billion, respectively, corresponding to a 10% year-over-year decline and 29% growth. Supply chain reinvestment is the report's long-term central theme. 2Q26 gross profit grew 11% year over year, above Goldman Sachs' expectations; operating profit increased 5%, in line with expectations, showing that the company maintained a degree of earnings resilience while continuing to invest in platform governance, RMB100 billion of merchant ecosystem support, and supply chain development. Management regards deeper supply chain capabilities spanning product development, manufacturing, warehousing, and fulfillment as a long-term strategic priority, and is selectively introducing first-party brands through “New PIMU” in categories where PDD has differentiated supply chain and global channel advantages. The first first-party brand, Bemuvo, was launched in certain markets in June. Although the initial rollout was slower than originally planned, the company continues to believe that broader supply chain investment can become a growth driver, albeit at the expense of near-term profit. Based on the reinvestment commitment, Goldman Sachs lowered its 3Q26E and FY26E group EBIT forecasts from RMB25.0 billion and RMB106.0 billion to RMB22.0 billion and RMB102.0 billion, respectively. The domestic business continues to demonstrate relative resilience. Goldman Sachs estimates that 2Q26 Pinduoduo GMV grew 5% year over year, above the industry's 2%; online marketing revenue grew 3%, also above Taobao and Tmall's comparable 1% and Kuaishou e-commerce advertising's 1%. Against a backdrop of tighter merchant tax burdens, intensifying competition, and generally soft consumption, this performance indicates that platform GMV and advertising demand remain relatively stable. Management expects future growth to come increasingly from resolving supply chain bottlenecks in product development, manufacturing, and fulfillment, as well as unlocking consumption potential in lower-tier cities and rural areas through investment in logistics infrastructure. The company will continue to focus on its core e-commerce business and supply chain development rather than entering instant retail, because management believes the two have significantly different business models and supply chain requirements, with limited synergies. Goldman Sachs maintained its forecasts for 5% domestic GMV growth in both 3Q26E and FY26E, and revised its online marketing services revenue growth forecasts to 2% and 3%, respectively, from 2% and 1% previously. Temu remains the main source of near-term pressure. Slowing transaction services growth indicates lower fulfillment efficiency and pressured growth in certain regions. The company's responses include onboarding more local merchants, expanding local warehousing and fulfillment capabilities, and increasing the penetration of local sourcing and local fulfillment to improve compliance capabilities, business resilience, and the global serviceable market. Goldman Sachs sharply lowered its 3Q26E and FY26E transaction commission revenue growth forecasts from 21% and 20% to 6% and 10%, respectively. European regulatory pressure is expected to continue through 2H26, but the U.S. business continues to recover under a more favorable tariff environment, which could provide a partial offset. Goldman Sachs also revised its Temu FY26E and FY27E EBIT forecasts to losses of RMB11.8 billion and RMB2.8 billion, respectively, from a loss of RMB9.4 billion and a profit of RMB2.7 billion previously, reflecting a delayed earnings ramp due to localization investment and the transition toward semi-managed and local-to-local models. In terms of operating metrics, the number of Temu merchants declined 5% month over month in July, while global monthly active users fell to 467 million, down 1% month over month; these indicators should be assessed alongside subsequent localization results. On valuation, Goldman Sachs lowered its 12-month SOTP target price from US$145 to US$134, primarily because weaker profit growth led to a lower valuation multiple for the domestic platform, while Temu GMV forecasts were also reduced. The target price applies a 9 times 2026E P/E multiple to the domestic core platform and a 25 times P/E multiple to Temu excluding the U.S. fully managed business, followed by a 15% holding company discount. The report states that PDD currently trades at approximately 9 times 2026E P/E, or approximately 4 times after adjusting for cash. Despite near-term earnings pressure from overseas regulatory changes and continued reinvestment, Goldman Sachs maintained its Buy rating because investments in the first-party business, supply chain capabilities, merchant ecosystem, and globalization are expected to strengthen its long-term competitive position. Improvements in organizational compliance and internal management, stabilization of domestic growth, and stronger performance from Duo Duo Grocery also provide support.

