PDD Holdings Inc. (PDD) Earnings

Management highlights

- Strategic Progress * PDD's 10-year high-quality development strategy moved from initial rollout to deeper execution in Q2 2026 * The $100 billion Huishan support program transitioned from the investment period to the efficiency period, with tangible results beginning to materialize * The 3-year strategic initiative to build a first-party brand business saw slower-than-expected initial rollout due to external factors but is now fully launched with positive overall momentum * A dedicated company and integrated service centers were established in Xiong'an New Area to focus on intelligent technology opportunities and support traditional manufacturing upgrading - Platform Governance Upgrades * R&D spending for platform governance was significantly increased, with technology-enabled risk prevention systems upgraded and specialist trust and safety teams expanded * Over 150 comprehensive governance measures and more than 50 targeted initiatives were launched, covering product listing controls, food/drug safety, IP protection, misleading marketing, live stream e-commerce standards, and other key areas * A dedicated food safety initiative tightened merchant qualification requirements, introduced clearer rules for live-streamed food sales, and prohibited the sale of unregulated freshly prepared food and beverage products * Free educational video courses on platform rules were released for merchants, with top courses garnering 340,000 views within 24 hours of launch - Supply Chain & Industry Support * The 2026 Dozo Premium Produce Initiative expanded to dozens of specialty agricultural regions across China, supporting product development, cultivation standard improvement, and logistics upgrades to unlock higher value for agricultural products; for example, the new Golden Diamond Pineapple variety in Hainan grew to over 100,000 mu in cultivation area supported by platform traffic programs * The dedicated new quality supply team entered multiple manufacturing clusters across China, providing systematic support including traffic access, data enablement, cost reduction, smart manufacturing, and logistics upgrades; many partner factories reduced production cycles by 50% and improved order fulfillment capacity, enabling transition to own-brand manufacturing * In Xinyang's Gu Shi County, returning migrant workers established local textile factories that achieved 4-5x average annual sales growth, built leading niche brands, and created a fully integrated local industrial development path - Rural Logistics Expansion * The Free Shipping to Villages program, launched 6 months prior, delivered strong results, with last-mile delivery networks established across more than 10 Chinese provinces, including county-level transit hubs and village-level pickup points * The program created new rural jobs, accelerated distribution of consumer goods and agricultural inputs to rural markets, unlocked new growth opportunities for merchants, and improved quality of life for remote rural consumers; pilot programs in Shandong saw rural order volumes increase multiple times - Social Responsibility * PDD donated RMB 10 million in cash to support flood disaster relief and post-disaster reconstruction in affected regions of Guangxi following typhoons and heavy rainfall

Guidance

- Management reaffirmed the long-term strategic direction of global business expansion, noting that short-term regulatory volatility will not change the company's long-term global growth plans - First-party brand business remains a clear long-term strategic priority, with management committed to patient, step-by-step development despite slower-than-expected initial rollout - Management expects that long-term investment in the $100 billion support program will improve merchant health, lower operating costs, increase profitability, and drive sustainable organic value creation for the platform over time - Management remains confident in the long-term growth potential of China's consumer market and the e-commerce industry, with rural consumption showing faster growth than the overall market in H1 2026 and offering significant untapped potential - Management expects platform revenue growth to outperform the broader consumer market as the company addresses fundamental supply chain bottlenecks and unlocks new demand

Segment performance

PDD Holdings reports total revenue of RMB 112.4 billion for Q2 2026, an 8% year-over-year increase. Revenue is split into two segments: 1) Online marketing services and others: RMB 57.6 billion, representing 51.2% of total revenue, compared to RMB 55.7 billion in Q2 2025. 2) Transaction services: RMB 54.7 billion, representing 48.8% of total revenue, representing a 13% year-over-year increase. On a GAAP basis, net income attributable to ordinary shareholders was RMB 27.2 billion, a 12% year-over-year decline. Non-GAAP net income was RMB 28.5 billion, compared to RMB 32.7 billion in Q2 2025. GAAP operating profit was RMB 27.8 billion, an 8% year-over-year increase, with a non-GAAP operating margin of 26% versus 27% in the prior year quarter. Net cash from operating activities was RMB 25.7 billion, up from RMB 21.6 billion year-over-year, with total cash, cash equivalents and short-term investments of RMB 456.4 billion as of June 30, 2026.

