How PDD (PDD Holdings) Makes Money in 2026: A Deep-Dive With Income Statement

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Understanding how a e-commerce platform like PDD makes money is essential for investors and anyone interested in the business of online retail. In this post, we break down PDD's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick PDD Overview

PDD operates as a leading e-commerce platform, primarily through its Pinduoduo marketplace in China and international expansion via Temu, connecting merchants with consumers via social commerce and group-buying models. Revenue comes primarily from transaction services and online marketing services, reflecting its dual ecosystem of facilitating sales and monetizing traffic. The company focuses on low-cost, high-volume retail, with segments balanced nearly evenly between transaction fees and marketing.

Revenue Breakdown

• Total Revenue (Q3 2025): $15.1B (+9.0% YoY)
  • Transaction Services Revenue: $7.67B (50.7% of total) (+9.9% YoY)
  • Total Online Marketing Services: $7.45B (49.3% of total) (+8.1% YoY)
  • Growth is powered by expanding user base on Temu internationally and sustained domestic demand on Pinduoduo.

PDD's revenue model leverages network effects: transaction services capture commissions on platform sales, while marketing services generate fees from merchants advertising to attract buyers. This balanced split highlights PDD's maturity as both a marketplace operator and traffic monetizer, with total revenue reaching $15.1 billion in Q3 2025 despite competitive pressures in e-commerce.

Gross Profit and Margins

• Gross Profit: $8.58B (56.7% gross margin)
  • Cost of Revenue: $6.54B (+18.0% YoY)
  • PDD maintains robust margins due to scalable digital business model and efficient supply chain logistics.
• Most costs come from merchant commissions, fulfillment, and platform operations.

The elevated cost of revenue growth outpaced revenue at 18.0% YoY, driven by investments in logistics and international scaling for Temu. Yet, PDD's 56.7% gross margin remains strong for e-commerce, benefiting from low merchandise costs in its discount-focused model and minimal physical inventory holding.

Operating Income and Expenses

• Operating Income: $3.50B (+3.0% YoY, 23.1% margin)
• Operating Expenses: $5.09B (+3.0% YoY)
  • R&D: $0.61B (+41.4% YoY, 4.0% of revenue) — focused on AI-driven recommendations, user experience enhancements, and Temu's global tech infrastructure
  • SG&A: $4.48B (+-0.7% YoY, 29.6% of revenue) — primarily marketing, promotions, and administrative costs to drive user acquisition and retention
  • PDD continues to prioritize innovation while maintaining efficiency in core operations.

Operating expenses grew modestly at 3.0% YoY, with R&D surging 41.4% to fuel long-term tech advantages amid competition from Alibaba and JD.com. SG&A's slight decline reflects cost discipline, keeping overall op-ex at 33.7% of revenue and supporting a healthy 23.1% operating margin.

Net Income

• Pre-Tax Income: $4.65B (+14.2% YoY, 30.8% margin)
• Income Tax: $0.56B (12.0% effective tax rate)
• Net Income: $4.10B (+17.4% YoY, 27.1% net margin)
• PDD converts a high portion of sales into profit due to scalability, pricing power in marketing services, and non-operating income.

Other income items boosted pre-tax results, including $1.20B in net interest income and $0.04B other income, reflecting strong cash generation and investments. This propelled net income growth to 17.4% YoY, underscoring PDD's ability to expand profitability even as it scales aggressively.

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What Drives PDD's Money Machine?

• Transaction Services: 50.7%+ of revenue — Commissions from merchandise sales on Pinduoduo and Temu, growing 9.9% YoY as active buyers increase.
• User Metrics: Over 900 million annual active buyers historically, with Q3 focusing on international Temu expansion driving transaction volume.
• R&D Investments: $0.61B poured into algorithms and logistics tech to lower acquisition costs and boost retention.
• Future growth areas: Temu's global penetration, though not yet profitable in all markets due to heavy marketing spend.

PDD's ecosystem thrives on social commerce virality, where group buys reduce prices and marketing services monetize massive traffic. Non-operating gains like interest income from $40B+ cash reserves further amplify returns.

Visualizing PDD's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant R&D and marketing investments, 27.1% of revenue drops to the bottom line.

The diagram illustrates revenue splitting evenly between transactions 50.7% and marketing 49.3%, narrowing through $6.54B cost of revenue to $8.58B gross profit. Op-ex then carves out $5.09B, leaving $3.50B operating income, uplifted by other income to $4.10B net.

Key Takeaways

• PDD's money comes overwhelmingly from transaction and marketing services
• High gross and net margins illustrate the power of PDD's asset-light platform model
• Heavy investment in R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by Temu internationalization and domestic user engagement

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FAQ About PDD's Income Statement

1. What is the main source of PDD's revenue in 2025?

PDD generates over 50.7% of its revenue from Transaction Services Revenue. Online Marketing Services contribute another 49.3%, creating a balanced model from sales commissions and ad fees.

2. How profitable is PDD in Q3 2025?

PDD reported net income of $4.10B in Q3 2025, with a net margin of approximately 27.1%, reflecting strong profitability driven by high gross margins and other income.

3. What are the largest expense categories for PDD?

The biggest expenses on PDD's income statement are operating expenses, particularly Research & Development (R&D) and Sales, General & Administrative (SG&A) costs. R&D investment reached $0.61B in Q3 2025, as PDD prioritizes AI, logistics, and platform tech.

4. Why does Temu operate at a loss?

Temu, despite generating significant revenue through international transactions, posted operating losses in expansion phases. This is because PDD aggressively invests in user acquisition and logistics, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does PDD's effective tax rate compare to previous years?

PDD's effective tax rate in Q3 2025 was 12.0%, consistent with previous years. This low rate is primarily due to tax benefits from international structuring and share-based compensation.