Pinduoduo: Americans come to Temu and make its Chinese owner very rich

Hong Kong
CNN
—

PDD Holdings, the owner of Temu and Pinduoduo, is exceeding market expectations, reporting huge growth in profits and revenues as American and Chinese consumers flood its apps for bargain purchases of cheap products.

The Shanghai-based company said Wednesday that net profit rose 246% to 28 billion yuan ($3.9 billion) in the first quarter of 2024, more than double analysts’ average estimate of 12.62 billion yuan (1, USD 7 billion), according to LSEG data.

Revenue rose 131% to 86.81 billion yuan ($12 billion) during the period, also well ahead of expectations. Nomura analysts said the growth momentum was coming from “both domestically and internationally.”

Strong results boosted shares of Nasdaq-listed PDD (PDD) on Wednesday, pushing its market value to more than $204 billion and making it China’s most valuable e-commerce company, overtaking Alibaba (BABA).

Hangzhou-based Alibaba has long dominated China’s internet industry, but it faces fierce competition from rivals and increased regulatory scrutiny from Beijing.

PDD was founded by Colin Huang in 2015, who stepped down as CEO in 2021 to pursue a personal interest in life sciences. According to the Bloomberg Billionaires Index, he is still the company’s largest shareholder (25% of shares) and the second richest person in China with a fortune worth almost $52 billion.

Ago, the international PDD application, launched in 2022 and has captured almost 17% of the US online market as of November last year according to Earnest Analytics, the discount market.

The Pinduoduo app continues to expand in China. By mid-2023, Pinduoduo’s e-commerce market share rose to 19% from 7.2% in 2019, according to Chinese analytics firm Yinma Data Research. It overtook Alibaba’s Taobao and Tmall, which had a combined 44%, and JD.com , which owned 24%.

A startup operating just eight years ago has successfully exploited changing consumption patterns in the world’s second-largest economy.

As China’s economy slows and job prospects deteriorate, people are penny-pinching on everything from groceries to electronics to cars. Discounts and special offers are offered to all brands, including Western companies that mainly target premium markets.

After two years of elevated inflation, American consumers are also becoming more price conscious. In recent weeks, many retailers have announced price cuts to encourage people to spend money on things like new clothes and home decor items.

Several investment banks and brokerage firms, including Morgan Stanley and Nomura, raised their price targets for PDD stock after the results were released.

However, the company admitted that competition will become more intense as competitors try harder to lure consumers with further price cuts.

“We see that our industry peers have significantly stepped up their efforts,” Lei Chen, co-CEO and president of PDD, said on Wednesday’s earnings call.

Chen said the company must make every effort to keep up with changes in the consumer market.

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

As PDD expands globally, it also faces potential regulatory hurdles in international markets.

Earlier this month, a European consumer group accused Temu of using “manipulative techniques” to trick consumers into spending more than they would like and called for a regulatory investigation of the app.

According to Yonhap news agency, South Korean regulators last month launched an investigation into Temu on charges of false advertising and unfair practices.

Chen said Wednesday that the company is “actively” engaging with regulators in various countries with a “learning mindset.”

“As our business grows, consumers and regulators place increasing responsibility on us for compliance, as well as on the sellers who do business with us,” he said.