Temu’s Parent Company PDD Holdings Faces Costly Battle Against Alibaba in E-Commerce War
Shanghai, August 25, 2025 – PDD Holdings, the parent company of the fast-growing e-commerce platform Temu and China’s Pinduoduo, is locked in a fierce competition with industry giants Alibaba and JD.com, a struggle that is proving financially burdensome. According to recent reports, PDD’s aggressive spending to maintain market share has led to a significant profit slump, with the company warning that current profit levels are unsustainable as it prioritizes long-term growth over short-term gains. This development has sparked concerns among investors, with PDD’s stock experiencing volatility, including a $50 billion market value drop in a single day on August 26, 2024.
Financial Strain Amid Competitive Pressure
PDD Holdings reported its fiscal second-quarter 2025 results on August 25, 2025, revealing a 7% year-on-year revenue increase to $14.52 billion (103.98 billion Chinese yuan), surpassing analyst expectations of $14.35 billion. However, this growth came at a steep cost. The company’s adjusted operating profit fell 20.7% to $3.87 billion, with the adjusted operating margin dropping from 36.0% to 26.7%. Net income declined 4% to $4.29 billion, and adjusted earnings per ADS of $3.08 (22.07 Chinese yuan) missed the consensus estimate of $2.16, reflecting the heavy financial toll of its competitive strategies. Total costs of revenues surged 36% to $6.40 billion, driven by increased fulfillment fees, bandwidth, server costs, and payment processing fees.
PDD’s chairman and co-CEO, Lei Chen, emphasized the company’s commitment to long-term value creation, stating, “As weSNS we ramp our investments, profitability will inevitably fluctuate.” The company’s strategic spending on merchant support initiatives, aimed at strengthening its ecosystem, has significantly impacted profitability, with operating expenses rising 5% to $4.51 billion. Despite these challenges, PDD’s stock rose 3.37% to $131.39 on August 25, 2025, as investors appeared cautiously optimistic about the company’s revenue performance.
Alibaba’s Competitive Edge
Alibaba, a dominant force in Chinese e-commerce, has been aggressively investing in merchant retention and pricing strategies, contributing to PDD’s challenges. Alibaba’s stock has surged 48.3% in 2025, compared to PDD’s 33.6%, reflecting stronger market confidence. Alibaba’s outperformance, particularly in Q4 2024, indicated a market share gain over PDD, with analysts noting Alibaba’s strength in merchant retention and overlapping product categories. JD.com, another key competitor, reported better-than-expected revenues, leveraging government subsidies for electronics and appliances, areas where PDD has less dominance.
Temu’s Global Ambitions and Regulatory Hurdles
Temu, PDD’s international platform, has gained significant traction in markets like the US and Europe due to its low-cost model, facilitated by the US de minimis trade exemption, which allows packages under $800 to avoid tariffs. However, recent regulatory changes, including a temporary suspension of this exemption by the Trump administration, have created uncertainty. Despite a 90-day de-escalation, the number of de minimis shipments from China rose 12% in January 2025, but PDD’s co-CEO Chen Lei acknowledged the “accelerating changes in the external environment” and “fierce competition” as ongoing challenges. PDD is exploring new business models and localized supply chain solutions to mitigate these pressures.
Impact on Profitability
PDD’s heavy investments in merchant support and promotional activities, coupled with intensified competition, have led to significant profit declines. In Q1 2025, PDD’s net profit plummeted 47% to 14.74 billion yuan ($2.05 billion), driven by weak domestic consumption, global trade uncertainties, and strategic spending. Analysts attribute this to a combination of US tariffs, intense local competition, and a prolonged property crisis in China affecting consumer spending. Despite these challenges, PDD’s focus on long-term ecosystem health aims to ensure sustainable growth, though short-term profitability remains under pressure.
Lessons for Indian Businesses
For Indian e-commerce companies like Flipkart and Amazon India, PDD’s costly fight with Alibaba offers critical insights:
- Balancing Growth and Profitability: Aggressive spending to capture market share can erode profits, as seen with PDD’s margin decline. Indian firms must carefully manage promotional budgets to maintain financial health.
- Merchant Ecosystem Investment: PDD’s focus on merchant support highlights the importance of building a robust seller network. Indian platforms can strengthen seller relationships through training, subsidies, and streamlined logistics.
- Regulatory Awareness: Temu’s reliance on trade exemptions underscores the impact of regulatory changes. Indian companies must stay agile in navigating GST and import regulations to avoid disruptions.
- Competitive Differentiation: Alibaba’s success in merchant retention suggests Indian firms should invest in unique value propositions, such as faster delivery or exclusive products, to stand out in a crowded market.
Outlook
PDD Holdings faces a challenging road ahead as it battles Alibaba and JD.com while navigating global trade uncertainties. The company’s focus on long-term growth through merchant support and innovation may yield future dividends, but the current financial strain highlights the high cost of staying competitive. For Indian e-commerce players, this serves as a cautionary tale about balancing aggressive expansion with sustainable profitability in a rapidly evolving market.
Sources: Morningstar, Yahoo Finance, Inside Retail Asia, Reuters, August 2025