Cost controls by Temu parent PDD Holdings fuel big Q2 profit beat

PDD Holdings, parent company of Temu, is known for offering low-cost consumer goods.

And its financial success in the second quarter came from applying that low-cost philosophy within the company.

While revenues of nearly 104 billion yuan ($14.5 billion) modestly exceeded expectations, adjusted diluted earnings per share of 22.07 yuan ($3.08) crushed estimates for 15.50 yuan. ADRs for the e-commerce company shot up as much as 11.6% in premarket trading but have given up all those gains to be down 2% as of 8:55 a.m. ET.

During the conference call, co-CEO Jiazhen Zhao warned that this was more of a bumper quarter for the bottom line.

“We do not believe this quarter’s profit levels are sustainable,” he warned, with other executives citing positive e-commerce seasonality as also juicing these results.

Over the course of the quarter, PDD Holdings had to grapple with the end of the “de minimis” exemption that allowed inexpensive shipments to come into the US duty-free.

“PDD’s 2Q non-GAAP operating profit beat expectations for the first time in four quarters, aided by lower-than-expected marketing expenses,” Bloomberg Intelligence senior industry analyst Catherine Lim wrote. “While margins are unlikely to return to prior highs, early signs suggest profitability may prove more resilient even as the company sustains investment and prioritizes long-term growth over short-term gains.”