Bargain-hungry Americans are flocking to Temu and making its Chinese owner very rich

PDD Holdings, the owner of Temu and Pinduoduo, is blowing past market expectations with a massive surge in profit and revenue as American and Chinese consumers swarm its bargain shopping apps for low-cost products.

The Shanghai-based company reported Wednesday that net profit soared 246% to 28 billion yuan ($3.9 billion) in the first quarter of 2024, more than double the average analyst estimate of 12.62 billion yuan ($1.7 billion), according to LSEG data.

Revenue jumped 131% to 86.81 billion yuan ($12 billion) in the period, also comfortably beating expectations. Nomura analysts said that the growth momentum was coming from “both home and abroad.”

The strong results boosted shares of PDD’s (PDD) Nasdaq-listed shares Wednesday, propelling its market value past $204 billion and making it China’s most valuable e-commerce company, ahead of Alibaba (BABA).

Hangzhou-based Alibaba has long dominated China’s online industry, but it has been facing stiff competition from rivals and increased regulatory scrutiny from Beijing.

PDD was founded by Colin Huang in 2015, who stepped down in 2021 as chairman, to pursue a personal interest in life sciences. He is still the company’s biggest shareholder, with a stake of 25% stake, and ranks as China’s second richest man with a fortune of nearly $52 billion, according to the Bloomberg Billionaires Index.

Temu, PDD’s international app, was launched in 2022, and as of last November it had acquired nearly 17% of the US online discount store market, according to Earnest Analytics.

Its Pinduoduo app also continues to grow in China. By mid-2023, Pinduoduo had seen its e-commerce market share rise to 19% from 7.2% in 2019, according to Chinese analytics firm Yinma Data Research. It trailed behind Alibaba’s Taobao and Tmall, which owned a combined 44%, and JD.com, which held 24%.

Just eight years old, the startup has successfully leveraged a shift in consumption patterns in the world’s second largest economy.

As the Chinese economy slows and job prospects worsen, people are penny-pinching on everything from groceries to electronics and cars. Discounts and special deals are being offered across brands, including Western companies that primarily target premium markets.

American consumers are also becoming more price aware after two years of elevated inflation. A slew of retailers have announced price cuts in recent weeks to entice people to spend money on things like new clothes and decorative items for the home.

Several investment banks and brokerage firms, including Morgan Stanley and Nomura, increased their price targets for PDD stock after it disclosed the results.

But the company acknowledged that the competition is going to get more intense as rivals try harder to lure consumers with more price cuts.

“We are seeing that our industry peers have significantly stepped up their efforts,” said Lei Chen, co-CEO and chairman of PDD at an earnings call on Wednesday.

Chen said the company must do its best to keep up with consumer market changes.

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

PDD is also facing potential regulatory hurdles in international markets as it expands globally.

Earlier this month, a European consumer group accused Temu of using “manipulative techniques” to get consumers to spend more than they might want, and called for a regulatory probe into the app.

Last month, South Korean regulators investigated Temu on suspicion of false advertising and unfair ppractices, according to the Yonhap news agency.

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

“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.

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