A Growth Curve That Bent, Not a Comp Effect
PDD Holdings' fifth annual report as a U.S.-listed public company covers the fiscal year ended December 31, 2025, and the headline number is not a subtle one: revenue growth went from 59.1% (2023 to 2024) to 9.6% (2024 to 2025) in a single year. Revenue still grew, to RMB431,845.7 million ($61,753.1 million), but the deceleration is the story - not because growth alone matters, but because of how PDD got there.
Cost of revenue grew 22.7% to RMB188,801.8 million even as revenue grew only 9.6%, compressing gross margin from 60.9% to 56.3%. Total operating expenses grew 14.0%, with research and development up 30.3% - the fastest-growing line on the income statement, in either direction. Operating profit fell 14.1% to RMB93,102.1 million, and net income fell 13.0% to RMB97,842.5 million ($13,991.3 million). None of this is a base-effect story the way a 2018-vs-2019 comparison might have been early in PDD's life: this is a company whose costs are now growing faster than its revenue, for the first time in this coverage's history.
The most plausible driver sits outside the income statement entirely. Effective May 2, 2025, the United States eliminated the Section 321 de minimis» exemption - which let low-value parcels enter duty-free - for imports from China and Hong Kong, and eliminated it for all countries effective August 29, 2025. Temu's entire cross-border model, shipping low-cost goods directly from Chinese manufacturers to Western consumers, was built on exactly that exemption. The filing states plainly that this "cost increases are expected to result in reduced sales volumes or higher consumer prices" - and the cost-of-revenue line (which includes fulfillment fees and merchant support costs) grew from RMB142,545.2 million to RMB174,482.5 million, a 22.4% jump that lines up with a platform absorbing higher logistics and compliance costs to keep prices competitive rather than passing the full increase to buyers. The de minimis change only applied for roughly eight months of this fiscal year - the first full year of that cost structure is 2026, not 2025.
The other piece: PDD no longer discloses Gross Merchandise Value, active buyers, or monthly active users anywhere in this filing - metrics that anchored the 2018 and 2019 posts on this company. A reader can no longer independently check whether the growth deceleration comes from fewer buyers, less spend per buyer, or a maturing take rate» - only that revenue growth slowed and costs didn't (see Beyond the Usual).
The Prescription
What PDD should keep doing: absorbing the de minimis shock into cost of revenue rather than passing it fully through to Temu buyers via price increases. Gross margin compression from 60.9% to 56.3% is a real cost, but it's the correct trade if the alternative is losing the price-sensitive buyer base Temu built its entire value proposition around - a platform that responds to a tariff shock by cutting its own margin instead of its buyers' welcome mat is making the right call for a two-sided marketplace that still needs to prove it can retain users once the free-shipping-anything era of Chinese cross-border e-commerce ends. Interest and investment income growing 24.5% to RMB25,583.8 million while the operating business absorbed the shock also shows the balance sheet doing its job - a RMB496 billion pile of cash, restricted cash, and short-term investments (see Target Valuation Range) is exactly the kind of buffer that should exist for a year like this one.
What it should stop doing: treating GMV, active buyers, and MAU as metrics a public shareholder no longer needs to see. PDD disclosed these numbers voluntarily in its earlier annual reports precisely because they showed the mechanics behind the headline revenue and profit figures - whether growth comes from more buyers, more spend per buyer, or higher monetization. Withdrawing that disclosure in the same year revenue growth collapsed from 59% to 9.6% - whatever the actual reason for withdrawing it - makes it structurally harder for an outside reader to tell whether this is a temporary tariff-driven margin trade-off or the start of a real demand problem. A company navigating a genuine external shock has every reason to over-disclose the operating detail that lets shareholders tell the difference, not less.
