Summary of Key Points
Pinduoduo's financial report for the second quarter of 2026 presents a mixed bag: revenue increased by 8% year-on-year to 112.4 billion yuan (the lowest in the past four quarters and slightly below expectations), while adjusted net profit decreased by 13% year-on-year to 28.5 billion yuan (although higher than expected). However, core operating profit still grew by 8%, and cash flow reached a record high of 456.4 billion yuan. The overseas business, Temu, has seen slower growth due to regulatory issues, and Pinduoduo has shifted its focus back to the domestic market, particularly on grocery shopping and serving lower-income areas. The company has not followed the trend of investing in AI; instead, it has purchased buildings and invested in its supply chain, and has made it clear that it will not repurchase shares or distribute dividends. The decline in net profit is mainly due to 7.4 billion yuan in non-operating losses (likely fines) and increased taxes.
I. Financial Report Figures: Slower Growth on the Surface, but Solid Core Operations
Many might be concerned by the 8% revenue growth and 13% decrease in net profit, but Pinduoduo's foundation remains strong:
- Slow revenue growth is a common issue in the industry: The period of rapid growth for e-commerce has passed; Alibaba's e-commerce business saw a 8% decline, and JD.com's declined by 2.9%. Pinduoduo's 8% growth is quite good.
- Core profit has not declined: Operating profit (profit after deducting non-recurring expenses) increased by 8% year-on-year, indicating that its main businesses, such as selling goods and collecting commissions, are still profitable.
- Abundant cash flow: With 456.4 billion yuan in cash and short-term investments, Pinduoduo is slightly behind Alibaba (474.5 billion yuan) and Tencent (511.2 billion yuan), but this amount is still substantial enough to support the company's operations.
- The decline in net profit is unexpected: It was mainly due to 7.4 billion yuan in "other losses" (to be explained in detail later) and an increase in taxes of 26%. Without these factors, the profit would not have decreased significantly.
II. Overseas Business: Temu – From Rapid Growth to Slower Momentum
Temu has been a driving force for Pinduoduo's growth in the past two years, but it is now facing significant challenges:
- Continuous regulatory issues: Pinduoduo was fined 1.5 billion yuan in China for "ghost delivery" services, and the EU fined Temu 200 million euros (about 1.55 billion yuan) for violating the Digital Services Act, totaling around 3 billion yuan. There may be additional fines.
- Sharp decline in growth: Temu used low prices to drive GMV (Gross Merchandise Value), but now GMV in Europe and the US has decreased by more than 30%, resulting in only a 13% increase in commission revenue (below the expected 22%).
- Strategic shift: Management has decided to focus on compliance issues and prioritize domestic development over further growth.
III. Domestic Business: Focusing on Grocery Shopping and Serving Lower-Income Areas
After facing setbacks with Temu, Pinduoduo is reorienting its strategy:
- DuoDuo BuyFood becoming a new pillar: Later reports suggest that DuoDuo BuyFood's revenue this year could exceed 400 billion yuan, generating profits in the hundreds of millions, which is larger than many listed companies.
- Continuing to expand into lower-income areas: The company is pushing services like "delivery to villages" and expanding into rural areas. For example, the daily number of deliveries to villages in Yishui, Shandong, has exceeded 10,000, and the growth rate in rural markets is 1.3 percentage points higher than in urban areas. Advertising revenue (mainly from the domestic website) is even higher than commission revenue.
- Clear refusal to enter the instant retail market: While Alibaba and JD.com are investing in delivery and instant delivery services, Pinduoduo believes these initiatives have limited synergy with its core business. Given that JD.com's delivery business is still losing money, Pinduoduo does not want to get involved in this unprofitable area.
IV. A Pragmatic Approach: No AI Investment, Only Supply Chain and Real Estate
Unlike Alibaba and Tencent, which are investing heavily in AI, Pinduoduo's investments are more practical:
- No investment in AI: Neither Alibaba nor Tencent spent more than 50 billion yuan on AI in a single quarter, while Pinduoduo has not invested a single penny. The company says, "Any appealing AI stories have nothing to do with us."
- Investing in real estate and the supply chain: Pinduodou has purchased office buildings in Xiongan and Shanghai and has recruited 4,000 employees in Xiongan, claiming this is to "promote the high-end development of manufacturing." Management also plans to create another Pinduoduo within the next three years, with a focus on the supply chain.
- No share repurchases or dividends: Despite having cash, the company is not distributing dividends, stating that it is still in the investment phase. In contrast to Alibaba and Tencent's generous share repurchases, this approach may seem frugal, but it reflects the company's intention to keep funds for strategic investments.
V. The 7.4 Billion Yuan in Losses: What Exactly?
The financial report does not provide a clear explanation, but the most likely cause is fines:
- Known fines are not the full extent: The fines from China and the EU total around 3 billion yuan, with an additional 4.4 billion yuan possibly due to other regions (such as the US), or possibly failed investments (although Pinduoduo's investment returns still increased by 3 billion yuan).
- Impact is manageable for now: Although the loss is significant, it has not affected operating profit or cash flow, so the company's financial stability is not at risk. However, shareholders may be dissatisfied with the reduced profits.
In Conclusion
Pinduoduo is like a "traditional farmer" in the digital world: while others are chasing new trends (AI, delivery services), it remains focused on its core businesses, such as grocery shopping and serving rural areas. Although its growth rate has slowed, it has a solid financial foundation and low risk. Whether it can create another successful business like Pinduoduo in the future depends on its ability to leverage its supply chain and rural markets to discover new opportunities.