Q1 2025 Earnings Report: Pinduoduo is testing shareholders again

Friends who have been tracking Pinduoduo's stock for a long time are familiar with this: due to lack of transparency, Pinduoduo's stock price often experiences significant volatility after earnings reports.

There are basically two scenarios: either the performance far exceeds expectations, leading to a sharp rise in the stock price, or it falls short of expectations, resulting in a steep decline. It's almost routine for the stock to close up or down by more than 10% on earnings day.

However, there was a period when Pinduoduo consistently outperformed expectations for several quarters in a row, which made the market somewhat eerie. There were even instances where the stock surged pre-market, only to turn downward at the open and close flat. Relying on earnings day volatility for profits is ultimately unsustainable.

Today's earnings report marks the return of the Pinduoduo we know.

The performance fell far short of expectations, with both revenue and profits missing estimates. The revenue situation was still acceptable, showing a 10% year-over-year growth. However, profits plummeted to 14.7 billion yuan, a 47% year-over-year decline—almost halved.

Before the earnings report, the general consensus among institutions and retail investors was that Pinduoduo's quarterly profits would be anchored around 30 billion yuan.

This brings to mind Chen Lei's warning during last year's Q2 earnings call: "Profits in the coming quarters may fluctuate or rebound, but the long-term trend of declining profits for Pinduoduo is inevitable."

At the time, it sounded harsh, but now it seems almost comforting.

So where did the profits go?

Management provided three reasons during the earnings call: first, intensified domestic competition, where Pinduoduo lacks an advantage in subsidies compared to rivals and has to subsidize users out of its own pocket; second, drastic changes in the external environment, including damage from Trump's policies; and third, rebating profits to merchants through the "100 Billion Subsidies" program.

Trump's actions in April should have had limited impact on Q1 earnings.

In short, Pinduoduo distributed its profits to merchants and subsidized users.

A quarterly 10 billion yuan was spent effortlessly—earning and spending money is as natural as breathing.

As a shareholder, while I shed tears of understanding, I can accept Pinduoduo redistributing its profits.

Giving profits to users and merchants is better than investing in unreliable ventures.

It's all for the sake of being healthier and more sustainable.

A company should strive to create as much value as possible, aiming to maximize cash flow over its entire lifecycle.

Not by making this year's profits at the expense of future years, draining the pond to catch all the fish, leading to a "collapse in two generations" where shareholders get nothing.

In such cases, shareholders might not even get anything, as the CEO could already have absconded with the money.

Personally, when Pinduoduo plunged 20% pre-market, I likely experienced my largest single-day loss in history.

When Pinduoduo dropped 30% in Q2 last year, my losses weren't as severe because I was only half-invested.

But now, after checking, the decline has narrowed to 15%, which is manageable.

I made a small buy when it dipped below 100, but I'm out of ammo now—just watching the show.

My mindset remained calm throughout, and I even enjoyed my McDonald's dinner with composure.

A 20% single-day drop is terrifying.

But no matter how scary, the company's fundamentals haven't changed—what's there to worry about?

Don't listen to what a company says; watch what it does.

Consumers first, merchants second, company third.

How many companies worldwide can claim this?

Testing shareholders with a stock price crash?

But I firmly believe that as long as the "consumers first" logic holds, aside from unavoidable macro risks, there's nothing to worry about.

$PDD(PDD.US)