Investing.com-- JPMorgan analysts reiterated their "Neutral" rating on PDD Holdings Inc (NASDAQ: PDD ) but lowered their price target, citing deteriorating earnings visibility and margin pressure.
Analysts reduced their price target to $105 from $125.
"We believe the sharp plunge in margins will leave the share price consolidating until the 2Q25 result release draws close in late August, similar to what happened post 3Q24 result, as it will be hard for the market to form consensus earnings," JPMorgan analysts wrote.
Analysts attributed PDD’s first quarter adjusted operating margin plunge to 19%, down from 36% in the second quarter of 2024, to consumer subsidies, U.S. tariff hikes on Temu, and merchant support programs.
While margins may stabilize near 23-24% in 2025, JPMorgan warns of uncertainty around discretionary investments and U.S.-China trade talks.
Revenue growth is expected to flatline in the coming quarters, with Temu’s sales likely declining due to tariffs, though PDD’s core China marketplace could sustain mid-teens growth, analysts said.
The bank cut 2025/26 EPS estimates by 27% and 18%, respectively, reflecting weaker profitability.
Investors should "watch the progress of US-China trade talks and Temu’s strategy over the next 3-6 months to at least address one major uncertainty before making investment decisions on PDD," said analysts.
Key risks include deeper profit declines, broader U.S. tariffs, or weaker Chinese consumption. Upside catalysts include faster margin recovery or favorable trade resolutions, analysts added.