Temu's U.S. Struggles Deepen, But Profit Outlook Shows Unexpected Strength

PDD Holdings PDD delivered second-quarter results that edged past market expectations as Beijing intensified stimulus efforts to counter slowing consumption and the impact of rising US tariffs. Revenue grew 7% year-over-year to about 104 billion yuan ($14.5 billion), slightly ahead of forecasts but marking the slowest expansion in years. Net income slipped 4%, though adjusted operating profit topped projections for the first time in four quarters, aided by lower-than-expected marketing expenses. PDD's shares were largely unchanged after an early pre-market surge of up to 11%, reflecting investor caution as the company faces shifting regulatory and competitive dynamics.

Temu, once PDD's most important growth engine, is now contending with significant headwinds in the US after the removal of the de minimis tax loophole, which had allowed duty-free parcel shipments. Bloomberg Intelligence estimated monthly active users declined as much as 46% between April and June, while reduced advertising spend signaled a strategic shift amid mounting trade pressures. Management has been working to source more products locally to insulate operations from policy risks and accelerate international expansion. Still, new regulatory reviews on small-parcel tax exemptions in markets from Japan to Latin America could introduce fresh uncertainties for Temu's cross-border model.

Domestically, PDD continues to face intensifying competition from Alibaba BABA and JD.com while navigating softer consumer demand amid China's steepest economic slowdown of the year. Gross margins fell to record lows due to operational changes at Temu, but profitability was supported by tighter cost controls. Executives emphasized their focus on long-term value creation, indicating that continued investment could weigh on near-term earnings. Bloomberg Intelligence analysts suggested PDD's profitability profile may prove more resilient than initially expected, even as management prioritizes growth over short-term margins in an increasingly volatile operating environment.