Thrifty Shoppers Boosting Temu's Chinese Owner's Wealth

PDD Holdings, the company behind Temu and Pinduoduo, has exceeded market predictions with a significant increase in profit and revenue. Both American and Chinese shoppers are flocking to its budget-friendly shopping apps for affordable products.

In the first quarter of 2024, the Shanghai-based company reported a remarkable 246% surge in net profit, reaching 28 billion yuan ($3.9 billion). This figure is more than double the average analyst forecast of 12.62 billion yuan ($1.7 billion), as per LSEG data.

Revenue in the period surged by 131% to 86.81 billion yuan ($12 billion), surpassing expectations. Analysts from Nomura noted that PDD's growth momentum was driven by both domestic and international markets.

The impressive financial performance caused PDD's Nasdaq-listed shares to rise on Wednesday, pushing its market value above $204 billion. This milestone made PDD China's most valuable e-commerce company, surpassing Alibaba.

Alibaba, headquartered in Hangzhou, has been a major player in China's online industry for a long time. However, it is now facing tough competition from competitors and increased regulatory scrutiny from the government.

PDD, founded by Colin Huang in 2015, saw him stepping down as chairman in 2021 to pursue his interest in life sciences. Despite this, he remains the company's largest shareholder with a 25% stake. According to the Bloomberg Billionaires Index, he is China's second richest man with a fortune of almost $52 billion.

Temu's logo is displayed on a smartphone screen

Temu's logo is displayed on a smartphone screen

Rafael Henrique/SOPA Images/LightRocket/Getty Images

Related article

Temu, PDD's international app, entered the US market in 2022. By November, it had captured almost 17% of the online discount store market, as reported by Earnest Analytics.

Temu is now gearing up for the Super Bowl with a TV advertisement and $15 million in giveaways to attract more users.

Pinduoduo's app in China is also experiencing growth. By mid-2023, its e-commerce market share had increased to 19% from 7.2% in 2019, as reported by Chinese analytics firm Yinma Data Research. While still behind Alibaba's Taobao and Tmall at 44% combined, and JD.com at 24%, Pinduoduo is steadily making progress.

At just eight years old, this startup has effectively capitalized on changing consumer habits in China, the world's second-largest economy.

As the Chinese economy starts to slow down and job opportunities become scarcer, people are being more careful with their money. They are looking for discounts and special offers on a wide range of products, from groceries to electronics and cars. This includes Western companies that usually cater to high-end markets.

Similarly, American consumers are also becoming more conscious of prices due to two years of increased inflation. Many retailers have started to reduce prices in order to attract customers to spend on items like clothing and home decorations.

After PDD disclosed its results, investment banks and brokerage firms like Morgan Stanley and Nomura raised their price targets for the stock.

However, the company recognized that competition is expected to intensify as rivals make greater efforts to attract consumers through increased price cuts.

Lei Chen, co-CEO and chairman of PDD, mentioned during an earnings call on Wednesday that their industry peers have noticeably increased their efforts. Chen emphasized the importance of the company staying competitive amidst the evolving consumer market.

A laptop keyboard and Temu logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland on March 27, 2023.

A laptop keyboard and Temu logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland on March 27, 2023.

Jakub Porzycki/NurPhoto/AP

Related article

Temu expands to Europe after conquering America

“In addition to offering more savings, we are also expected to meet consumers’ needs for higher quality products,” he said.

PDD is encountering challenges with regulations in global markets as it grows internationally.

Recently, a European consumer group raised concerns about Temu, accusing it of employing manipulative tactics to encourage consumers to make purchases beyond their desired spending limits. This has prompted calls for a regulatory investigation into the app.

South Korean regulators looked into Temu last month for suspected false advertising and unfair practices, as reported by the Yonhap news agency.

Chen mentioned on Wednesday that the company is currently in communication with regulatory authorities in different countries with a focus on learning and improvement.

“As our business grows, consumers and regulatory bodies are holding us accountable for ever-higher compliance requirements and also the merchants doing business with us,” he said.

Editor's P/S:

PDD Holdings' remarkable financial performance is a testament to the increasing demand for budget-friendly shopping options in both domestic and international markets. The company's success in surpassing market expectations and becoming China's most valuable e-commerce company highlights the shifting consumer landscape, where affordability and value are becoming increasingly important.

However, PDD also faces challenges as it expands internationally, including regulatory scrutiny and competition from established players. The company's commitment to addressing these challenges through increased compliance and meeting consumer demands for higher quality products suggests its determination to maintain its growth trajectory. As PDD continues to navigate the evolving e-commerce landscape, its ability to adapt to consumer preferences and regulatory requirements will be crucial for its long-term success.