PDD Holdings Inc - ADR

Solid topline/operating momentum; margins supported but net income down YoY (mixed picture) - Revenue: RMB 106.2bn in 1Q26, +11% YoY; driven mainly by transaction services. - Segment mix: Transaction services revenue RMB 56.3bn (+20% YoY); online marketing RMB 49.9bn (they mention “+” vs 48.7bn in 1Q25, i.e., modest growth). - Profitability (GAAP vs non-GAAP): GAAP operating profit RMB 19.6bn (+22% YoY); non-GAAP operating profit RMB 21.1bn with 20% margin (vs 19% in 1Q25). - Negative/earnings quality: Net income attributable to ordinary shareholders was RMB 12.5bn vs RMB 14.7bn in 1Q25 (down YoY). Non-GAAP net income also declined (RMB 14.1bn vs RMB 16.9bn), and non-GAAP diluted EPS fell (RMB 9.51 vs RMB 11.4). - Cash strength: Operating cash flow RMB 16.4bn (vs RMB 15.5bn). Cash/cash equivalents/short-term investments RMB 436.1bn as of 3/31/26.

Strategic theme: “Rebuild in the supply chain” + launch/scale first-party brand (major opportunity) - Management framed 2026 as the start of PDD’s second decade and a push for high-quality development and organizational/cultural reinvention focused on safety, compliance, and social responsibility. - Dedicated company in Chang’an was incorporated in March: formal launch of the first-party brand business with initial cash injection of RMB 15bn and a plan to invest RMB 100bn over the next few years. - The message: first-party brands are intended to move beyond homogeneous competition, enable SME manufacturers to brand/innovate, and create a virtuous cycle of better quality standards + compliance + consumer value.

Where investments are going (and expected financial timing)—but no clear quantified guidance - Management described first-party brand capabilities as spanning product design, standards setting, manufacturing/quality control, warehousing & fulfillment, legal compliance, customer service, etc. - They positioned the RMB 100bn plan as long-term “patient capital”; they did not provide a specific timeline for when the investment will show up in financials beyond “over the next few years.” - Expected mechanism for growth: by internalizing/absorbing some innovation risk and providing sales-volume certainty to factories, PDD hopes to improve supply-chain efficiency and enable differentiated products (which should ultimately support higher-value economics vs relying on marketing alone).