In-depth Analysis of the Impact of Temu's Business Model Transformation on Pinduoduo (PDD) Valuation

Based on analysis of the latest market data and business developments, Temu’s shift from full fulfillment to semi-fulfillment mode has a

impact on Pinduoduo’s valuation. This strategic transformation is expected to enhance profitability, but in the short term, it faces challenges of rising regulatory costs and slowing growth.

Pinduoduo’s current share price is $110.38, down 23.27% from the year’s high, but still up 13.92% year-to-date [0]. The company’s current market capitalization is $154.45 billion, with a P/E ratio of only 11.32x, significantly lower than industry peers [0]. This valuation discount mainly reflects market concerns about the profit path of Temu’s business and uncertainties in the regulatory environment.

The core advantages of the semi-fulfillment mode lie in

and :

• Cost Structure Optimization
  : Under the semi-fulfillment mode, Temu delegates some warehousing, logistics, and customer service functions to local merchants, significantly reducing the platform’s operating costs
• Narrowing Loss Trend
  : Goldman Sachs expects Temu’s EBIT to reach RMB 17 billion and RMB 24 billion in 2026 and 2027 respectively. Although lower than previous expectations, this establishes a clear profit inflection point [2]
• Improved Unit Economics
  : Q3 data shows that Temu’s unit economics and GMV profit margins are improving [2]

The US business accounts for 70% of Temu’s total volume, which is both an opportunity and a challenge:

• Scale Effect
  : The US market is highly mature with strong consumer purchasing power, providing a solid foundation for profitability
• Q4 Break-even Expectation
  : Management expects the US business to break even in Q4 2025 [2]

• High Policy Dependency
  : The US cancellation of the duty-free policy for packages under $800 directly impacts Temu’s cost structure [3]
• Concentrated Regulatory Risks
  : French consumer regulators named Temu for selling non-compliant products, indicating rising compliance costs [3]

Temu’s growth is increasingly diversified, with Europe emerging as a key driver of the international business segment [1]:

• Strong Growth in European Market
  : Citi notes that Temu maintains strong momentum in Europe, effectively reducing reliance on a single market
• Local Seller Program
  : Temu launched the Local Seller Program, covering over 30 markets including the US, Canada, UK, Germany, etc. [4]
• Shopify Integration
  : The latest launch of the Shopify merchant app further expands the merchant base and product diversity [4]

Q3 operating profit ended several quarters of year-over-year decline, achieving a 1% positive growth, mainly due to a low comparison base and stable sales and marketing expenses [2]. Under non-GAAP, net profit increased by 14% year-over-year to RMB 31.4 billion, exceeding market expectations.

Morgan Stanley expects non-GAAP operating profit to rise by 15% year-over-year to RMB 124 billion in 2026, with operating margin increasing from 23.6% in 2025 to 25.8%, and net profit margin improving from 25.1% to 25.9% [2].

Goldman Sachs uses the segment valuation method:

• Domestic core business:12x P/E ratio
• Duoduo Maicai:12x P/E ratio
• Temu (excluding US full fulfillment):25x P/E ratio [2]

This valuation method reflects the market’s higher growth expectations for overseas business.

DCF analysis shows that even in a conservative scenario, PDD’s fair value is $762.07, representing a 590.4% upside potential from the current share price [0]. This indicates that the current share price may have over-reflected pessimistic expectations.

Compared to Amazon’s 45.2x P/E ratio, Pinduoduo’s 11.32x P/E ratio appears overly conservative, especially considering its higher net profit margin (24.43%) and ROE (29.30%) [0].

• Tariff Policy
  : US cancellation of small-value exemptions and EU plans to tax low-cost packages directly increase operating costs [3]
• Compliance Costs
  : To address regulatory challenges, Temu has made significant investments in trust, safety, and product compliance [2]

China’s consumer market faces challenges such as a sluggish housing market and unstable employment. The three major e-commerce platforms are fully subsidizing to compete for market share, but overall sales have not returned to the high-growth levels of the past [3].

###3.

Subsidy wars are fierce; analysts point out that Temu’s costs have increased significantly to assist merchants and supply chain adjustments, causing Pinduoduo’s operating margin to drop to a three-year low in recent quarters [3].

Considering rising regulatory costs and slowing growth, the share price may continue to face pressure in the short term, but the downside space is limited.

Maintain a positive view based on the following factors:

1. Profit Inflection Point Established
   : Temu’s business losses continue to narrow; profit inflection point is established in 2026-2027 [2]
2. Large Room for Valuation Recovery
   : Current valuation over-reflects pessimistic expectations
3. Successful Strategic Transformation
   : Semi-fulfillment mode is expected to significantly enhance profitability

Based on the analysts’ consensus target price of $140.50, there is a 27.3% upside potential from the current share price [0]. Considering the results of the segment valuation method and DCF analysis, a more reasonable valuation range is believed to be $150-$180.

Temu’s strategic shift from full fulfillment to semi-fulfillment mode is

. Although facing short-term challenges of rising regulatory costs and slowing growth, this mode is expected to significantly enhance long-term profitability. The 70% US business share is both a risk and an opportunity; the key lies in whether the expected break-even can be achieved in Q4.

The current share price reflects overly pessimistic market expectations; as the profit inflection point is established and valuation is rationalized, Pinduoduo’s stock has significant upside potential. Investors should pay attention to the profit progress of Temu’s US business, the execution effect of the global diversification strategy, and the evolution of the regulatory environment.

— References:

[0] Jinling API Data - PDD Real-time Quotes, Company Overview, Financial Analysis and DCF Valuation
[1] Investing.com - “Benchmark Maintains Buy Rating on Pinduoduo Stock; Temu’s European Business Grows Strongly” (2025-11-19)
[2] Sina Finance - “Wall Street Reacts to Pinduoduo’s Q3 Earnings: Operating Profit Returns to Growth Due to Low Base” (2025-11-19)
[3] Cnyes.com - “<Earnings Report> Temu Besieged! Pinduoduo’s Q3 Revenue Only Grows 9%” (2025-11-18)
[4] PR Newswire - “Temu Expands Marketplace Access for Small Businesses with New App for Shopify Merchants” (2025-12-15)