--- title: "No spin, no hype: How healthy is PDD with growth down to 2.5%?" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/41264684.md" description: "This week, $PDD(PDD.US) posted disappointing results, sending the stock down nearly 15%. For a detailed take, see 'PDD: Old and Arrogant, Now Universally Disliked'. The most glaring issue: ad revenue grew just 2.5% YoY. Despite sector-wide improvement vs. Q4 last year, PDD's ad growth declined QoQ, making it the laggard among e-commerce peers..." datetime: "2026-05-29T13:05:30.000Z" locales: - [en](https://longbridge.com/en/topics/41264684.md) - [zh-CN](https://longbridge.com/zh-CN/topics/41264684.md) - [zh-HK](https://longbridge.com/zh-HK/topics/41264684.md) author: "[Dolphin Research](https://longbridge.com/en/news/dolphin.md)" --- # No spin, no hype: How healthy is PDD with growth down to 2.5%? After $PDD(PDD.US) posted a weak print this week, the stock fell nearly 15%. For details, cf. '[**拼多多： 又老又 ‘傲慢’，彻底人人嫌**](https://longbridge.com/zh-CN/topics/41178256)'. The most glaring issue: ad revenue grew just 2.5%, bucking the sector’s QoQ recovery and making PDD look like the laggard among e-com peers. What explains the sharp deterioration in ad growth? The market is debating two angles: **a. The new ‘Smart Coupon’ model treats part of subsidies distributed to consumers as a contra-revenue, not a marketing expense.** This mechanically depresses reported ad growth. **b. Normalization of tax collection on e-com merchants hurts profitability and ad spending capacity for SMEs.** As a platform with the highest SME mix, PDD is hit the most. We already addressed point b in our review. Here we take a deeper look at point a. **1) ‘Smart Coupons’ — netted against revenue?** This is the crux of the accounting. First question: does the ‘Smart Coupon’ mechanism reduce reported revenue by netting part of ad income? **Based on Dolphin Research’s work, yes.** **Evidence 1:** PDD revised how it accounts for consumer incentives/subsidies in its annual report. The two excerpts below show the definitions in 2022 vs. 2025 (focus on the underlined parts). The key differences between the two definitions are as follows. They are material to revenue recognition. **a. In 2022, there were no explicit cases where merchants mandated PDD to distribute coupons to consumers on their behalf.** But the company could determine whether certain incentives were implicitly on behalf of merchants; if so, these coupons were recorded as a reduction of revenue instead of marketing expense. **b. In 2025,** beyond the above implicit cases, PDD added that, under an explicit contractual obligation, it may distribute coupons to consumers on behalf of merchants. In that case, these coupons are also recorded as a contra-revenue rather than a marketing expense. **Evidence 2:** The above ‘explicit contractual obligation’ likely refers to ‘Smart Coupons’, in our view. This links the policy change to a specific ad tool. Briefly on how ‘Smart Coupons’ work: they sit within PDD’s ‘site-wide promotion’ ad tool. For example, when a merchant activates the tool and sets an ROI target or a budget, the system may convert part of that ad budget into consumer coupons and push them directly to the merchant’s shoppers, rather than only buying placements like banners or higher search ranks. In short, it shifts how merchants spend to acquire traffic and users. Instead of paying directly for ad inventory and traffic, they lower buyers’ effective prices to boost value-for-money and attract demand. **Because ‘Smart Coupons’ require merchants to opt in via the ad tool and are carved out of the merchant’s ad budget, they constitute an explicit obligation.** They can therefore be treated as a reduction of ad revenue. 2) **‘Smart Coupons’ — how big is the impact? Is PDD’s print truly poor?** Having established that ‘Smart Coupons’ are one reason reported revenue is lower, the next question is the magnitude. Is it the primary driver of the revenue miss, or a secondary factor? **The simple answer: we cannot size it precisely, and we do not need to.