Wall Street's consensus on PDD Holdings Inc's latest quarterly report is clear: it's a mixed bag. Amid a shifting global regulatory landscape and fierce domestic competition, PDD is deliberately choosing a challenging path that prioritizes long-term barriers over short-term profits.

In the second quarter of 2026, PDD's total revenue grew 8% year-over-year, falling roughly 2.5% short of consensus expectations. Online marketing services revenue rose approximately 3.5% year-over-year, beating estimates, while transaction services revenue grew just 13.3%, significantly below the roughly 21%-22% consensus forecast, with Temu serving as the primary drag. Net profit attributable to shareholders declined 12% year-over-year to RMB 27.2 billion.

Recent research notes from Goldman Sachs, Jefferies, and Morgan Stanley reveal a clear signal: investors must brace for near-term earnings volatility and margin compression at PDD. The reports indicate that new regulations, such as the EU's removal of the duty-free threshold, have dealt a substantial blow to Temu's short-term growth and fulfillment efficiency. Europe accounts for about one-third of Temu's GMV (per Goldman Sachs' estimates), leading to a sharp decline in European GMV, reduced overall fulfillment efficiency, and higher operating costs. Concurrently, PDD is deploying RMB 100 billion domestically for merchant support and investing heavily in local supply chains, warehousing, and first-party (1P) operations globally.

Wall Street has broadly lowered near-term earnings estimates and price targets for PDD (Goldman Sachs to $134, Jefferies to $118), yet all maintain "Buy/Overweight" ratings. The underlying rationale: PDD's extremely low valuation (Goldman Sachs projects a 2026 P/E of just 9 times) already factors in recent regulatory and investment pressures. Management's refusal to blindly expand into Quick Commerce, instead doubling down on core e-commerce and supply chain, demonstrates a strategic discipline of "actions over words" that is building a formidable long-term moat.


Earnings Breakdown: Marketing Revenue Beats, Transaction Revenue Misses Big

The core tension in the quarterly report lies in the sharp divergence between its two primary revenue streams.

Online marketing services revenue performed relatively well, growing approximately 3.5% year-over-year to RMB 57.6 billion, surpassing both the consensus estimate (around +1.6%) and Jefferies' forecast (+1%). Goldman Sachs noted this growth rate outpaced Taobao and Tmall's comparable ~1% growth during the same period (or -7% under Alibaba's new merchant rebate accounting standards) and also exceeded Kuaishou's e-commerce advertising growth of about 1%, highlighting the relative resilience of PDD's domestic GMV and merchant advertising demand. Goldman estimates PDD's domestic GMV grew roughly 5% year-over-year in Q2 2026, outpacing the industry's overall growth of approximately 2%.

Transaction services revenue, however, was the quarter's biggest trouble spot. The line grew just 13.3% year-over-year to RMB 54.7 billion, a noticeable deceleration from Q1 2026's +20% and well below Goldman's +21% and the consensus +22%. All three institutions attribute this significant shortfall to the regulatory shock Temu faced in the European market.

On gross profit, Q2 2026 gross profit reached RMB 64.3 billion, with a gross margin of approximately 57.3%, above the consensus estimate of 55.5%. This represented roughly 11% year-over-year growth, exceeding Goldman's expectations and indicating continued effective cost control.

Regarding adjusted net profit, Q2 2026 non-GAAP net profit was approximately RMB 28.5 billion, slightly above the consensus (around RMB 28.0 billion) but below Goldman's forecast (approximately RMB 26.3 billion). On a GAAP basis, net profit attributable to ordinary shareholders was roughly RMB 27.2 billion, down about 12% year-over-year. Notably, the quarter included approximately RMB 7.4 billion in other losses, which Goldman attributes primarily to domestic and Temu-related regulatory fines. Additionally, administrative expenses rose significantly due to the establishment of a new subsidiary in Xiong'an.


EU Regulations: The Most Immediate Pressure on Temu

The tightening of EU regulatory policies is the quarter's most critical external variable and the primary driver behind the three institutions' downward revisions.

Starting in July 2026, the EU formally abolished the de-minimis exemption and imposed a €3 per-parcel customs processing fee on cross-border packages. With Europe accounting for roughly one-third of Temu's GMV (per Goldman Sachs), the impact is both immediate and profound.

Both Morgan Stanley and Jefferies emphasized in their conference call notes that management acknowledged this regulatory overhang: the new tax rules for cross-border parcels have affected order volumes, leading to reduced fulfillment efficiency and increased operating costs. Media reports also indicate that Temu's European GMV experienced a sharp decline in Q2 2026.

Consequently, Goldman Sachs has significantly revised its Temu-related forecasts:

Cutting FY2026 and FY2027 Temu GMV growth expectations from 33%/25% to 15%/25%;

Slashing Q3 and FY2026 transaction commission revenue growth forecasts from +21% and +20% to +6% and +10%, respectively;

Projecting Temu's EBIT for FY2026 and FY2027 at -RMB 11.8 billion and -RMB 2.8 billion (previously -RMB 9.4 billion and +RMB 2.7 billion), indicating a slower path to profitability.