Analysis framework

Goldman Sachs first compared each component of 2Q26 revenue and profit with its own forecasts, consensus expectations, and domestic peer data, and then separately analyzed supply chain investment, domestic GMV and online marketing, Temu's regulatory adaptation, and localization progress. It subsequently revised its GMV, revenue, EBIT, and net income forecasts and aggregated P/E-based valuations for the domestic platform and Temu to derive the SOTP target price. The report also uses Sensor Tower's app activity and Similarweb's website traffic to track overseas consumer engagement, and references a third-party U.S. sales panel to monitor Temu's recovery.

Methodology notes

• Valuation MethodSOTP Valuation

  SOTP Valuation

  The report values the domestic core platform and Temu separately, then aggregates them and applies a 15% holding company discount to derive a 12-month target price of US$134.

• Valuation MethodPE/PEG valuation

  Segment P/E Valuation

  The domestic core platform is valued at 9 times 2026E P/E, while Temu excluding the U.S. fully managed business is valued at 25 times P/E; reductions in both earnings forecasts and valuation multiples jointly led to the lower target price.

• Industry/Sector Analysis Framework

  App Activity and Website Traffic Proxy Indicators

  Given that overseas consumers shop through both apps and websites, the report uses Sensor Tower to track app engagement for Temu, Amazon, and AliExpress, and uses Similarweb's monthly website visits as a proxy for website traffic, supplementing its assessment of Temu user engagement.

Asset mapping & comparison

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

• PDD Holdings (PDD.US)

  The domestic platform contributes relatively stable GMV and online marketing revenue, while Temu offers global growth potential but is currently affected by European tariffs, regulatory changes, and localization investments.

  Strengths

  Domestic GMV and advertising demand are more resilient than peers; continued investment in the first-party business, supply chain, merchant ecosystem, and global localization; improvements in organizational compliance, internal management, and the Duo Duo Grocery business.

  Weaknesses

  Temu transaction services revenue fell short of expectations, while overseas regulation and continued reinvestment are weighing on near-term profit; the initial rollout of “New PIMU” was slower than originally planned.

  Comparison

  2Q26 online marketing revenue grew 3%, above Taobao and Tmall's 1% on a comparable basis and Kuaishou e-commerce advertising's 1%; Goldman Sachs estimates that PDD's domestic GMV grew 5%, above the industry's 2%.

  Risks

  Online marketing revenue may fall short of expectations, geopolitical and regulatory pressures in Europe and other high-spending markets, intensifying competition from Alibaba and Douyin, reinvestment eroding core profit margins, and the lack of segment disclosures making it difficult to accurately separate the performance of the domestic business and Temu.