** Whether consumer subsidies are booked as contra-revenue or as marketing expense is largely a reporting choice that does not change underlying profitability. For instance, if the platform converts RMB 2bn of ad revenue into consumer subsidies, and its own cash marketing spend falls from RMB 10bn to RMB 8bn, the economics are unchanged. There is no real impact on platform profitability. But if RMB 2bn is converted while cash marketing still stays at RMB 10bn, the platform is conceding more of its own profit to sustain user appeal. That would reflect weaker competitive position. In this quarter, PDD’s reality is the latter — ad growth slowed to 2.5% while marketing expense reached RMB 33.8bn, higher than last year’s state-subsidy peak. Even after converting part of ad revenue into subsidies, the platform’s own marketing outlay did not meaningfully decline. The chart below shows Q1, typically a soft spend quarter, came in roughly on par with Q4, the peak spend season. Similarly, by our estimates, the main site’s OP did not improve much vs. last year’s trough. This could be explained by Temu’s drag. But we cannot cleanly split Temu vs. the main site, and the market base case is Temu nearing breakeven. Either the main site’s profit did not improve, or Temu’s loss-narrowing lagged expectations. Either way, it is not good news. Therefore, while ‘Smart Coupons’ did depress reported ad revenue and the true growth may be better than 2.5%, it does not change the assessment that this quarter was weak. The quality of earnings disappoints. **3) How to view PDD now?** We extend the above logic to valuation and positioning. Ultimately, two metrics matter most when judging performance: 1) GMV growth and 2) profit growth. Whether the spend is booked as contra-revenue or marketing does not fundamentally change this. On profit growth, this quarter was unequivocally weak. On GMV, is growth good or bad? There is no precise answer, but note Taotian’s move to reclassify part of marketing as contra-revenue saw CMR growth trail the nominal rate by ~7ppt; if we borrow that gap, PDD’s true ad growth might be around 10%, implying GMV at 10%+ — a rough proxy with little hard backing. Some argue actual growth is ~18%, others say high single digits. Without credible third-party data, such guesses are mostly noise. Unless we have enough evidence (e.g., reliable GMV data, or a clear split of main-site profit), it is better to lean on disclosed profit growth. That is verifiable and decision-useful. To be clear, Dolphin Research is not bearish on PDD at the current price. We just see no need to ‘explain away’ a weak quarter; weak is weak, even if management intentionally suppressed monetization and profit for future release. **Conversely, PDD now trades at roughly 6x PE on main-site profit, with no valuation premium vs. e-com peers.** It also sits on over RMB 500bn in cash and investments, vs. a market cap of roughly RMB 800bn. **PDD does not need Alibaba- or Tencent-level capex for AI or food delivery.** Apart from spending some ‘small money’ on ‘New Pimu’, the bulk of its ~RMB 100bn annual earnings can convert to cash inflows. **In other words, in 2–3 years PDD’s cash could exceed its current market cap.** While we would not add cash one-for-one to valuation without shareholder returns, as a margin-of-safety lens the stock is unlikely to trade below net cash; if it does, that would be a giveaway. **Thus, dumping PDD at today’s valuation runs counter to value investing.** This looks more like a ‘be greedy when others are fearful’ moment, with high conviction. **That said, near term the main site is soft, Temu has yet to print real profits, and ‘New Pimu’ will consume some capital and management bandwidth.** A valuation recovery may not be quick. **Capital is finite and choices abound.** PDD may not be a must-own right now. ### Related Stocks - [09988.HK](https://longbridge.com/en/quote/09988.HK.md) - [PDD.US](https://longbridge.com/en/quote/PDD.US.md) - [89988.HK](https://longbridge.com/en/quote/89988.HK.md) - [BABA.US](https://longbridge.com/en/quote/BABA.US.md) - [KBAB.US](https://longbridge.com/en/quote/KBAB.US.md) - [BABO.US](https://longbridge.com/en/quote/BABO.US.md) - [BABX.US](https://longbridge.com/en/quote/BABX.US.md) - [HBBD.SG](https://longbridge.com/en/quote/HBBD.SG.md) ## Comments (4) - **AAA汉火资本 · 2026-05-29T14:23:29.000Z**: Q2 won't be any better either, the earliest we can look at is Q3. - **快乐的李大师 · 2026-05-29T14:18:58.000Z**: I think Pinduoduo is still very easy to analyze. 1. The current valuation is absolutely low, obviously low, even if the profit is only 50 billion, it's still cheap. 2. The management has been doing solid work in the retail sector. Expanding overseas, building the supply chain, launching its own bran - **^ 發財^ · 2026-05-29T14:06:08.000Z**: Wait for it to take off - **回本之路任重道远 · 2026-05-29T13:22:40.000Z**: The current 2.5% growth, negative growth next quarter, will make next year look good