American consumers might be buying plenty of goods from Temu, but on Wednesday, American investors weren't so hot on the site's owner, PDD Holdings (PDD 0.01%). They traded out of the Chinese e-commerce company's American Depositary Shares (ADSes) after it published a disappointing quarterly earnings report; the equity fell by more than 10% that day.
Two fundamentals moving in opposite directions
Well before U.S. markets opened, PDD took the wraps off its first-quarter 2026 results. The period saw the company earn 106 billion yuan ($15.6 billion), up 11% year over year. Net income not under generally accepted accounting principles (GAAP), on the other hand, fell by 15% to 14 billion yuan ($2.1 billion), or 9.51 yuan ($1.40) per ADS.
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Neither line item surmounted the consensus analyst estimates. On average, prognosticators tracking PDD stock were modeling nearly 110 billion yuan ($16.2 billion) for revenue, and a non-GAAP (adjusted) net profit of 16.77 yuan ($2.47) per ADS.
Although no one likes a wide bottom-line miss, PDD's is due largely to business revitalization and international trade relations.
The company is in the middle of a transformation from a retailer of low-cost goods to one anchored by more quality, self-branded products, an effort that requires increased investment. On top of that, the expiration of the de minimis tax exemption in the U.S. led to increased tariff costs for the company.
NASDAQ: PDD
Key Data Points
Out with the old
It's tough to pivot away from a business model that's been successful in the past, and I feel PDD management should be commended for devising a new way to thrive. Its new approach is sensible and, while it may take some time to fully implement, could lead to better prosperity in the mid- to long term. I'd consider PDD a buy, then, albeit one for more patient investors.