Key data

• 2Q26 Online Marketing Revenue Growth+3% YoYAbove Taobao and Tmall's +1% on a comparable basis; under the new accounting treatment for merchant rebates, Taobao and Tmall recorded -7%
• Estimated 2Q26 Domestic GMV Growth+5% YoYAbove the industry's approximately +2%
• 2Q26 Transaction Services Revenue Growth+13% YoYBelow Goldman Sachs' +21% forecast and the Visible Alpha consensus of +22%, and slower than +20% in 1Q26
• 2Q26 Adjusted Net Income Growth-12% YoYBelow Goldman Sachs' forecast but above the Visible Alpha consensus
• 2Q26 Other LossesRMB7.4 billionGoldman Sachs believes these were primarily attributable to regulatory fines related to the domestic business and Temu
• FY26E—FY28E Forecast RevisionsRevenue lowered by 3%—6%; adjusted net income lowered by 2%—9%Mainly reflecting lower European GMV, slower Temu growth, and continued reinvestment
• Group Adjusted Net Income ForecastsFY26E RMB96.0 billion; FY27E RMB123.0 billionCorresponding to -10% and +29% YoY, respectively
• Revenue ForecastsFY26E RMB458.058 billion; FY27E RMB494.8762 billion; FY28E RMB551.2883 billionPrevious forecasts were RMB477.400 billion, RMB524.1036 billion, and RMB570.6741 billion, respectively
• Diluted Unadjusted EPS ForecastsFY26E RMB64.64; FY27E RMB82.31; FY28E RMB93.79Previous forecasts were RMB70.97, RMB84.25, and RMB95.30, respectively
• 2Q26 Gross Profit and Operating Profit GrowthGross profit +11%; operating profit +5% YoYGross profit exceeded Goldman Sachs' forecast, while operating profit was in line with the forecast
• Group EBIT Forecasts3Q26E RMB22.0 billion; FY26E RMB102.0 billionPreviously RMB25.0 billion and RMB106.0 billion, respectively
• Domestic GMV Growth ForecastsBoth 3Q26E and FY26E at +5% YoYForecasts unchanged
• Online Marketing Services Revenue Growth Forecasts3Q26E +2%; FY26E +3% YoYPreviously +2% and +1%, respectively
• Transaction Commission Revenue Growth Forecasts3Q26E +6%; FY26E +10% YoYPreviously +21% and +20%, respectively
• Temu GMV Growth ForecastsFY26E +15%; FY27E +25%Previously +33% and +25%, respectively; the reduction mainly reflects the impact of European tariff policies
• Temu EBIT ForecastsFY26E loss of RMB11.8 billion; FY27E loss of RMB2.8 billionPreviously a loss of RMB9.4 billion and a profit of RMB2.7 billion, respectively
• Estimated Share of Temu GMV from EuropeApproximately one-thirdEuropean regulatory changes therefore have a significant impact on Temu's overall growth
• European Customs Handling Fee€3 per itemImplemented beginning in July 2026, with pressure expected to persist through 2H26
• Number of Temu MerchantsJuly 2026 -5% MoMA recent platform supply indicator tracked in the report
• Temu Global Monthly Active Users467 million in July 2026Down 1% MoM
• 12-Month Target PriceUS$134Previously US$145; report price of US$88.38, implying potential upside of 51.6%
• Target Price Valuation ParametersDomestic core platform at 9 times 2026E P/E; Temu at 25 times P/E; 15% holding company discountTemu valuation excludes the U.S. fully managed business
• Current Valuation Stated in the ReportApproximately 9 times 2026E P/E; approximately 4 times after adjusting for cashGoldman Sachs maintained its Buy rating on this basis

Impact & implications

The report believes that European regulatory changes and Temu's localization investments will continue to weigh on 2H26 growth and near-term earnings, while the path to profitability will also be slower than previously expected. However, the relative resilience of domestic GMV and advertising demand provides a stable foundation for the group. If the development of first-party brands, local merchants, warehousing and fulfillment, and supply chain capabilities proceeds as planned, it could enhance Temu's compliance and risk resilience while expanding its long-term serviceable market. This is the core rationale for Goldman Sachs maintaining its Buy rating after lowering its forecasts and target price.

Risks

• If e-commerce platforms increase advertising inventory priced based on sales or ROI, and the gap between Alibaba's GMV growth and the industry narrows, PDD's online marketing revenue may fall short of expectations.
• Geopolitical, tariff, and regulatory headwinds in Europe and other high-spending developed markets may be greater than expected.
• Competition could intensify further if Alibaba makes progress with low-price advertising technology initiatives or if Douyin accelerates its expansion into low-ticket-value shelf-based e-commerce through lower commissions and commission-free measures.
• Reinvestment in the supply chain, merchant ecosystem, and global localization to sustain growth may exert greater pressure on core profit margins.
• The company's lack of segment operating disclosures may make it more difficult to analyze and estimate the revenue and profitability of the domestic business and Temu.

What to watch

• Monitor the subsequent rollout pace of “New PIMU” and the first first-party brand, Bemuvo, and whether supply chain investment can translate into growth.
• Track the approximately 5% domestic GMV growth expectations for 3Q26E and FY26E and the performance of online marketing revenue.
• Observe changes in Temu transaction services revenue and European GMV in 2H26 following the implementation of Europe's €3 customs handling fee per item.
• Monitor whether the recovery of the U.S. business can partially offset European pressure, as well as progress in the semi-managed and local-to-local models.
• Track operating indicators including the number of Temu merchants, global monthly active users, app engagement, and website visits.
• Monitor the impact of continued reinvestment on group EBIT, Temu's losses, and the FY27E earnings ramp.