Temu Reports Significant Rise in Customers Looking for Cheaper Products

Temu Shopping

PDD Holdings, the parent company of Temu and Pinduoduo, has exceeded market expectations with a significant surge in both profit and revenue, fueled by a surge in demand from American and Chinese consumers on its bargain shopping platforms for budget-friendly products.

According to LSEG data, the Shanghai-based company announced on Wednesday that its net profit skyrocketed by 246 percent to 28 billion yuan ($3.9 billion) in the first quarter of 2024, more than doubling the average analyst estimate of 12.62 billion yuan ($1.7 billion).

During the same period, revenue surged by 131 percent to 86.81 billion yuan ($12 billion), surpassing expectations. Analysts at Nomura attributed PDD’s growth momentum to strong performance both domestically and internationally.

Following the robust results, shares of PDD soared on Wednesday, driving its market capitalization beyond $204 billion and establishing it as China’s most valuable e-commerce entity, surpassing Alibaba.

While Hangzhou-based Alibaba has traditionally dominated China’s online sector, it has encountered stiff competition from rivals and increased regulatory scrutiny from Beijing.

Temu Shopping

PDD was founded by Colin Huang in 2015, who stepped down as chairman in 2021 to pursue his interest in life sciences. However, he remains the company’s largest shareholder, holding a 25 percent stake, and ranks as China’s second-richest individual with a fortune of nearly $52 billion.

The company’s international app, Temu, was introduced in 2022 and had captured nearly 17 percent of the U.S. online discount store market by November.

Additionally, Pinduoduo’s app continues to expand in China. By mid-2023, its e-commerce market share had risen to 19 percent, up from 7.2 percent in 2019, according to Yinma Data Research. However, it trailed behind Alibaba’s Taobao and Tmall, which collectively held 44 percent, and JD.com, which held 24 percent.

Despite being just eight years old, the startup has effectively capitalized on changing consumption patterns in the world’s second-largest economy.

Temu Shopping

As the Chinese economy decelerates and employment prospects dim, consumers are increasingly cost-conscious, leading to increased frugality across various product categories. This trend is evident in discounts and special offers from both domestic and international brands, targeting not only premium markets but also budget-conscious consumers.

Moreover, American consumers, affected by two years of high inflation, are becoming more price-sensitive. In response, numerous retailers have announced price reductions in recent weeks to stimulate spending on items like apparel and home decor.

Following the disclosure of its results, several investment banks and brokerage firms, including Morgan Stanley and Nomura, raised their price targets for PDD stock.

However, the company acknowledged the intensifying competition as rivals ramp up efforts to attract consumers with more aggressive pricing strategies.

“We are witnessing significant efforts from our industry peers,” said Lei Chen, co-CEO and chairman of PDD, during an earnings call on Wednesday.

Mr. Chen emphasized the company’s commitment to adapting to evolving consumer preferences by offering increased savings and higher-quality products.

Furthermore, PDD faces potential regulatory challenges in international markets as it expands globally.

Nate O'Hara
Nathan is a seasoned commerce writer with a passion for unraveling the intricacies of the business world and distilling them into engaging narratives. During his academic journey, he delved deep into subjects like economics, marketing, and entrepreneurship, honing his analytical skills and developing a keen understanding of market dynamics.