PDD, Temu’s parent, occupies Alibaba’s position as China’s most valuable e-commerce company

Chinese e-commerce giant Pinduoduo lags behind rivals Alibaba and JD.com when it comes to international expansion. Now Pinduoduo has launched a US e-commerce site called Temu.

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Analysts say PDD’s value for money position and Temu’s market growth have helped the tech giant lead in China’s e-commerce arena, making it the most valuable company in this segment in the country.

PDD Holdings announced strong first-quarter results on Wednesday, sending its shares up as much as 7.5% and surpassing the market capitalization of rival Alibaba Group. According to LSEG data, PDD shares more than doubled last year – by 109%.

PDD, which also owns Chinese discount shopping app Pinduoduo, has a market capitalization of about $208 billion compared with Alibaba’s $196 billion, according to LSEG data. JD.com is a distant third with a market capitalization of $48 billion.

“We believe Temu’s profitability will improve faster than previously estimated due to the introduction of a half-shipment model, under which logistics costs will be borne by sellers,” Morningstar said in a note Thursday.

“We also believe PDD’s domestic platform will be able to defend its position given consumers’ strong perception of its value-for-money positioning,” said Morningstar analyst Chelsey Tam, adding that PDD tops their preferences while while JD.com and JD.com Alibaba ranks second and third respectively.

Goldman Sachs upgraded PDD to “buy” from “neutral” on Friday, noting the company’s continued growth in advertising revenue in the first quarter as well as Temu’s potential.

The upgrade comes “due to the company’s adtech capabilities combined with cost-competitive Chinese suppliers/traders/supply chains, as well as a favorable risk-reward ratio, with current market capitalization meaning no valuation assigned to It,” said Goldman Sachs analyst Ronald Keung note in the report.

The market has “now more than priced in” the two key issues – domestic competition and U.S.-China tensions – that were behind our earlier PDD downgrade in March, Keung said.

PDD surpassed Alibaba’s market capitalization in the fourth quarter of last year as well, but lost the top spot to Alibaba in the first quarter, according to LSEG data.

On Wednesday, PDD reported that net income attributable to common shareholders in March rose 246% to $3.87 billion (27.99 billion Chinese yuan) from a year earlier, well ahead of LSEG’s estimate of 12.86 billion yuan.

Revenue from trading services, also known as trading fees, was $6.14 billion, an increase of 327% compared to the same period a year earlier.

“We actively responded to the consumption promotion policy and launched a series of promotional activities to meet users’ purchasing needs during the spring festival and other seasonal events,” PDD said in its earnings call.

“We are confident in the consumer market in China,” PDD said.

Meanwhile, Alibaba’s net income attributable to common shareholders in March fell 86% to 3.3 billion yuan from a year earlier. Alibaba owns e-commerce platforms such as AliExpress, Alibaba.com, Taobao and Tmall.

PDD’s first major push overseas came with the launch of Temu in September 2022, which skyrocketed in popularity shortly after airing a 2023 Super Bowl ad encouraging customers to shop “like a billionaire.”

Americans eager for opportunities come to Temu, as looks set to continue growing rapidly in the US. It has aggressively expanded into Australia, New Zealand, France, Italy, Germany, the Netherlands, Spain, and the United Kingdom

BofA, in a report earlier this month, said Temu, TikTok and AliExpress “leverage the expertise” of their parent and sister companies, adding that it considers Temu to be “relatively better positioned” among them.