Key Financial Metrics
Fiscal year ended December 31, 2025 vs. fiscal year ended December 31, 2024
FX: RMB 6.9931 = USD 1.00 (December 31, 2025, per the company's own filing). The FY2024 USD figures below are derived using that year's own filed convenience rate, RMB 7.2993 = USD 1.00 (December 31, 2024) - not a mechanical re-translation at the current rate.
| Metric | FY2025 (RMB) | FY2025 (USD) | FY2024 (RMB) | FY2024 (USD, derived) | YoY |
|---|---|---|---|---|---|
| Revenue | 431,845,713K | $61,753,116K | 393,836,097K | $53,955,324K | ✅ +9.6% |
| Cost of revenues | (188,801,753K) | ($26,998,292K) | (153,900,374K) | ($21,084,265K) | ⚠️ +22.7% |
| Gross profit | 243,043,960K (56.3% margin) | $34,754,824K | 239,935,723K (60.9% margin) | $32,871,059K | ⚠️ +1.3%, margin -4.6pp |
| Sales and marketing expenses | (125,287,932K) | ($17,915,936K) | (111,300,533K) | ($15,248,111K) | ⚠️ +12.6% |
| General and administrative expenses | (8,157,733K) | ($1,166,540K) | (7,552,967K) | ($1,034,752K) | ⚠️ +8.0% |
| Research and development expenses | (16,496,164K) | ($2,358,920K) | (12,659,361K) | ($1,734,325K) | ⚠️ +30.3% |
| Operating profit | 93,102,131K (21.6% margin) | $13,313,428K | 108,422,862K (27.5% margin) | $14,853,871K | ⚠️ -14.1%, margin -5.9pp |
| Net income | 97,842,539K (22.7% margin) | $13,991,297K | 112,434,512K (28.5% margin) | $15,403,465K | ⚠️ -13.0%, margin -5.9pp |
| Diluted EPS | RMB16.50/ordinary share | $2.36 | RMB19.00/ordinary share | $2.60 | ⚠️ -13.2% |
| Net cash from operating activities | 106,938,690K | $15,292,029K | 121,929,292K | $16,704,245K | ⚠️ -12.3% |
| Capex (property, equipment and software) | (1,145,077K) | ($163,744K) | (967,137K) | ($132,497K) | ⚠️ +18.4% |
| Free cash flow» (derived: op. cash flow − capex) | 105,793,613K | $15,128,285K | 120,962,155K | $16,571,747K | ⚠️ -12.5% |
| Cash and cash equivalents | 108,900,587K | $15,572,577K | 57,768,053K | $7,914,191K | ✅ +88.5% (funded by the convertible bond repayment shown below, not operating strength alone) |
| Balance sheet | Dec 2025 (RMB) | Dec 2025 (USD) | Dec 2024 (RMB) | Dec 2024 (USD, derived) | YoY |
|---|---|---|---|---|---|
| Total assets | 630,044,327K | $90,095,139K | 505,034,316K | $69,189,418K | ✅ +24.8% |
| Total liabilities | 216,659,171K | $30,981,848K | 191,721,192K | $26,265,696K | ⚠️ +13.0% |
| Total shareholders' equity | 413,385,156K | $59,113,291K | 313,313,124K | $42,923,722K | ✅ +31.9% |
PDD does not disclose an Adjusted EBITDA» figure anywhere in this filing, consistent with every prior year's 20-F - GAAP operating profit and net income remain the only profitability lenses available.
Revenue grew 9.6% and net income fell 13.0% in the same year - the first time in this coverage's history that PDD's costs grew faster than its revenue. Roughly RMB32 billion of the ~RMB35 billion increase in cost of revenue came from "costs associated with the operation of our platforms," which the filing attributes in part to fulfillment and merchant-support costs - the closest thing available to a receipt for the US de minimis exemption's elimination.
Cash and cash equivalents nearly doubled to RMB108,900.6 million ($15,572.6 million), but that's a composition shift rather than new operating cash: the company used RMB5,228.7 million ($747.7 million) to fully repurchase or repay its remaining convertible bonds this year (the current-portion balance fell from RMB5,309.6 million to zero), and it also reallocated RMB12,600.0 million out of short-term investments into cash and equivalents on the operating side of the cash flow statement. Free cash flow of RMB105,793.6 million ($15,128.3 million) still comfortably funds both that debt paydown and the year's RMB1,145.1 million capex program - PDD remains a cash-generative business even in a year its margins compressed.
Key Operational Metrics
PDD's FY2025 20-F does not disclose Gross Merchandise Value, active buyers, active merchants, or monthly active users anywhere - not available, and a genuine change from the 2018 and 2019 annual reports, both of which disclosed all four. The only revenue-composition detail retained is the two-line split between online marketing services and transaction services:
- Online marketing services and others: RMB217,783.0 million ($31,142.6 million) in 2025, 50.4% of revenue - down from 50.3% of a smaller base in 2024, essentially flat as a share.
