The news: Temu parent PDD Holdings posted 12% YoY revenue growth in Q4 2025 despite challenging conditions in China and overseas markets.

However, profit dropped unexpectedly by 11%, showing the toll that price wars and regulatory pressure in various markets are taking on PDD’s bottom line.

Zoom in: PDD said its overseas expansion “has drawn surprise, concern, and additional scrutiny,” but added the company is confident it can overcome those headwinds and drive growth. Revenues accelerated for the third straight quarter in Q4, indicating that global demand for its low-cost goods remains relatively healthy.

But success won’t come without costs. The end of de minimis in the US and other markets, as well as higher US tariffs on Chinese goods, is unfavorable for Temu’s operating model, challenging its ability to keep prices low. As a result, PDD is “dedicating significant resources” to supply chain investments in order to support long-term growth—investments that the company warned would “inevitably affect our financial performance.”

Implications for retailers: Despite the regulatory issues Temu faces, the company is positioned to benefit from rising geopolitical and macroeconomic uncertainty. Even accounting for tariffs, the retailer’s low prices are likely to appeal strongly to consumers whose purchasing power is threatened by higher gas prices and softening wage growth. That’s reflected in our forecast: We expect Temu’s US ecommerce sales to accelerate to 12.2% this year from 7% in 2025.