# PDD Holdings Inc. (NASDAQ: PDD) — Business, Risks and Management Discussion Covers the fiscal year ended December 31, 2025 and the second quarter ended June 30, 2026. **Currency.** PDD Holdings reports in Chinese renminbi (RMB). Every money amount below has been converted from renminbi to US dollars: flows at the average exchange rate for the period they cover, and balances at the rate on the balance-sheet date. Growth rates are stated in US dollar terms. Where the renminbi growth rate differs materially, it is given alongside and labelled. The renminbi strengthened against the dollar between 2025 and 2026, so the 2026 growth rates are noticeably higher in dollars than in the company's own currency. Per-share figures are per American depositary share (ADS). Each ADS represents four Class A ordinary shares. --- ## Business *Source: Annual report on Form 20-F for the fiscal year ended December 31, 2025, accession 0001104659-26-050727.* PDD Holdings runs two large online marketplaces where third-party merchants sell goods to consumers: **Pinduoduo** in China and **Temu** in markets outside China. PDD does not sell the merchandise itself. Its paying customers are the merchants, and it earns two kinds of fees from them. **Online marketing services** are mainly paid placement of product listings in search and browsing results, charged by impression or click, plus display advertising sold mostly at fixed prices. **Transaction services** are fees on sales completed on its platforms, including fulfillment services it provides to merchants. In 2025 total revenue was $60.08 billion, split almost evenly: online marketing services and others brought in $30.3 billion (50.4%) and transaction services $29.78 billion (49.6%). Both platforms mainly serve merchants based in China, and substantially all of the company's revenue comes from third-party merchants in China. Temu helps those merchants reach consumers outside China. The two platforms have the same value proposition and operating model: value-for-money merchandise, interactive shopping, and helping merchants streamline manufacturing and operations to lower prices. - **Pinduoduo** (founded 2015) is built on a "team purchase" model. Buyers who share a product with friends and social contacts get a lower group price. Word-of-mouth referrals from existing buyers, along with marketing campaigns, bring buyers to the platforms. The platform runs its own e-waybill system that links merchants with third-party logistics providers. It also operates Duo Duo Grocery (launched 2020), a next-day grocery pick-up service in which merchants deliver overnight to regional warehouses and consumers collect their orders at nearby pick-up points. Agriculture is a long-standing focus: the platform connects farmers directly with consumers, and the company funds a "10 Billion Agriculture Initiative" (launched August 2021) out of its profits. - **Temu** was founded in September 2022 in Boston and launched in North America that month. It expanded to Oceania in March 2023, to Europe in April 2023 and then worldwide. By the end of 2025 it served consumers in markets including the United States, Japan, Germany, the United Kingdom, France, Canada and Italy. The company still describes Temu as being "at an early stage of development". It works through a global network of logistics vendors and fulfillment partners. Merchant activity drives the transaction-services line. Active merchants rose from 15.8 million in 2024 to 16.8 million in 2025. Average transaction-services revenue per active merchant rose to $1,773 from $1,723. PDD reports a single operating segment, e-commerce services. Its chief operating decision-makers are its two Co-Chief Executive Officers, Lei Chen and Jiazhen Zhao, who are also Co-Chairmen of the board. No geographic segments are presented, because substantially all revenue and long-lived assets are in the People's Republic of China. Corporate structure matters to shareholders here. PDD Holdings Inc. is a Cayman Islands holding company with its principal executive offices in Dublin, Ireland. Part of its Chinese mainland business runs through a variable interest entity (VIE), Hangzhou Aimi, which the company controls by contract rather than through ownership. Lei Chen holds 86.6% of Hangzhou Aimi and Jiazhen Zhao holds 13.4%. The VIE's subsidiary Shanghai Xunmeng holds the value-added telecommunications licenses for the Pinduoduo platform. The VIE's share of group revenue has fallen steadily: 45.7% in 2023, 22.5% in 2024 and 13.1% in 2025. The business is seasonal. The first quarter usually has the least buyer traffic, and the fourth quarter is usually the strongest because of promotional campaigns. PDD has never paid a cash dividend and has no present plan to pay one. --- ## Risk factors *Source: Form 20-F for fiscal 2025, Item 3.D "Risk Factors" and Item 8 "Legal Proceedings", accession 0001104659-26-050727.