- Transaction services: RMB214,062.7 million ($30,610.6 million) in 2025, 49.6% of revenue - up from 49.7% in 2024, essentially flat as a share.
- Both lines grew roughly in line with total revenue (online marketing +10.0%, transaction services +9.3%) - the deceleration hit both revenue streams evenly rather than concentrating in one.
PDD reports a single operating segment for financial-reporting purposes - the filing states its chief operating decision makers "refer to consolidated operating results and financial condition" rather than segment-level results, and "no geographical segments are presented" because substantially all revenue and long-lived assets sit within the PRC for accounting purposes. That means there is no company-disclosed breakout between the domestic Pinduoduo marketplace and the international Temu platform anywhere in this filing - a genuine reporting gap given Temu is very plausibly the source of this year's cost pressure (see Beyond the Usual).
Beyond the Usual
A related-party loan to two executives has doubled since 2019 and remains outstanding
The interest-free related-party loan first flagged in Recursive Gains' 2019 PDD post - originally RMB459.6 million ($66.0 million), extended to Ningbo Hexin Equity Investment Partnership, a vehicle controlled by executive officers Lei Chen and Zhenwei Zheng, to help them acquire controlling equity in Shanghai Fufeitong, a licensed payment processor the platform depends on - has grown to RMB910.6 million (US$130.2 million) in aggregate and remains outstanding in full as of December 31, 2025, six years after it was first disclosed. Ningbo Hexin now beneficially owns 93.84% of Fufeitong's equity, and the company's own operating subsidiary continues to pay Fufeitong for payment-related services (RMB811.0 million in 2025 alone, per the related-party transaction note). The company retains a right to demand repayment and use the proceeds to acquire Ningbo Hexin's limited-partnership interests directly, but has not exercised it. A related-party financing structure this large and this long-lived, funding two executives' personal ownership of a vendor the company both pays and structurally depends on, is not a one-time footnote anymore - it's a standing feature of how PDD manages a strategic vendor relationship.
The company's own auditor of record moved from mainland China to Hong Kong
PDD's FY2024 financial statements were audited by Ernst & Young Hua Ming LLP, a mainland-China-registered EY affiliate based in Shanghai that had served as the company's auditor since 2018. This year's opinion is instead signed by "Ernst & Young" out of Hong Kong, which states it has served as the company's auditor since 2025. Mainland-China-based auditors have historically been the center of the U.S.-China dispute over PCAOB inspection access under the Holding Foreign Companies Accountable Act - a mainland auditor of record carries real, if currently dormant, ADS-delisting risk if that inspection-access arrangement ever breaks down again. Moving the audit engagement to a Hong Kong-registered EY entity, a jurisdiction where PCAOB inspection access has been restored since 2022, plausibly reduces that specific risk - but any change of auditor of record for a company built on a VIE» structure this complex deserves a beat of scrutiny on its own terms, independent of the delisting-risk angle.
The VIE's share of consolidated revenue has fallen from 45.7% to 13.1% in two years
Hangzhou Weimi, the consolidated Variable Interest Entity» (VIE) through which PDD conducts part of its Chinese-mainland business, contributed 45.7% of consolidated revenue in 2023, 22.5% in 2024, and just 13.1% in 2025. That's a structural shift worth noting on its own: a smaller and smaller share of PDD's actual revenue now flows through the contractual-control arrangement that has always been the weakest link in a China-based ADR's ownership structure (PDD Holdings itself has no direct equity ownership of the VIE - only contractual rights to its economics). The trend likely reflects both Temu's growth (structured outside the VIE) and reorganization of some Pinduoduo-side revenue into directly-owned subsidiaries, but the filing doesn't spell out the mechanism explicitly.
Tencent remains a paid-for dependency, not just a shareholder
Tencent Group - a company shareholder - was paid RMB6,476.2 million ($926.1 million) for services received in 2025, down modestly from RMB6,772.2 million in 2024 but still one of PDD's largest disclosed related-party cost lines. The filing doesn't specify which services these payments cover in the related-party note itself, though the broader disclosure elsewhere in the filing points to Tencent's Weixin/QQ ecosystem, which PDD's own risk factors describe the business as relying on. A shareholder that is simultaneously a paid vendor for a service the company describes as important to its operations is a standard, disclosed arrangement here - not hidden - but it's worth tracking whether that dependency and the payment size move together over time.