Risks & headwinds

- Intense competition in the e-commerce industry and a complex, rapidly evolving market environment create new challenges for platform governance and industrial development - The EU's new temporary customs duty on low-value cross-border consignments will lead to lower fulfillment efficiency and higher costs for affected cross-border orders, with a considerable short-term negative impact on that segment of global business - The first-party brand business requires an extended period of development and collaboration, with initial rollout taking longer than originally expected - Last-mile delivery bottlenecks persist in remote western regions and rural communities of China, requiring significant infrastructure investment to address - Global regulatory and compliance landscapes have shifted significantly, creating increased compliance challenges and higher accountability standards for the company's cross-border business

Analyst Q&A

• Q: How will the EU's new temporary tariff on low-value cross-border packages impact PDD's order volume, and what is the company's global growth strategy amid these policy headwinds? What is the latest progress on the first-party brand initiative, how should investors view its impact, and what is the positioning and pricing strategy for first-party products?

  A: The EU tariff change will create short-term challenges, leading to lower fulfillment efficiency and higher costs for affected cross-border orders, with considerable negative impact on that business segment in the near term. Over the medium to long term, the regulatory shift underscores the need for more supply chain investment: PDD will onboard more high-quality local merchants to expand local product supply, accelerate the build-out of local warehousing and fulfillment infrastructure, and deepen integration into each market it serves. The company will also continue long-term investment in compliance and platform governance, including systematic intellectual property protection, and will not change its long-term global growth direction due to short-term volatility. For the first-party brand business, this initiative is an extension of PDD's long-term supply chain investment, focused on partnering with capable manufacturers to develop brands leveraging PDD's market insights. The company will selectively focus on core categories where it has unique advantages, with a long development timeline that has been slower than initial expectations. PDD's commitment to an open, fair marketplace remains unchanged, and the initiative remains a clear long-term strategic priority, with management confident in its long-term prospects.

• Q: How should investors think about PDD's long-term investment priorities for logistics and fulfillment, as many global peers build their own delivery networks? What is PDD's view on the rise of quick commerce, and what is the company's strategy to maintain market share as competitors invest in same-day delivery?

  A: PDD makes targeted, prudent logistics investments focused on solving practical problems and improving consumer and merchant experience, with priorities varying by market and business model. Domestically, PDD is investing heavily to address last-mile delivery bottlenecks in rural and remote regions via the Free Shipping to Villages initiative, which has already expanded coverage to hundreds of villages and increased daily parcel volumes significantly. In overseas markets, PDD is investing in local transit warehouses to capture economies of scale, reduce costs, and improve delivery reliability for consumers. For quick commerce, this model serves different consumer needs than PDD's core e-commerce business, with very different supply chain requirements and limited synergies with PDD's existing strengths. PDD will remain focused on its core priorities: expanding access to high-quality products via supply chain investment, and building logistics infrastructure to close delivery gaps in underserved regions, which will create long-term tangible value for the ecosystem.

• Q: After nearly a year of the $100 billion support program, how has the health of PDD's merchant ecosystem changed, and can we expect increased merchant willingness to spend on advertising as the ecosystem improves? What is the full-year consumer spending outlook, and can platform revenue outgrow the broader consumer market?

  A: The $100 billion support program has already started delivering tangible results, with many merchants in agricultural and industrial clusters achieving meaningful improvements in quality and efficiency, with lower operating costs that enable them to reinvest in product development and brand building. Multiple examples exist of supported merchants transitioning to successful branded businesses with strong sales growth, proving the program's effectiveness. Building a healthier ecosystem is a long-term process, and PDD will continue steady investment. As a two-sided platform, PDD's long-term commercial value depends on merchant health: lower costs, stronger profits, and higher confidence among merchants will ultimately drive sustainable organic growth for the platform, including increased marketing investment over time. For the full year, China's consumer market has expanded steadily in H1 2026, with online retail penetration continuing to grow, and PDD is confident in the long-term potential of the market. Rural consumption has already grown faster than the overall market, offering significant untapped potential. By addressing fundamental supply chain bottlenecks and unlocking new demand, PDD expects its revenue to outgrow the broader consumer market over time.