* The risks the company discusses most specifically fall into four groups: trade barriers against cross-border parcels, regulatory and legal action against Temu abroad and Pinduoduo at home, the China-specific holding structure, and competition. - **Tariffs and the end of duty-free small parcels.** Temu's model depends on cross-border trade. The United States ended the Section 321 *de minimis* duty exemption for imports from China and Hong Kong effective May 2, 2025, and for imports from all countries effective August 29, 2025. A lawsuit challenging that elimination is pending. The European Union has proposed a fixed customs duty on each item category in low-value parcels starting July 2026, plus a processing fee from November 2026. Italy plans a handling fee on small parcels from July 1, 2026, and France has had a per-item-category small-parcel tax since March 2026. The company warns these measures will expose merchants to much higher duties and taxes, which could mean higher consumer prices, lower order volumes and fewer merchants. It also says it has faced claims over refunds obtained in connection with the International Emergency Economic Powers Act. - **EU Digital Services Act.** Temu was designated a Very Large Online Platform in May 2024. The European Commission opened a formal investigation in October 2024. In July 2025 it preliminarily found Temu in breach of its obligation to properly assess the risk of illegal products being sold on its marketplace (Article 34 of the DSA). A final non-compliance decision could bring a fine of up to 6% of total worldwide annual turnover, plus an enhanced supervision period. A separate investigation by EU consumer-protection authorities (the CPC Network) into Temu's practices was still open when the annual report was filed. - **U.S. litigation and enforcement.** State attorneys general have filed consumer-protection suits in Arkansas (June 2024), Nebraska (June 2025), Kentucky (July 2025), Arizona (December 2025) and Texas (February 2026). The Nebraska court denied PDD's motion to dismiss on April 9, 2026. In September 2025 Temu settled a Federal Trade Commission case under the INFORM Consumers Act, paying a $2 million civil penalty and accepting ongoing compliance obligations. A consolidated securities class action in the Eastern District of New York alleges misleading statements about data security and compliance with the Uyghur Forced Labor Prevention Act. A motion to dismiss it is pending. Temu and SHEIN are suing each other in Washington, D.C. In January 2026 the court dismissed PDD Holdings Inc. itself from SHEIN's suit for lack of personal jurisdiction. Several U.S. states also bar Temu from government-issued devices. - **Market suspensions.** Temu's operations in Vietnam, suspended in December 2024 pending e-commerce registration, and in Uzbekistan, suspended in March 2025 over tax and local-registration matters, had not resumed as of the annual report. - **Chinese regulatory penalties.** In April 2026 China's State Administration for Market Regulation fined seven platform operators about $526.54 million in total. That included about $219.39 million against the operator of the Pinduoduo platform for E-Commerce Law and food-safety violations, including failing to verify food business licenses and failing to stop cake vendors from passing orders to other vendors without telling consumers. The regulator also suspended onboarding of new cake vendors on Pinduoduo, other than pre-packaged cake, for nine months. The company accepted the penalty. More broadly, China's platform-economy anti-monopoly rules, its data-security and cross-border data-transfer rules, and its consumer-protection and e-commerce laws all impose obligations and penalties on platforms of PDD's size. - **Competition, including from AI.** PDD competes with major e-commerce operators, traditional retailers, category specialists and internet companies entering e-commerce, some with greater resources. The company flags that rivals using artificial intelligence to deliver better experiences or lower costs could weaken its position. - **Liability for merchants' goods.** The platforms can be held liable for counterfeit, infringing, unsafe or illegal products sold by third-party merchants, and for consumer harm. New EU and UK product-safety and platform-liability rules widen these obligations. - **The VIE and the holding-company structure.** ADS holders own shares in a Cayman holding company, not in the VIE. If the contractual arrangements were found unenforceable, or if Chinese authorities disallowed VIE structures, PDD could lose control of and economic benefit from those operations, and the ADSs "may decline in value or become worthless." Cash also cannot move freely out of China. At December 31, 2025, restricted amounts (paid-in capital and statutory reserves of the Chinese mainland subsidiaries plus the VIE's net assets) totalled $18.01 billion. The group held $30.60 billion of cash, cash equivalents, restricted cash and short-term investments in China, of which the VIE and its subsidiaries held $24.48 billion, all in renminbi. - **Audit access and U.S. listing.