A critical audit matter on how consumer incentives get classified
The auditor flagged, as its sole critical audit matter this year, the judgment involved in classifying consumer incentives (coupons and subsidies not specific to any merchant) as either a reduction of revenue or as sales and marketing expense - specifically whether PDD's incentive programs create an "implicit obligation" to consumers on behalf of merchants. This is a real accounting judgment call with a real income-statement effect (netting an incentive against revenue shrinks both revenue and expenses versus gross-presenting it as an S&M cost, without changing net income), and the auditor's own language ("complex due to judgement involved") signals this isn't a mechanical classification - it's one area where PDD's own management discretion directly shapes the growth and margin narrative investors read off the income statement.
PDD sits on roughly RMB496 billion of cash-like assets against a nearly debt-free balance sheet
Cash and cash equivalents (RMB108,900.6 million), restricted cash (RMB73,830.8 million), and short-term investments (RMB313,407.7 million) together total roughly RMB496.1 billion ($71.0 billion) - more than double the company's RMB216,659.2 million of total liabilities, essentially none of which is interest-bearing debt after this year's full repayment of the last convertible bonds. That's an unusually conservative balance sheet for a company navigating an active external shock to one of its two platforms, and it's the buffer referenced in The Prescription above.
Target Valuation Range
PDD's own multiples held roughly flat through a year its earnings fell - EV/Revenue moved from ~2.84x to ~2.86x while P/E rose from ~8.8x to ~11.5x - implying the market is pricing this year's margin compression as temporary tariff friction, not a structural break. On that read, the stock looks fairly valued to modestly undervalued against its own two-year trading history, with the de minimis shock's full-year impact (2026) as the real test still ahead.
PDD's ADS closed fiscal year 2025 at $113.39 on December 31, 2025 (the quarter's period-end close, sourced from the same data provider this project uses for every post's price series - not the company's own filing). PDD has not split its Nasdaq-listed stock since its 2018 IPO, so this is the actual nominal price quoted at the time. Over the trailing two years, the ADS ranged from a low of $96.11 (August 2024) to a high of $149.78 (May 2024) - a roughly 36% peak-to-trough swing within 2024 alone, followed by a calmer but still meaningful 2025 range of $96.51 (May) to $134.87 (October), a roughly 40% low-to-high move. The stock closed 2025 near the middle of that year's range, well below both 2024's peak and 2025's own October high - consistent with a market that priced in the de minimis shock as it unfolded through the year rather than waiting for the FY2025 numbers to confirm it.
| Market cap → enterprise value | FY2024 (period-end) | FY2025 (period-end) |
|---|---|---|
| Share price (period-end, per ADS) | $96.99 | $113.39 |
| ADS outstanding (ordinary shares ÷ 4) | ~1,392.1 million | ~1,423.4 million |
| Market capitalization | ~$135.0 billion (~RMB985.6 billion) | ~$161.4 billion (~RMB1,128.7 billion) |
| Plus: total liabilities | ~$26.3 billion (RMB191.7 billion) | ~$31.0 billion (RMB216.7 billion) |
| Less: cash and cash equivalents | ~$7.9 billion (RMB57.8 billion) | ~$15.6 billion (RMB108.9 billion) |
| Enterprise value | ~$153.4 billion (~RMB1,119.5 billion) | ~$176.8 billion (~RMB1,236.4 billion) |
Each ADS represents four Class A ordinary shares, per the filing's own definition - the ADS count above divides the balance sheet's disclosed ordinary-share count by four. "Less: cash and cash equivalents" uses the narrowest cash line only; PDD separately holds RMB73.8 billion of restricted cash and RMB313.4 billion of short-term investments not netted into this EV (see Beyond the Usual) - a fuller netting would push enterprise value meaningfully lower still.
