To The Moon

$PDD Holdings Inc(PDD)$ is scheduled to release its fiscal Q2 2025 earnings report on Monday, August 25, 2025, before the U.S. markets open. This report will be highly anticipated by investors, as the company's recent performance has been mixed.

Earnings Per Share (EPS): The market's primary focus will be on whether PDD can meet or beat analyst consensus estimates. The consensus EPS forecast for Q2 2025 is around $1.69 per share.

Revenue: The revenue forecast is approximately $14.35 billion. It is worth noting that analyst estimates have been trending lower over the last month, which could suggest a more cautious sentiment.

Based on the Q1 2025 earnings report, PDD Holdings (PDD) showcased a mixed but ultimately revealing performance, providing key lessons for investors.

Summary of Q1 2025 Earnings

In the first quarter of fiscal year 2025, PDD Holdings reported a 10% year-over-year increase in total revenues, reaching RMB 95.7 billion. This was primarily driven by growth in both online marketing services and transaction services.

However, the report's main point of concern was a significant decline in profitability. The company's operating profit dropped by 38%, and net income attributable to ordinary shareholders plummeted by 47% compared to Q1 2024. This was largely attributed to substantial investments in its platform ecosystem, particularly in initiatives aimed at supporting merchants.

The company's non-GAAP operating profit margin also saw a notable decrease to 19% from 33% in the previous year, highlighting the impact of these investments.

Lessons from Guidance and Outlook

The earnings call provided valuable insight into management's long-term strategy, from which several key lessons can be learned:

Long-Term Value Over Short-Term Profitability: PDD management explicitly stated that they are prioritizing long-term value creation over short-term results. The significant decrease in profit was a direct result of "substantial investments" and "sustained ecosystem investments" to support merchants and consumers. This is a clear signal that the company is willing to sacrifice short-term margins to build a more robust and defensible ecosystem, a strategy that could benefit it in the long run.

Investment in the Core Business: The company is doubling down on its "high-quality development" strategy. This includes initiatives like a "100 billion support program" for merchants and investments in supply chain capabilities. This suggests that despite the rapid growth of its international platform, Temu, PDD is not neglecting its core domestic business, Pinduoduo. For investors, this means the company's future hinges on its ability to effectively execute this dual strategy of domestic strengthening and international expansion.

Volatility is Inevitable During a Transition: Management cautioned that a slowdown in growth and fluctuations in profit margins are "inevitable" as the company scales and faces new challenges. They explained that there is a "timing mismatch between when expenses are recorded and when the long-term returns materialize." This is a crucial lesson for investors: PDD is in a transition phase, and its financial results will likely remain volatile for some time. Patient investors who believe in the company's long-term vision may find the current volatility an opportunity, while short-term traders should exercise caution.

PDD's Q1 2025 earnings report was a strategic trade-off: it achieved revenue growth but at a steep cost to profitability. The guidance suggests that this is part of a deliberate long-term plan to invest in its ecosystem and solidify its market position, a strategy that could be a significant lesson for those following the company.

Key Metrics for Investors

Investors should pay close attention to the following metrics to assess the company's performance and future outlook:

User Growth and Engagement: PDD's core business relies on its user base. Investors will be keen to see data on key metrics like active buyers, average spending per user, and user engagement on its platforms, including Pinduoduo and Temu. Strong user growth, especially for its international platform Temu, could signal a healthy business model despite a competitive landscape.

Operating and Marketing Expenses: PDD is known for its aggressive marketing and heavy spending to gain market share. A crucial question is whether the company can maintain or improve its profitability while continuing to invest heavily in growth. Investors should scrutinize sales and marketing expenses and how they correlate with revenue growth.

Temu's Performance: As PDD's international e-commerce platform, Temu is a major growth driver. The earnings report and management commentary will provide insight into Temu's progress in key markets, its operational efficiency, and its contribution to the company's overall top-line growth.

PDD Holdings (PDD) Price Target

Based on 37 analysts from Tiger Brokers offering 12 month price targets for PDD Holdings in the last 3 months. The average price target is $129.51 with a high forecast of $176.50 and a low forecast of $90.00. The average price target represents a 5.33% change from the last price of $122.96.

Short-Term Trading Opportunities

PDD stock is known for its volatility, and the upcoming earnings report could create significant short-term trading opportunities.

Historical Volatility: PDD has a history of sharp price movements following earnings announcements. In past quarters, the stock has experienced double-digit percentage changes, both up and down. This volatility is driven by the company's rapid growth but also by a history of both beating and missing expectations.

Earnings Surprise Play:

If PDD beats expectations: A strong beat on both revenue and EPS could lead to a significant price rally. This could be an opportunity for a short-term long position. However, it is crucial to monitor whether the company's profitability is sustainable.

If PDD misses expectations: A miss, especially a large one, could trigger a sharp sell-off. This could create an opportunity for a short position. Given that analysts have been revising their estimates downward, a miss is a possibility, and the market could react negatively.

Technical Analysis: Before the report, traders may look at technical indicators such as support and resistance levels. A key level to watch is around the $105-$106 range, which has acted as a critical support/resistance point. A break below or above this level on heavy volume post-earnings could signal the next directional move.

We can see that the bulls are clearly in control and the attempt to make a daily uptrend continuation have succeeded after a short period of consolidation, I believe with the positive momentum, we could be seeing a daily uptrend expansion continuing well into after the earnings release on next Monday (25 Aug).

Options Market: The options market typically prices in a high degree of implied volatility around earnings. This creates opportunities for option strategies like straddles or strangles for those expecting a large move in either direction. Alternatively, some traders may choose to sell options before the report to capitalize on the high premium.

The options market overestimated PDD stocks earnings move 25% of the time in the last 12 quarters. The predicted move after earnings announcement was ±10.2% on average vs an average of the actual earnings moves of 13.0% (in absolute terms). This shows you that PDD tended to be more volatile than the options market predicted for the earnings stock price reaction.

For option, we might want to use Long Straddle to allow us to capture a large move in either direction.

Summary

PDD Holdings is scheduled to report its Q2 2025 earnings on August 25, 2025, a report with high stakes for investors. Analysts are anticipating a decline in profitability, with consensus EPS at around $1.69, down from the previous year. However, revenue is expected to grow to approximately $14.35 billion, driven by the company's aggressive investments in its platforms, particularly its international e-commerce app, Temu.

The key metrics to watch are revenue and profitability, especially the impact of marketing and operational expenses on margins. Investors will also be keen to see continued user growth and engagement for both Pinduoduo and Temu.

The company's past earnings reports have often resulted in significant price volatility, creating potential opportunities for short-term trading. A positive surprise on either user growth or profitability could trigger a rally, while a miss might lead to a sell-off. The stock's future trajectory will largely depend on whether management's long-term strategy of sacrificing short-term profit for market share and ecosystem development is resonating with the market.

Appreciate if you could share your thoughts in the comment section whether you think PDD would be able to show continued user growth and better profitability with better operational expenses control.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.