PDD Holdings Inc's latest earnings report shows Q3 operating profit grew 1% year-over-year to RMB27.1 billion (non-GAAP), ending several quarters of decline, while net profit rose 14% to RMB31.4 billion. This signals an inflection point in profitability. However, online marketing service revenue growth slowed to single-digit 8% for the first time, significantly below market expectations of low double-digit growth, suggesting weaker-than-expected GMV growth and monetization rates. The stock fell 6% post-earnings, reflecting investor concerns about slowing growth.

Wall Street's three major banks—Goldman Sachs, Morgan Stanley, and Citi—maintained "Buy" ratings but showed divergent price targets. Morgan Stanley kept its $148 target, Citi raised its target to $170, while Goldman Sachs cut its target to $147. Analysts widely agree that Temu's narrowing losses and confirmed 2026-2027 profit inflection point form the core valuation thesis.

Management reiterated plans to invest in platform ecosystems through RMB10 billion merchant support and RMB10 billion assistance programs, warning that near-term revenue and profit growth will remain pressured with quarterly fluctuations. However, analysts noted clear signs of Temu's improving unit economics, laying groundwork for future profit growth.

Despite beating profit expectations, online marketing revenue growth slowing to 8%—below the expected low double digits—raised concerns about GMV and monetization weakness. The 6% stock drop post-earnings reflected these growth worries.

**Profit Inflection Point Confirmed: Operating Profit Returns to Growth** The standout Q3 metric was operating profit returning to 1% YoY growth after multiple quarters of decline, driven by low comparables and stabilized sales/marketing expenses. Non-GAAP net profit of RMB31.4 billion (+14% YoY) exceeded expectations.

Morgan Stanley emphasized this trend will extend through Q4 2025 and 2026, fueled by Temu's narrowing losses and improving domestic e-commerce margins. The bank projects 2026 non-GAAP operating profit to rise 15% to RMB124 billion, with operating margin expanding from 23.6% to 25.8%.

Goldman Sachs noted a mere 5% drop in income tax—a proxy for domestic profits—suggesting Temu's unit economics and GMV margins are improving. Domestic platform margins outperformed at ~2.2%, as trade-in program impacts on small merchants eased.

**Temu's Clear Profit Path: Narrowing Losses Support Long-Term Value** Despite growth headwinds, analysts see Temu's profit inflection as key to PDD's long-term value. Management highlighted trust, safety, and compliance as core to Temu's high-quality growth strategy, with significant related investments.

Citi viewed this as balancing regulatory concerns with adaptability to reinforce overseas trust and growth. Goldman projects Temu's 2026/2027 EBIT at RMB17/RMB24 billion (revised down for compliance/infrastructure investments), valuing the ex-U.S. business at 25x P/E—above domestic segments' 12x—reflecting higher growth expectations.

Morgan Stanley forecasts Q4 2025 revenue growth of 11% (online marketing +9%, transaction services +14%), aided by U.S. consignment model recovery.

**Discount Valuation Retains Appeal** All three banks find PDD's risk-reward attractive despite sector discount, given profit growth prospects and limited Temu valuation in current market cap.

Morgan Stanley's $148 target (13x 2026 non-GAAP P/E) aligns with 14% annual profit growth under DCF (14% WACC, 3% perpetuity growth). Goldman notes PDD's 11x 2026 P/E is below China internet peers' 17x median, with superior profit growth, ad tech capabilities, and supplier advantages.

Citi sees >35% expected total return as compelling despite conservative pricing, with long-term supply chain and user retention strengths offsetting growth/earnings volatility concerns.

**Growth Warning: Marketing Revenue Hits Single Digits** The 8% online marketing growth—first single-digit reading—underscored GMV/monetization risks. Goldman estimates Q3 domestic GMV grew 9%, just 1ppt above industry, narrowing prior leads due to Douyin's ~30% GMV surge and Alibaba/JD.com's new business investments.

Morgan Stanley cut GMV forecasts: 2025 to RMB4.86 trillion (-2%), 2026 to RMB5.34 trillion (-3%), 2027 to RMB5.72 trillion (-5%). However, it raised profitability outlooks, with marketing/GMV ratio dropping to 2.3% by 2026, signaling a shift from subsidy-driven scale to sustainable profit quality.