| Peer-multiple sanity check | FY2024 | FY2025 | Change |
|---|---|---|---|
| Revenue | RMB393,836.1M ($53,955.3M) | RMB431,845.7M ($61,753.1M) | ✅ up 9.6% |
| Enterprise value | ~RMB1,119.5B | ~RMB1,236.4B | up ~10.4% |
| EV/Revenue» | ~2.84x | ~2.86x | ~flat |
| Net income | RMB112,434.5M | RMB97,842.5M | ⚠️ down 13.0% |
| P/E» (market cap ÷ net income) | ~8.77x | ~11.54x | ⚠️ up ~32% |
| Free cash flow | RMB120,962.2M | RMB105,793.6M | ⚠️ down 12.5% |
| EV/FCF | ~9.25x | ~11.69x | ⚠️ up ~26% |
The EV/Revenue multiple barely moved despite the growth deceleration - the market isn't pricing PDD meaningfully cheaper per dollar of revenue than it did a year ago. What did move is P/E and EV/FCF, both up roughly a quarter to a third, purely because the denominator (earnings, free cash flow) shrank while the numerator (market cap, enterprise value) grew. That combination - flat revenue multiple, rising earnings multiple - is the market's way of saying it believes the earnings hit is temporary rather than the start of a structural decline; if 2026's full-year de minimis impact proves worse than 2025's partial-year hit, that P/E expansion would look premature in hindsight.
For a directional cross-check: Meituan, the other major China consumer-platform business this project covers, closed 2025 at roughly HK$102.80 per share against an estimated ~6,130 million shares outstanding (per the methodology in that post) - a market cap in the same order of magnitude as PDD's, though Meituan's most recently reported quarter (Q1 2026) was a net loss, making a same-period EV/Revenue comparison unreliable rather than a real sanity check; both companies are absorbing intensified domestic and, in PDD's case, international cost pressure at the same time, which is the more useful takeaway than a precise multiple match.
DCF (base/bull/bear, illustrative only): A full multi-year DCF isn't warranted here - PDD just posted its first year of cost growth outrunning revenue growth in this coverage's history, and 2026 will be the first full year under the post-de-minimis cost structure, making any multi-year cash flow projection built on 2025's numbers a guess dressed up as precision. Instead, each scenario below applies a stated EV/Revenue multiple to FY2025's actual revenue ($61,753.1 million) and backs out an implied market cap and price the same way the market-cap buildup table above does (implied EV, less total liabilities of $31.0 billion, plus cash of $15.6 billion, over ~1,423.4 million ADS outstanding):
| Scenario | Key assumption | Multiple | Implied EV | Implied price |
|---|---|---|---|---|
| Current (FY2025 close) | actual market price, for reference | ~2.86x FY2025 revenue | ~$176.6 billion | $113.39 |
| Bear | The de minimis shock's full-year impact in 2026 compresses margins further rather than stabilizing, Temu's US growth stalls outright, and the multiple compresses toward Meituan's more distressed 2026 pricing | ~2.0x FY2025 revenue | ~$123.5 billion | ~$75.94 |
| Base | Cost of revenue growth moderates back toward the low-to-mid teens as the platform finishes absorbing the tariff transition, revenue growth stabilizes in the high single digits to low teens, and the multiple holds roughly flat | ~2.86x (unchanged) | ~$176.6 billion | ~$113.25 |
| Bull | Temu successfully shifts toward local-fulfillment/semi-managed models that reduce the de minimis dependency (already underway, per the cost-of-revenue trend above), margins stabilize by mid-2026, and the market re-rates back toward a more typical large-cap-platform multiple | ~3.5x FY2025 revenue | ~$216.1 billion | ~$141.02 |
These multiples are illustrative judgment calls, not a multi-year DCF output - the point is showing what a bear/base/bull re-rating of today's actual revenue would imply in price, not forecasting future revenue this filing doesn't support yet.
Reverse DCF: At the current $176.8 billion enterprise value, PDD trades at roughly 11.7x FY2025 free cash flow ($15,128.3 million) - up from ~9.3x a year ago purely because free cash flow itself fell 12.5%, not because the market is paying more for each dollar of cash generation on a like-for-like basis. An 11.7x FCF multiple for a company that just posted its first year of margin compression in this coverage's history is not an aggressive number on its face, but it does assume free cash flow stabilizes rather than falls further in 2026 - a real open question given this year only carried a partial-year de minimis impact and the company has stopped disclosing the operational metrics (GMV, active buyers) that would let an outside reader independently judge whether the underlying demand story is intact.
PDD Holdings Inc.'s Form 20-F annual report for the fiscal year ended December 31, 2025, its fifth as a U.S.-listed public company, filed with the U.S. Securities and Exchange Commission. Share-price figures are sourced from this project's standard market-data pipeline, not the company's own filing.