Temu share price collapses due to fear of fierce competitors and state control
Shares of PDD Holdings, the parent company of fast-growing shopping app Temu, fell more than 30 percent on Monday, losing more than $50 billion in market value, after the e-commerce giant reported disappointing revenue figures and management warned of strong competition and external challenges that could dampen future growth and profits.
The Nasdaq-listed company, which is headquartered in Ireland but employs most of its staff in China, operates Chinese online shopping giant Pinduoduo as well as Temu, the discount shopping app that has taken the US and other Western markets by storm since its launch in 2022. But Temu is also under intense scrutiny from governments, including the US, over issues ranging from its use of import trade loopholes to the quality and origin of the products its vendors sell through its online stores. And that pressure appears to be hurting the company’s prospects.
PDD is still growing incredibly fast in both China and other markets. Revenues rose 86% in the second quarter to over $13.6 billion, but analysts had expected revenues to exceed $14 billion. In addition to this revenue decline, PDD executives spooked investors by painting a gloomy picture of future quarters.
“Looking ahead, revenue growth will inevitably come under pressure due to intensified competition and external challenges,” said Jun Liu, PDD’s chief financial officer, in a press release. “Profitability is also likely to be impacted… as we continue to invest resolutely.”
Amazon officials in China recently told merchants there that the U.S. e-commerce giant will soon open its own low-price store. Temu also competes with other e-commerce giants with close ties to China, including fast-fashion titan Shein and TikTok’s fast-growing Shop marketplace.
Although PDD Holdings does not disclose Temu’s financial results, executives warned in a conference call with analysts of “significantly greater uncertainty” in the company’s global business unit, which includes Temu.
“Our business is increasingly affected by non-business factors,” said Co-CEO Lei Chen. “And at the same time, the competition we face is becoming increasingly fierce. Competition is here to stay and in our industry it is expected to become even more intense.”
“Taken together, these factors will inevitably lead to fluctuations in our business,” the CEO added. “As this quarter’s results show, high revenue growth is not sustainable and a downward trend in profitability is inevitable.”
A push for “high-quality” retailers
Temu has become one of the most popular shopping apps in the US and other markets like Mexico, thanks to its enticing cocktail of bargain prices, often passable product quality and high advertising spend with in-app gimmicks that lure back shoppers who like to hunt for bargains. Temu calls Boston its headquarters, but Assets As previously reported, this is essentially just a name.
However, the company has also come under increasing criticism from regulators and lawmakers over its shipping tactics, its compliance with product safety laws and whether it sells goods produced using forced labor.
Just this month, U.S. lawmakers from both sides of the political spectrum announced legislation that would make it more expensive for foreign companies like Temu to ship goods from China to U.S. customers. Currently, most Temu orders to the U.S. escape thanks to a trade rule called “de minimis,” which allows customer packages under an $800 threshold to avoid import costs, import taxes and customs inspections.
PDD officials also promised to invest heavily in improving the quality of sellers on their shopping marketplaces, including by rewarding high-quality merchants with lower fees.
“On the supply side, we will invest significant resources to support high-quality merchants who are willing to innovate and improve their quality,” Chen said. “And we will offer these merchants a significant reduction in transaction fees, with an initial target of $10 billion in the first year.”
