PDD Holdings Inc. (PDD) Earnings

Management highlights

- Organizational and Strategic Transformation * 2026 marks the start of PDD's second decade and a critical year for organizational, cultural, and operational reinvention centered on high-quality long-term development. * Safety, compliance, and social responsibility are established as absolute prerequisites for all business activities, with the company prioritizing long-term value creation over short-term financial results. * The three-year strategy to "build another Pinduoduo" (launched in 2025) entered its first full operational quarter in 1Q2026, with the first-party brand business officially launched via a dedicated Shanghai-based company in March 2026. - First-Party Brand Business Development * The first-party brand initiative has an initial cash injection of RMB 15 billion, with a planned total investment of RMB 100 billion over three years. * Teams are deepening engagement with industry hubs to integrate high-quality supply chain resources, co-create with global intellectual property partners, and incubate new tailored brands for domestic and global markets to drive overall supply chain transformation. - Supply Chain and Industry Support Initiatives * The ongoing 100 billion RMB support program continues to generate value for merchants and the industry, with upgraded initiatives for premium agricultural products, new quality supplies, and remote region logistics. * The 2026 Dozo Premium Produce program expanded support across the full agricultural value chain (cultivation, cold chain logistics, deep processing) to improve supply chain efficiency and help production regions move up the value chain, with first-phase projects launched across multiple specialty agricultural regions in China. * The new quality supply initiative has expanded to multiple manufacturing hubs, helping merchants and factories shift from homogeneous price competition to a consumer-centric, R&D-driven branded model, enabling industry upgrade. * Logistics support for remote regions has cut shipping costs for long-distance shipments by as much as 80% (for example, reducing a 40-50 RMB shipping fee from Zhongshan to Gansu to ~10 RMB), driving over 30% annual order volume growth for merchants in western Chinese regions. - Rural Logistics Expansion * The company is accelerating rollout of the Free Shipping to Villages initiative; by the end of March 2026, pilot counties in Henan had achieved over 70% coverage of local administrative villages via county-level transit warehouses and village pickup points, creating local jobs and boosting rural economic vitality. - Platform Governance and Compliance * Over 20 new food safety initiatives were launched in 1Q2026, including business qualification reviews, content moderation, live stream monitoring, dedicated food safety databases, and accelerated violation resolution (within hours), to improve consumer protection and user experience. * The company has restructured internal management and strengthened team compliance awareness to build a foundation for long-term healthy growth. - Agricultural Innovation * The 6th annual Smart Agriculture Competition concluded recently, evolving into a real-world testing ground for agricultural tech innovation and an incubator for new agricultural research talent, supporting the modernization of agriculture.

Guidance

Management confirmed the ongoing three-year strategic target of building another Pinduoduo via heavy supply chain investment and the first-party brand initiative, with no change to this core long-term guidance. No explicit quarterly or annual numerical financial guidance was provided in the call. Key forward-looking priorities confirmed include: • Maintaining heavy, sustained investment in supply chain capabilities and the first-party brand business over the next three years, prioritizing long-term ecosystem value creation over short-term profit margins • Continuing to expand the Free Shipping to Villages initiative and logistics support for remote regions to bridge supply and demand gaps and unlock new consumer demand • Steadily growing the global business via deepened supply chain investment and expansion of the first-party brand model in international markets • Maintaining focus on organizational transformation, compliance, and high-quality development as core priorities for PDD's second decade of operations

Segment performance

PDD Holdings does not break out separate product segment financials in this call. Total company revenue for 1Q2026 was RMB 106.2 billion, up 11% year-over-year. Revenue from online marketing services and others was RMB 49.9 billion (47% of total revenue), compared to RMB 48.7 billion in 1Q2025. Revenue from transaction services was RMB 56.3 billion (53% of total revenue), up 20% year-over-year from 1Q2025. Total costs of revenue increased 15% year-over-year to RMB 46.9 billion, driven by higher fulfillment, bandwidth, server, and payment processing fees. GAAP operating profit was RMB 19.6 billion, up 22% year-over-year. Non-GAAP operating profit was RMB 21.1 billion, with a 20% non-GAAP operating margin (up from 19% in 1Q2025). Net income attributable to ordinary shareholders was RMB 12.5 billion, down from RMB 14.7 billion in 1Q2025. Non-GAAP net income attributable to ordinary shareholders was RMB 14.1 billion, down from RMB 16.9 billion in 1Q2025. Net cash from operating activities was RMB 16.4 billion, up from RMB 15.5 billion in 1Q2025. As of March 31, 2026, the company held RMB 436.1 billion in cash, cash equivalents, and short-term investments.

