Why is Wall Street souring on PDD stock just before earnings?

PDD Holdings heads into second-quarter earnings on Monday with Wall Street cautious about how quickly revenue growth can translate into stronger profits.

Analysts expect roughly $17.1 billion in revenue and adjusted earnings of about $2.75 per ADS. PDD shares closed Friday at $88.38, down 1.3%, after post-Q1 price-target cuts.

The shift is not outright bearishness. Temu is expanding internationally and PDD remains one of China’s largest e-commerce platforms.

The concern is that heavy investment and weak Chinese consumption have made near-term earnings difficult to forecast.

PDD still has growth, but earnings visibility has weakened

First-quarter revenue rose 11% year over year to 106.2 billion yuan, but adjusted net income fell 17% to 14.1 billion yuan.

Sales and marketing expenses reached 33.8 billion yuan, roughly 32% of revenue, as PDD continued investing across domestic and overseas markets.

That disconnect is now central to Monday’s report.

Macquarie analyst Ellie Jiang downgraded PDD to Neutral after the quarter and cut her target to $87 from $151.

According to StreetInsider, Jiang said the firm “struggle[s] to find tangible evidence to support a sustainable near-term earnings recovery.”

Macquarie cited lacklustre consumption, aggressive e-commerce competition and continued spending on supply chains and international expansion. It noted that sales and marketing costs had risen to 32% of revenue from 29% in 2025.

The issue is not whether PDD looks cheap. Investors are struggling to determine what level of sustainable earnings should underpin that valuation.

Weak Chinese spending makes Temu even more important

PDD also enters earnings with its home market under pressure.

Daiwa downgraded the stock to Hold in June and cut its target to $80 from $145 after China’s 6.18 shopping festival “delivered a negative surprise.”

Overall festival gross merchandise value rose just 0.9% year over year, compared with 15% growth in 2025. Daiwa described Chinese e-commerce consumption as “weak” and the macro backdrop as “tough.”

That makes Temu’s international expansion important.

Temu can offset slower domestic growth, but building overseas scale requires spending on customer acquisition, logistics, merchant incentives and localisation.

The question is whether the economics of that growth are improving quickly enough to stop international expansion from consuming an outsized share of group profits.

Earnings must show whether spending can pay off

Not every analyst sees PDD’s higher investment as structural deterioration.

Citi analyst Alicia Yap retained a Buy rating after the first quarter, although she cut her target to $123 from $142.

According to TipRanks, Citi attributed the revenue disappointment partly to merchant subsidies and stepped-up investment in supply chains and first-party brands.

The bank supports that strategy, arguing successful execution could improve product quality for Chinese shoppers and Temu customers overseas.

That captures the debate heading into earnings.

PDD must show how much it is spending to generate growth and when that spending can begin producing a stronger earnings payoff.

Investors should focus on revenue growth, adjusted margins, sales and marketing expenses, Temu commentary, domestic monetisation and management’s investment outlook.