On Monday (25 Aug), when Temu parent PDD Holdings first released its 2025 Q2 earnings – investors were excited. The pre-market share price surged 11% on better than expected adjusted operating profit margin, even though revenue growth was modest.
Investor expectations had been high – in the five trading days prior to the release, the share price had risen close to 6%.
However, in the earnings call, the management emphasised at least three times that the current level of profit is “not sustainable”, and this quarter’s results “do not represent the long term trend”.
As the earnings call progressed, the sentiment changed: 11% surge slid into a 2% drop. Eventually it settled at a mild 0.87% gain at the end of the trading day.
This is mild – remember exactly a year ago, when Co-CEO Chen Lei first poured cold water on the company’s own profits, the share price tumbled ~30%.
As the earnings call did not provide much additional information on the business, we would just share a few thoughts about PDD (including Pinduoduo, Duoduo Grocery and Temu) over the last few weeks:
- Winning in community groupbuy of groceries:
One impressive data point revealed in the earnings call is that Duoduo Grocery (or “Duoduo Maicai), PDD’s community groupbuy service, had reached more than 70% of all the villages in China. This is an impressive feat after 5 years of investment and hardwork. (You can read this about how Duoduo Grocery delivers to villages in the Gobi desert).
Zhao Jiazhen aka “Winter Jujube”, co-CEO of PDD who is focused on domestic businesses, mentioned in the earnings call that at the same time, PDD also built a “highly efficient distribution network of agricultural products”, giving farmers and small merchants more ways to sell their produce.
A couple of weeks ago, Meituan, the last standing competitor of Duoduo Grocery, announced a massive scaledown of its own community groupbuy operations in order to focus on instashopping/quick commerce. Duoduo Grocery has won. - Will PDD enter quick commerce/instashopping?
There have been rumours of PDD also entering the quick commerce war in China, currently fought hard between Meituan and Alibaba with 100s of millions of orders delivered daily.
We think it is unlikely. PDD must have done some serious studies on quick commerce especially when JD and Taobao both saw a big uptick in active user numbers since the quick commerce war.
However, PDD has very sharply focused its consumer value proposition on “savings”, instead of “speed” or “quality”. For it to enter a service with a very different value proposition, PDD will lose its sharp focus and that is something that the management has always been avoiding.
- PDD does not care about investors
Yes, for a company that does not have a CFO (only VP of Finance) and often seemingly deliberately presses its own share prices down, PDD does seem to project some arrogance towards the financial market.
However, if you know that the founder Colin Huang revered Warren Buffett, and has a mentor in Duan Yongping (a business and investment guru), you would find this notion of “PDD does not care about investors” hard to believe.
In earnings call after earnings call, the management kept emphasising the focus on “creating long term value rather than short term results”. This has been very consistent and resonates well with Colin Huang’s investor letters during the first years of PDD as a public company.
So in a way, you have to believe that all these remarks detrimental to the share price is a way for the management to manage investor expectations, filter out speculators, and focus on initiatives that often take years to show results.
- This is no magic bullet, just relentless pursuit of efficiency
We have argued in an earlier version of Food Delivery Platforms in Southeast Asia report that to win in food delivery, the only the only way Meituan could win is relentless focus on volume, density and operational efficiency, same for food delivery players anywhere in the world
This is the same method how Walmart, Aldi, Costco and many other companies eventually won the retail game – relentless focus on efficiency to deliver a core consumer value proposition.
In that regard, Pinduoduo/Temu is a retailer (as opposed to an ecommerce marketplace/mall operator), so is Meituan, albeit for different customer value propositions.
- If you are a retailer of general merchandise impacted by Temu, what should you do?
We get asked this question a lot by retailers in many places, as they foresee (or already experienced) the impact of Temu in driving prices for a large variety of goods very low.
Many retailers resort into very detailed studies about Temu’s categories and pricing – which can be misguided.
A few quick thoughts. If you need more, happy to arrange a chat, just reach out to hello@mworks.asia
- Understand Temu – their exact value proposition, organisational capabilities and supply chain leverage. Understanding the logic behind Temu helps much more than figuring out their tactics on the surface. A good starting point would be Momentum Works’s “Who is Temu” and “Temu: 2 years on” reports;
- Buy from Temu – Duan Yongping said “those who do not like Pinduoduo have never tried it”. Regular purchases allow you a good sense of what they are delivering, and why consumers like it;
- Stick to what you do the best – Temu’s value proposition is sharp and you would not be able to beat it at its own game (read this article to find out why). But Temu is not omnipotent – in order to be sharp on one value proposition (e.g. ‘saving’) it must sacrifice some others (e.g. “quality” or “speed”).
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