** PDD was named a Commission-Identified Issuer under the Holding Foreign Companies Accountable Act in May 2022. The PCAOB vacated its determination about mainland China and Hong Kong auditors in December 2022, but a new determination would put the U.S. listing back at risk. In July 2025 the company replaced Ernst & Young Hua Ming LLP with Ernst & Young, located in Hong Kong, as its auditor. The company also cites the U.S. outbound-investment rule, the COINS Act signed December 18, 2025, and reports of possible delisting of China-associated companies. - **Governance and related parties.** Once it has at least five limited partners, the PDD Partnership will be entitled to nominate executive directors and the CEO candidate. Those rights are not yet in effect. The company relies on Tencent, a principal shareholder and owner of Weixin and QQ, for various services. Its payment-services partner, Shanghai Fufeitong, is 93.89% held indirectly by executive officers Lei Chen and Zhenwei Zheng. - **Currency and tax.** PDD does not hedge foreign-exchange exposure. Two Chinese subsidiaries, Shanghai Xunmeng and Walnut Shanghai, pay a preferential 15% income tax rate as "high and new technology enterprises" until 2026, and losing that status would raise the tax rate. The global minimum-tax (Pillar Two) rules could also increase tax expense. --- ## Management's discussion — fiscal 2025 *Source: Form 20-F for fiscal 2025, Item 5 "Operating and Financial Review and Prospects", accession 0001104659-26-050727. Management outlook quotes are from the fourth-quarter and fiscal-year 2025 results release, Form 6-K accession 0001104659-26-034813, Exhibit 99.1.* 2025 was a year of much slower growth and lower margins. Revenue rose 9.8% to $60.08 billion (9.7% in renminbi), after rising 59.0% in renminbi in 2024. Costs rose faster than revenue, so operating profit fell 14.0% to $12.95 billion and net income fell 12.9% to $13.61 billion. **Revenue.** Online marketing services and others grew 10.2% to $30.3 billion. Management attributes the increase to brand campaigns, more active merchants offering a wider product range, and value-for-money pricing that raised user engagement. Transaction services grew 9.4% to $29.78 billion, because both the number of active merchants and the average transaction-services revenue per merchant increased. Management links the latter to merchants' growing demand for value-added services across more consumption scenarios and product categories. **Costs.** Cost of revenues rose 22.8% to $26.27 billion and climbed to 43.7% of revenue from 39.1%. The main drivers were higher fulfillment fees, bandwidth and server costs, and payment processing fees. Total operating expenses rose 14.1% to $20.86 billion, mostly because of sales and marketing, which rose 12.7% to $17.43 billion. Advertising, promotion and coupon spending accounted for $1.80 billion of that increase. Research and development rose 30.5% to $2.30 billion on higher staff costs and bandwidth and server costs. General and administrative expenses rose to $1.13 billion from $1.05 billion in 2024. The audited 2025 figures in the annual report differ from the fourth-quarter results release (Form 6-K accession 0001104659-26-034813), which reported general and administrative expenses of $923.24 million, total operating expenses of $20.65 billion and net income of $13.82 billion; neither filing explains the difference. Share-based compensation across all lines was $1.10 billion. **Profit.** Operating margin fell to 21.6% from 27.5%. Below operating profit, net interest and investment income rose 24.6% to $3.56 billion because the company held more short-term investments. A foreign-exchange loss of $273.61 million replaced the prior year's gain, and income tax expense was $3.02 billion. Net margin fell to 22.7% from 28.5%. **Cash and capital.** Operating cash flow was $14.88 billion, down 12.2%. It was higher than net income mainly because amounts payable to merchants and accrued liabilities increased, partly offset by purchases of short-term investments. Capital expenditures were small at $159.32 million. Financing outflow was the $727.47 million repayment of the last of the company's convertible notes, which matured December 1, 2025, leaving no convertible notes outstanding. At year-end, cash and cash equivalents were $15.57 billion. Restricted cash of $10.56 billion, mainly buyer payments held in a bank-supervised account for payment to merchants, came on top of that. Operating-lease commitments were $804.22 million. Management says existing cash and operating cash flow will cover working capital and capital expenditure needs for at least the next 12 months. **Outlook.