PDD Holdings’ first-quarter earnings reflect a company willing to absorb financial hits today in pursuit of long-term gains. The Chinese e-commerce firm reported a 47% year-on-year (YoY) drop in net income as it ramped up spending to support merchants facing economic uncertainty and regulatory disruption.
Total revenue rose 10% YoY to RMB 95.7 billion (USD 13.4 billion), driven by growth in online marketing and transaction services. But that increase was more than offset by surging costs. Operating profit fell to RMB 16.1 billion (USD 2.3 billion), down 38% from a year earlier. Non-GAAP net income declined 45%, reflecting an aggressive ramp-up in sales and marketing expenses, which jumped 43% to RMB 33.4 billion (USD 4.7 billion).
The sharp contraction in profitability wasn’t framed as a setback by management. Rather, it was portrayed as a deliberate shift: a decision to backstop merchants and stabilize the platform ecosystem under the banner of its newly launched RMB 100 billion (USD 14 billion) support program.
“In times of external shocks or policy changes, where merchants face difficulties, […] we feel a strong obligation to support our merchants to navigate through these external uncertainties,” said Chen Lei, chairman and co-CEO, during the company’s earnings call. “This is not an empty slogan, but a real commitment backed by tangible investments.”
The support program expands on PDD’s earlier effort to reduce merchant fees. It includes more generous subsidies, traffic boosts, logistics support, and digital upgrades, particularly for small and midsize sellers who have struggled to keep pace amid shifting macro policies and rising tariffs.
Management emphasized that this investment is not a response to a single quarter’s results but a recalibration of the company’s long-term strategy. “We are not a conventional company,” Chen said. “We do not evaluate our strategic decisions based on quarterly financial results.”
That stance comes at a cost. The company’s non-GAAP operating margin dropped from 33% in Q1 2024 to 19% this quarter. Net cash from operating activities also declined, falling to RMB 15.5 billion (USD 2.2 billion) from RMB 21.1 billion a year earlier.
Still, PDD maintains a strong cash position, with RMB 364.5 billion (USD 51 billion) in cash, equivalents, and short-term investments as of March 31. This gives it the financial runway to fund the pivot.
PDD’s business model also plays a role in this shift. As a third-party marketplace, the platform lacks the direct inventory control that first-party e-commerce companies can use to capitalize on government subsidies and respond swiftly to policy shifts.
Executives acknowledged this constraint. “Our third-party model has inherent limitations when it comes to certain policy incentives,” said co-CEO Jiazhen Zhao. In response, the company has launched a dedicated national subsidy page, benchmarked prices against government-supported programs—including in categories like daily necessities—and expanded its coupon offerings. These measures aim to maintain merchant competitiveness and stimulate consumer demand.
Beyond the numbers, PDD executives sought to paint a picture of systemic transformation. They highlighted efforts to modernize agricultural supply chains, citing digital logistics tools adopted by papaya growers in Yunnan, and detailed visits to manufacturing hubs in Shenzhen and Guangzhou to support merchant upgrades.
Whether these initiatives ultimately deliver a stronger, more resilient platform remains to be seen. For now, the mismatch between investment timelines and earnings cycles is weighing on the bottom line—a dynamic expected to persist.
While management has characterized these expenses as long-term investments, there remains a gap between when costs are incurred and when returns materialize. “Our profitability is likely to face challenges in the near term, and potentially over a longer period,” said Jun Liu, vice president of finance at PDD.
PDD is making a clear bet: that by enduring short-term financial pressure, it can secure long-term gains by reinforcing the foundation of its marketplace. Whether that trade-off pays off will depend on whether merchants can convert the company’s support into real and sustainable growth.