Highlights

• PDD reported mixed 2Q26 results. Total revenue increased 8%, 2-4% below our and consensus estimates. Adjusted net profit declined 12% yoy to Rmb28b, supported by higher interest/investment income of Rmb13.5b, largely in line with our expectation. Gross margin expanded 1.4ppt yoy to 57.3%. Non-GAAP net margin dropped 6ppt yoy to 25.4%, due to higher G&A expenses.
   

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Analysis

• Online marketing revenue grew 3.5% yoy (vs 2.4% in 1Q26), better than street expectations. This implied a better-than-expected domestic GMV growth despite tighter VAT regulations, e-commerce competition and weak consumption (compared with Taobao-Tmall’s +1% yoy and JD retail’s -4.7% yoy). Transaction services revenue grew 13% yoy, below our forecast of 17% yoy and slowing from 20% yoy in 1Q26, due to softer Temu monetisation amid regulatory changes in the EU and ASEAN, partly offset by resilient Duo Duo Grocery and recovering US operations.
   

• Operating profit better than expectations. Gross margin expanded 1.4ppt yoy to 57.3%, due to slower growth of Temu with high fulfilment cost. Non GAAP operating profit increased 5% yoy, vs 16%/5% yoy in 1Q26/4Q25, while operating margin dipped 1ppt yoy to 26%, mainly related to the new Xiongan subsidiary launched in May 26 with 4,000 employees, equivalent to 16% of PDD Holdings’ (PDD) 2025 workforce. Non-GAAP net profit declined 12% yoy, supported by higher interest/investment income of Rmb13.5b, versus a Rmb0.6b loss in 1Q26, but partly offset by Rmb7.4b in other losses, potentially related to one-off provisions related to domestic/EU regulatory penalties and subsidiary tax payments.