** In the fiscal-year release, management framed 2026 as the start of a heavy investment phase. Co-CEO Jiazhen Zhao said "supply chain investment is where we will place our greatest conviction", with resources committed "with an all-in mindset". Jun Liu, VP of Finance, said the company's investments "are firm and long-term, and will inevitably affect our financial performance." The annual report gives no numerical guidance. --- ## Current quarter — three months ended June 30, 2026 *Source: Second-quarter 2026 results release, Form 6-K accession 0001104659-26-100534, Exhibit 99.1 (filed August 25, 2026). First-quarter context is from the first-quarter 2026 results release, Form 6-K accession 0001104659-26-067186, Exhibit 99.1.* In the second quarter, operating profit grew roughly in line with revenue, but net income fell because of a large non-operating loss. Revenue was $16.51 billion, up 14.9% in dollars and 8.1% in renminbi. Operating profit rose 14.4% to $4.08 billion (7.6% in renminbi). Net income fell 6.1% to $3.99 billion (down 11.6% in renminbi). **Revenue mix.** Transaction services led the growth, rising 20.5% to $8.04 billion (13.3% in renminbi). Online marketing services and others reached $8.47 billion, up 10.0% in dollars but only 3.5% in renminbi. **Costs.** Cost of revenues rose more slowly than revenue, to $7.06 billion (up 4.7% in renminbi). It fell to 42.7% of revenue from 44.1% a year earlier. Operating expenses rose 20.2% to $5.38 billion (13.1% in renminbi), which the company attributes primarily to sales and marketing, at $4.36 billion. Research and development rose to $671.15 million (up 27.2% in renminbi) and general and administrative expenses to $344.17 million (up 52.9% in renminbi). Operating margin held at 24.7%, against 24.8% a year earlier. Non-GAAP operating profit, which excludes share-based compensation, was $4.27 billion. Share-based compensation fell to $192.07 million from $270.29 million. **Below operating profit.** Net interest and investment income rose to $1.98 billion (up 29.6% in renminbi). However, the "other income/(loss), net" line swung to a loss of $1.09 billion, compared with other income of $16.45 million a year earlier. The release does not explain what makes up this loss. For the first half as a whole, other losses were $1.37 billion. Income tax expense was $895.25 million. **Per-share.** Non-GAAP net income was $4.19 billion (down 12.9% in renminbi). Diluted earnings per ADS were $2.71, against $2.87 a year earlier. Non-GAAP diluted earnings per ADS were $2.84, against $3.05. **Cash and balance sheet.** Operating cash flow rose 26.1% to $3.77 billion (18.6% in renminbi), and financing cash flows were negligible. At June 30, 2026, cash, cash equivalents and short-term investments totalled $67.27 billion, up from $60.39 billion at December 31, 2025. Other non-current assets, mainly time deposits and held-to-maturity and available-for-sale debt securities, were $14.21 billion. Payables to merchants were $16.20 billion and shareholders' equity was $66.00 billion. Property, equipment and software rose to $700.36 million from $186.76 million at year-end 2025. **First half and trend.** First-half revenue was $31.85 billion (up 9.5% in renminbi) and operating profit was $6.90 billion (up 13.0% in renminbi). Net income fell to $5.79 billion (down 12.7% in renminbi). The first quarter had the same pattern: revenue of $15.35 billion (up 11% in renminbi), operating profit of $2.83 billion (up 22% in renminbi) and net income of $1.81 billion (down 15% in renminbi). In the first-quarter release, Co-CEO Lei Chen called that quarter "the start of deep transformations in our business, our internal processes and our organization". Co-CEO Jiazhen Zhao made supply chain investment the "core strategic priority" and said the company "will commit significant resources to building the first-party brand business." **Management commentary this quarter.** Lei Chen said global trade and regulatory landscapes "have continued to evolve, creating significant challenges while also presenting new opportunities." Jiazhen Zhao pointed to ecosystem governance and "targeted trust and safety initiatives across categories" in the first half. Jun Liu said "we stepped up our ecosystem investments in the second quarter" and that the near-term priority is "helping merchants thrive and strengthening the broader industry ecosystem." The release gives no numerical guidance. --- ## Subsequent events *Source: Second-quarter 2026 results release, Form 6-K accession 0001104659-26-100534, Exhibit 99.1; Form 6-K accession 0001104659-26-099679 (filed August 21, 2026).* The second-quarter results were furnished as a press release with condensed statements. The release has no subsequent-events note and discloses no post-quarter acquisition, divestiture, financing or litigation outcome. The only other Form 6-K PDD furnished between the quarter end and the results release is one filed August 21, 2026 (accession 0001104659-26-099679). It announced that independent director Dr. Ivonne M.C.M. Rietjens died in August 2026, aged 67. She had served on the board since August 2023, and the board said it will review the composition of its committees.