Temu’s parent company PDD Holdings net profit dropped by 47% in Q1’25

E-commerce platform Temu’s parent company, PDD Holdings, has reported a 47 per cent drop in its net profit to $2.05 billion for Q1 2025. The development is attributed to competition faced on home soil, while international business was affected by the U.S tariff.

As its quarterly earnings fell short of expectations, the Chinese e-commerce company saw its US-listed shares fall more than 17 per cent in early trade on Tuesday to $99.

“[PDD’s] massive bottom line miss is due to much weaker than expected operating margin, likely impacted by U.S. tariffs,” said MScience analyst Vinci Zhang.

However, Temu’s parent company saw its online marketing services and other revenue increase by 15 per cent, ahead of the projected 13.5 per cent, and saw its transaction services increase by 6 per cent, far below the 26 per cent expected growth.

Also attributing the disappointing quarterly result to rapid changes in the external environment – global tariffs, PDD Holdings co-CEO Lei Chen added that the decline in profit is a result of strategic investments in the platform.

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Amid the company’s weaker-than-expected Q1 report, experts have hinted at PDD Holdings’ long-term potential to outrun the situation projected despite current short-term execution issues. While both Q1 revenue and profitability of Temu’s parent company came in below expectations and internal estimates, they projected a share price target of $156 by the end of the year. 

PDD Holdings’ revenue for Q1 2025 rose by 10 per cent year-over-year to about $13.3 billion, marking its slowest quarterly growth rate since early 2022 and short of Street estimates of $14.22 billion. Non-GAAP net profit reached $2.3 billion, well below the $3.8 billion estimate. Meanwhile, its sales and marketing expenses of $4.6 billion were a key driver of the profit shortfall.

U.S. Tariff impact on Temu, PDD Holdings, and other Chinese firms

PDD Holdings and other Chinese firms are feeling the heat of new tariffs, thereby causing more pressure to scramble for the local market. Amid intense price cuts by retailers and the government’s responsive measures to boost spending, a prolonged external economic crisis in the world’s second-largest economy has cast a shadow over consumer spending in China.

U.S. Tiger Securities analyst Bo Pei explained that slower domestic consumption, intensified competition, and global trade frictions are affecting Chinese firms’ growth.

“Elevated costs reflect strategic promotional activities and advertising spend to support merchant sales, it’s aimed at supporting the platform’s long-term ecosystem health but sacrifices near-term profitability,” he said.

In addition, China’s largest online e-commerce platforms, Alibaba, Pinduoduo, and JD.com have been scrambling for a greater share of the domestic market, resulting in a long-running price war to entice consumers. 

Like Temu’s PDD Holdings, Alibaba’s quarterly revenue was also short of estimates, while JD.com experienced a fair result, boosted by the government trade-in scheme focused on its strongest categories, including home appliances and electronics.

Also, a back-and-forth tariff escalation between the U.S. and China, followed by a temporary 90-day de-escalation, has generated widespread uncertainty for global business. 

PDD chairman and co-CEO Chen Lei expressed that radical changes in external policy environments, such as tariffs, have created significant pressure for its merchants. He also affirmed Temu’s desire not to raise prices in the face of tariffs and its strategic shift to seeing more orders fulfilled by local merchants.

“Our global business is working with merchants across regions to bring stable prices and abundant supply to strengthen our operations in the markets we serve,” Chen said. 

The U.S. earlier this month slashed tariff rates for goods from China valued at under $800 entering the country under the “de minimis” provision, a trade exemption leveraged by Temu to avoid tariffs and keep prices low.