PDD Holdings is the most capital-efficient e-commerce platform in the world — a relentless cost-leader generating $17B in free cash flow at 10x earnings, with Temu opening a $500B+ international addressable market that the stock prices at zero.
Li Lu
Himalaya Capital
Est. ~5.1% of total portfolio
“The way to think about investing is to find something you really understand deeply. And if you understand it deeply enough, you'll know how much it's worth.”
The Business
- PDD Holdings operates Pinduoduo, China's largest value-oriented e-commerce platform with 900M+ annual active buyers, and Temu, an international e-commerce platform launched in 2022 that has rapidly expanded to 50+ countries.
- The company's core innovation is connecting Chinese manufacturers directly to consumers, eliminating middlemen and offering products at prices significantly below traditional retail.
- In 2024, PDD generated RMB 393.8B (~$55B) in revenue with 27.5% operating margins, making it one of the most profitable e-commerce companies in the world on a margin basis.
Why They Own It
“The way to think about investing is to find something you really understand deeply. And if you understand it deeply enough, you'll know how much it's worth.”
- Li Lu's 14.6% position in PDD Holdings reflects his deep China expertise — the same edge that led him to discover BYD for Berkshire Hathaway. PDD (parent of Pinduoduo domestically and Temu internationally) is the fastest-growing major e-commerce company in the world, having grown from zero to ~$59B in TTM revenue in under a decade.
- Pinduoduo dominates value-oriented e-commerce in China with 900M+ annual active buyers, using a gamified, social commerce model that achieved profitability faster than any major e-commerce player in history. Temu, launched in September 2022, has already expanded to 50+ countries and reached hundreds of millions of users globally.
- The Li Lu thesis here is about understanding China's consumer economy better than Western investors, combined with brutal math: PDD trades at 10x trailing earnings and 8x forward earnings — a valuation that prices in zero value for Temu's international expansion and assumes Pinduoduo's domestic dominance will erode. For a Munger disciple, this is the classic 'wonderful business at a fair price' setup, with the twist that the market's China discount creates the margin of safety.
- PDD generated RMB 121B (~$17B) in free cash flow in 2024, has no debt, and holds more cash than its market cap implies. The floor is protected by the domestic Pinduoduo business alone, while Temu represents massive asymmetric upside.
What the investor sees
Li Lu's China advantage is the key. Western investors systematically misprice Chinese companies due to geopolitical risk aversion, VIE structure fears, and regulatory uncertainty. Li Lu, born in China and fluent in both cultures, can distinguish real risk from perception. At 10x earnings, the market is pricing PDD as if Temu will fail and Pinduoduo will face secular decline — but PDD's domestic business is the lowest-cost e-commerce operator in China with structural advantages in agriculture, factory-direct sourcing, and value-conscious consumers (800M+ users). Temu, meanwhile, is replicating the Pinduoduo playbook internationally, connecting Chinese manufacturers directly to global consumers at prices that incumbents cannot match. The optionality of a $500B+ international e-commerce market is embedded at essentially zero cost in the current stock price.
Financial Snapshot
RMB 393.8B / ~$55B (2024); $58.8B TTM
revenue
RMB 112.4B / ~$15.7B (2024); $14.4B TTM
net income
$143 billion
market cap
RMB 121B / ~$16.9B (2024)
free cash flow
10.4x TTM; 8.3x forward
pe ratio
The Moat
- Lowest-cost operator: PDD's commission-free merchant model and zero-warehouse approach give it the lowest take rate of any major e-commerce platform, making it structurally cheaper for consumers
- Factory-direct sourcing: Direct connections to Chinese manufacturers eliminate 3-5 layers of middlemen, creating permanent price advantages
- Social commerce flywheel: Gamified group-buying model (team purchase) drives organic user acquisition at near-zero customer acquisition cost
- Agricultural dominance: Largest agricultural e-commerce platform in China, connecting 16M+ farmers directly to consumers — a market no competitor has matched
- Temu global network: Manufacturing-to-consumer platform operating in 50+ countries, leveraging China's manufacturing base as a structural cost advantage
- Engineering culture: Lean team (~13,000 employees for a $55B revenue business) with exceptional operational efficiency — revenue per employee exceeds $4M
What Could Go Wrong
China regulatory crackdown
PDD has been less targeted than Alibaba/JD by regulators. Government broadly supports e-commerce platforms that serve rural consumers and farmers. However, China tech regulation remains unpredictable.
Temu regulatory backlash internationally
De minimis tariff exemptions are being reconsidered in the U.S. and EU. If eliminated, Temu's cost advantage narrows but doesn't disappear — factory-direct pricing is structural, not just tax-arbitrage.
VIE structure risk
PDD is incorporated in the Cayman Islands with VIE contracts to Chinese operating entities. This creates theoretical risk that Chinese government could invalidate the structure. However, no major VIE has been forcibly unwound, and China has economic incentive to maintain foreign capital access.
Growth deceleration
Domestic Pinduoduo growth is slowing (9% revenue growth in Q3 2025 vs 59% in 2024). However, Temu international is still in early stages and provides the next growth leg.
Geopolitical U.S.-China tensions
Escalation could force delisting or restrict U.S. investment. However, PDD's core business serves Chinese consumers and is not dependent on U.S. operations.
Catalysts
- Temu profitability inflection: As Temu scales in established markets and reduces customer acquisition spending, margins could expand dramatically
- China consumer recovery: Post-COVID consumer spending normalization in China benefits PDD's value-oriented platform disproportionately
- Multiple re-rating: If China geopolitical fears ease, PDD could re-rate from 10x to 15-20x earnings — a 50-100% move from valuation alone
- Capital returns: PDD initiated a $10B buyback program; with $30B+ in cash, aggressive buybacks could significantly reduce share count
- Temu expansion into new markets: Continued geographic expansion (Africa, Southeast Asia, Latin America) opens massive new addressable markets
In Their Own Words
“I was born in China, grew up in China, I understand the culture, I understand the people, I understand how businesses work there. That's my circle of competence.”
“Knowledge compounds. The more you know about a business, the more you can know. And that compounding of knowledge is the real edge in investing.”