Why PDD’s Earnings Reversal Shows That Cheap Valuation Cannot Resolve Temu’s Uncertainty
$PDD Holdings Inc(PDD)$ reported a profitable second quarter and generated more operating cash, yet its American depositary receipts surrendered an early rally and closed lower. The reversal reflects a problem that a low earnings multiple cannot solve by itself: investors still cannot determine how much Temu’s expansion, tariffs and regulatory compliance will cost or how quickly those investments can produce durable returns.
PDD reported before the August 24 US market open for the quarter ended June 30. Revenue increased 8% year over year to RMB112.4 billion, below the RMB116.35 billion market estimate. Transaction-services revenue increased 13% to RMB54.7 billion, while online-marketing revenue rose only about 3% to RMB57.6 billion. Net income attributable to ordinary shareholders fell 12% to RMB27.2 billion, and non-GAAP net income declined 13% to RMB28.5 billion. PDD’s official second-quarter release provides the figures.
The bullish case begins with the economics PDD still possesses. Operating profit increased 8% to RMB27.8 billion, operating cash flow rose to RMB25.7 billion from RMB21.6 billion, and transaction services continued outgrowing the rest of the company. Pinduoduo remains a powerful marketplace for value-conscious Chinese consumers, while Temu provides a path to international scale.
The bearish evidence is that expenses are growing faster than revenue. Total operating expense increased 13% to RMB36.6 billion; sales and marketing reached RMB29.7 billion, while research and development increased to RMB4.6 billion. $Alibaba(BABA)$, $JD.com(JD)$ and newer social-commerce platforms are forcing PDD to spend heavily while Chinese consumer confidence remains fragile.
Temu faces a separate challenge. The removal of duty-free treatment for low-value parcels in the United States and new European parcel charges weaken the economics of shipping inexpensive items directly from China. Management said changing rules could reduce fulfilment efficiency and international profitability. Reuters’ August 24 analysis explains the tariff, competition and regulatory pressures.
PDD opened at $90.69, rose to $91.90, fell as low as $86.19 and closed at $87.07 on August 24, down 1.5% on 13.6 million shares—roughly twice Friday’s volume. The failed earnings rally leaves $91–$94 as immediate resistance and $86 as initial support. Below that, $80 and the 52-week low near $72 are the larger references.
The failed rally does not support an immediate bullish premium sale. If PDD stabilises above $85 and later reclaims $92, a 30–45-day $77.50/$72.50 bull put spread, with the short put near 0.10–0.15 live delta, would place risk below the earnings range and near the yearly low. A close below $80 with further estimate reductions invalidates the setup. Maximum loss equals the $5 width minus credit received.
The evidence leans neutral to moderately bearish. Cash flow and transaction revenue remain strong, but slowing growth, falling profit and opaque Temu economics outweigh the low valuation. The view would improve if revenue reaccelerates while operating expenses grow more slowly; it would worsen if international costs drive another large profit decline or the stock loses $80. This is personal opinion for education and is not financial advice; it is not an instruction to enter any trade.
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