Morgan Stanley expects Q3 2026 transaction services revenue to grow approximately 9% year-over-year (further decelerating from Q2's 13.3%), with full-year 2026 growth of around 13%.


Temu's Localization Strategy: The Long-Term Answer to Regulation

Facing the EU's new rules and the evolving global tariff environment, Temu is accelerating its localization strategy transformation—a key reason all three institutions maintain positive ratings.

Management outlined Temu's response path during the earnings call: First, onboarding more local merchants to broaden local product supply and enhance product diversity. Second, accelerating the build-out of local warehousing and fulfillment infrastructure to improve local-to-local capabilities and reduce reliance on the cross-border direct shipping model. Third, increasing the penetration of local sourcing and fulfillment to improve business resilience and regulatory compliance while expanding the global addressable market.

Goldman Sachs notes the company is gradually transitioning toward a "semi-trusted" and "local-to-local" business model. While this transition will slow the pace of profit ramp-up in the near term, it should bolster Temu's long-term competitiveness and compliance capabilities. Notably, despite pressure in Europe, Temu's U.S. business is showing signs of recovery under a more favorable tariff environment.


"Xin Pin Mu" Private Label Strategy: A Strategic Extension of Supply Chain Deepening

PDD's advancement of its first-party (1P) brand strategy is another key highlight this quarter and a core initiative for building its long-term moat.

Management positions "Xin Pin Mu" as a natural extension of deepening supply chain capabilities, rather than a mere brand expansion. The company's first private label brand, "Bemuvo," officially launched in select markets in June 2026, though management acknowledged the initial rollout pace has been slower than originally anticipated. The strategy focuses on core categories where PDD possesses differentiated supply chain advantages and global channel strengths, selectively introducing private labels while emphasizing that 1P and third-party (3P) products will complement each other.

Jefferies noted in its report that the company collaborates deeply with factories during product planning and R&D stages to achieve high-quality standards—a model that helps build deeper competitive barriers on the supply chain side. Reflecting the company's continued commitment to reinvesting in its ecosystem and supply chain, Goldman Sachs has lowered its Q3 and FY2026 group EBIT forecasts to RMB 22.0 billion and RMB 102.0 billion, respectively (previously RMB 25.0 billion and RMB 106.0 billion).


Domestic Business: GMV Resilience and a Deliberate Rejection of Quick Commerce

In the domestic market, PDD is demonstrating relatively solid fundamentals while maintaining clear strategic focus.

Goldman Sachs estimates PDD's domestic GMV grew approximately 5% year-over-year in Q2 2026, outpacing the industry's ~2% growth. This relative leadership was achieved despite stricter merchant taxation, intensifying competition, and generally weak consumption. Management indicated that future growth will increasingly come from addressing supply chain bottlenecks (covering product development, manufacturing, and fulfillment) and unlocking consumption potential in lower-tier cities and rural areas through continued investment in logistics infrastructure.

Goldman maintains its domestic GMV growth forecast of +5% year-over-year for both Q3 and FY2026 (unchanged) and has slightly raised its online marketing services revenue growth forecast to +2%/+3% for Q3/FY2026 (previously +2%/+1%). Additionally, the continued strong performance of the Duo Duo Grocery business received positive recognition from Goldman.

Regarding Quick Commerce, Morgan Stanley specifically noted that management clearly stated the business model and supply chain requirements of Quick Commerce differ from traditional e-commerce, offering limited synergies. Consequently, PDD will not divert its focus but will concentrate resources on core e-commerce and supply chain construction where it has established advantages.


All Three Institutions Remain Bullish with Modestly Reduced Price Targets

Despite near-term earnings pressures, all three top-tier investment banks maintain positive ratings on PDD, citing considerable upside from the current share price of $88.38.

Goldman Sachs: Maintains a Buy rating, lowering its 12-month SOTP-based price target from $145 to $134, primarily reflecting a lower valuation multiple for the domestic platform (due to slowing profit growth) and reduced Temu GMV growth forecasts. The valuation methodology applies a 9x FY2026E P/E to the core domestic platform, a 25x P/E to Temu (excluding the U.S. fully-managed business), and a 15% holding company discount. The current share price corresponds to approximately 9.2x FY2026E earnings (or roughly 4x ex-cash).

Jefferies: Maintains a Buy rating, lowering its price target from $121 to $118, based on an SOTP valuation, with FY26E/FY27E revenue forecasts reduced by approximately 6%/5%.

Morgan Stanley: Maintains an Overweight rating and holds its $129 price target, based on a DCF model (WACC of 14%, terminal growth rate of 3%), corresponding to approximately 13.8x FY2026E non-GAAP earnings. The firm views this valuation as reasonable relative to the roughly 6% earnings compound annual growth rate projected for 2026-2029. Morgan Stanley forecasts FY2026 non-GAAP net profit to decline approximately 11% year-over-year to around RMB 110 billion, with GAAP net profit down about 12% to approximately RMB 95 billion.