Risks & headwinds

• The e-commerce industry is highly competitive with very low consumer switching costs, putting continuous pressure on the company to differentiate its offering and retain users • Supply chain partners (especially small and medium-sized manufacturers) face structural challenges including limited branding and R&D capabilities, homogeneous competition, and high market uncertainty that create headwinds for industry upgrading • Increasingly complex global regulatory environments require strengthened compliance capabilities for cross-border and global operations • The first-party brand initiative requires long-term, patient capital investment and carries inherent short-term risks and financial volatility, with no guarantee of immediate commercial or financial returns • Initial operational and organizational challenges are expected during the current transformation phase, requiring deliberate internal restructuring and culture building

Analyst Q&A

• Q: PDD has historically operated as a third-party e-commerce platform. What are the key reasons for launching the first-party brand initiative now, and is this a major strategic pivot for the company? Additionally, how is the global business progressing against expectations, and what is the core strategic focus for global operations going forward?

  A: The first-party brand initiative is not a pivot but a natural evolution of PDD's platform strategy to address long-standing supply chain challenges. Many capable Chinese manufacturers are stuck in homogeneous competition due to limited branding, R&D, and market insight capabilities. By launching the first-party model, PDD takes on greater risk and provides sales certainty to manufacturers, letting them focus on high-quality production and innovation, driving overall high-quality growth for the entire ecosystem. For global business, the core long-term priority is building sustainable competitive advantage via deep supply chain investment, rather than relying on marketing to acquire users. The company will focus on integrating and optimizing end-to-end supply chain to expand product selection and improve consumer experience, while deepening the first-party brand model globally to strengthen consumer perception of quality and value and improve compliance in diverse regulatory environments.

• Q: Where will the RMB 100 billion three-year investment in first-party brands be allocated, when will financial impacts appear, and what incremental growth potential can this strategy deliver? Additionally, why has PDD's online marketing revenue growth slowed in 1Q2026, what is the outlook for GMV and marketing revenue growth going forward?

  A: The full RMB 100 billion will be invested in building end-to-end foundational capabilities for brand building, including product design, standard-setting, manufacturing coordination, quality control, warehousing, fulfillment, compliance, and customer service. This is a long-term strategic investment to address the core industry challenge of homogeneous competition, and it is the natural next step in PDD's continuous deepening of supply chain engagement. For growth outlook, the online retail market still holds substantial potential, and PDD will drive sustainable growth by continuing to invest in tangible supply chain improvements: examples include upgrading rural logistics hubs to connect small farmers to national markets and cutting logistics costs for remote regions by up to 80%, which unlocks new effective demand by bridging supply and demand gaps.

• Q: How does management view new e-commerce models like live commerce and quick commerce, and does PDD have plans to enter these areas? Additionally, what is the outlook for PDD's profit margins going forward, and what is a reasonable steady-state margin expectation?

  A: Regardless of front-end business model innovation, consumer core demand remains unchanged: more product selection, competitive pricing, and better service. All industry competition ultimately boils down to competition in underlying supply chain capabilities, which is why PDD has centered its strategy on heavy supply chain investment, and will continue to focus on building unique supply chain value to navigate industry evolution. For margins, the company prioritizes long-term intrinsic value growth over short-term financial results, so quarterly margin fluctuations due to strategic investment are normal. PDD will continue to resolutely invest in high-impact long-term projects including first-party branding, rural logistics, and supply chain upgrade, prioritizing ecosystem health and foundational capability building over short-term margin performance.