TMTPOST -- PDD Holdings Inc., operator of low-cost e-commerce platforms   Pinduoduo in China   and Temu   internationally, on Monday cautioned   sustainability   of its profit   despite   earnings   beat for the   second quarter of the year.

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PDD ’ s   co-chief executive   Zhao   Jiazhen said investment in   increasing   and   targeted merchant support   initiatives   led   to revenue slowdown and profit   decline   over the past quarter, and the company expected to   further ramp   up such investment, thus   could   result   in   significant   fluctuation   of profit   levels   in the coming   quarters.  

"We remain steadfast in our commitment to supporting the vitality of the ecosystem, prioritizing long-term impact over short-term results,"Zhao said in a   statement   outling   the financial results for the second quarter.

Going forward, PDD   will continue to increase investment to create space for merchants' growth and foster a healthier platform ecosystem in the long term,Zhao told analysts at an earnings   call. "We do not believe this quarter's profit levels are sustainable and expect fluctuations in profits in future quarters," he continued.  

PDD ’ s Chairman and   co-CEO   Chen   Lei   also   stressed the potential   of   material   profit change. Looking ahead, as the external environment continues to evolve and competition intensifies, PDD   remains   committed to long-term value creation   over   short-term financial performance,   said Chen. Then Chen said as   his company   increases   investments, profitability will inevitably fluctuate, and results   for the second quarter   may not be indicative of future performance.

PDD   on Monday reported revenue   for the quarter ended June 30   rose 7.1% year-over-year   ( YoY )   to RMB103.98 billion ( $14.5   billion ) , roughly in line with   analysts   estimates.   The top line further slowed down   and delivered   the   slowest   growth rate since fourth quarter of 2021, compared with a 10%   YoY   increase   in revenue three months   earlier.   

PDD ’ s two segments saw continuing sales   slowdown   for the June   quarter despite deep discounts and Chinese government ’ s fiscal stimulus to boost consumption.

Revenue from   online marketing services and others climbed   13% YoY to RMB55.70   billion   after a 15% YoY gain for the previous quarter. Transaction services, the charges the company collected from merchants for transactions on its platform, hauled RMB48.28   billion with a 0.7% YoY increase, compared   with   a 7% YoY   rise   from January to March.   That   slightly YoY gain reflected   hit by the   Trump   administration ’ s new   tariffs and the end   of the de minimis provision   that allowed goods   worth less   than $800   to enter the U.S. duty-free--a tariff   exemption since 2016.  

However, PDD   posted   less-steeper-than-expected decline   in   bottom   line. Net   income shed 3.9%   YoY   to RMB30.75 billion, beating   analysts   projection of   a 40%   decline   polled by FactSet.   The   previous quarter   saw a   47%   YoY crash   in   profit.   On   non-GAAP   basis,   adjusted net income fell 5%   YoY to RMB32.71 billion   while analysts   anticipated   the profit to be RMB22.39 billion. Adjusted diluted earnings per American depositary share ( ADS ) was RMB22.07   with a   5%   YoY decrease   following a   drop of 44.9%.   That   was ahead of the estimated   RMB15.53.  

"Revenues growth further moderated this quarter amid intense competition," PDD VP   of Finance   Liu   Jun commented in a   statement. "As we remain focused on long-term value creation, the sustained investments may continue to weigh on short-term profitability."

The American depositary receipts ( ADRs ) of PDD   edged up   nearly 0.9% after soaring as much   as 4.9%   on Monday. Analysts believe   that one   of   factors   weighing on profitability is that PDD   had   to lower fees for merchants   amid   the   growing   competition   in China.

"On top of merchant fee reduction, we think the lower margin was also dragged down by PDD's supply chain investments to improve access to remote regions of China," CFRA analyst Jian Xiong Lim wrote in a note following PDD ’ s earnings. "   Looking ahead, management emphasized that long-term value creation will take precedence over short-term profits, with potential near-term profit volatility as PDD continues to invest in its business amid intensified competition."