Regarding Temu, the new CEO was tight-lipped during the Q1 earnings call and did his best to dampen enthusiasm while complaining about unfair competition.
Photo by Fan Jianlei
By CHENG Lu
In the low season, with no significant promotional events, e-commerce giant PDD Holdings’ Q1 revenue was up 58.2 percent for the year at 37.6 billion yuan (US$5.3 billion). PDD stock soared on the news.
In stark contracts to all the flourish and fuss last quarter, PDD said next to nothing about overseas project Temu except some standard “healthy ecosystem” fluff.
US investors are concerned that PDD's low-price invasion has somehow gone undercover, or that the US has entered the eye of the Temu storm.
PDD's growth exceeded its own in the previous Q4, far surpassed that of Alibaba, and is in a different league to so-called competitor Kuaishou (19.7 percent).
Advertising revenue in Q1 was 27.2 billion yuan, 50 percent up on last year. Sales commissions brought in 10.4 billion yuan, a slightly terrifying 86 percent increase year-on-year. In the previous quarter, this total was only 43 percent of Alibaba's. Today, it’s 62 percent.
PDD is snapping at Taobao and Tmall's heels.
Growth is great, so much so that profit in Q1 of a mere 8.1 billion yuan proved a disappointment. The aggressive Temu campaign in the US is burning money overseas. PDD's profit margin remains lower than Alibaba’s.
Revenue has costs - sales and marketing costs of 16.3 billion yuan, a 45 percent year-on-year increase, and largely thought to be an investment in Temu. For example, Temu spent US$14 million (100 million yuan) on advertising during this year’s Superbowl.
LIU Jun, VP of finance at PDD, said in the earnings call that fluctuations from quarter to quarter were normal. Two quarters do not make a trend. Regarding Temu, Liu was tight-lipped and did the best to dampen the enthusiasm the company had previously tried to fire up: “early stages … relatively small … positive … expected … gradually.”
Temu is now in 16 countries and regions. However, it’s already being banned in some states in the US, mainly thanks to the aggressive stance of TikTok and blankets US fear of Chinese tech.
On May 17, the governor of Montana signed a law to expand the state TikTok ban to Temu, WeChat, CapCut, and other random Chinese apps from 2024. This may be the reason why PDD is burying news of Temu as far as possible from the attention of overseas governments.
During the call, new co-CEO ZHAO Jiazheng made his first public appearance, described by Chairman CHEN Lei as a founding member of the company and colleague for over a decade. Zhao once headed up PDD’s agriculture division and established the upstream agricultural supply chain. In 2020, he launched the grocery business Duoduo Maicai.
In his statement, Zhao said PDD stores had been bombarded with malicious orders in March, resulting in substantial losses. Some competitive behavior went beyond normal business activities, he said.
Zhao might consider store bombing “beyond normal," but it also reveals some of the controversies in the platform's operations. PDD still has significant room for improvement in its ecosystem “health.”
"We believe that competition will motivate us to innovate faster and accelerate the iteration of our services," he said.
PDD is struggling to reposition itself away from "affordable and fun" to "affordable and good." In the company's prospectus, founder HUANG Zheng wrote that PDD aims to become a combination of Costco and Disney.
According to Huang, this meant cutting costs and making the shopping process “entertaining.”
That idea – that shopping needs to be coupled with some kind of “entertainment” – has been well and truly ditched by new boss Zhao.
Zhao is now talking like every other CEO in China. “Fun” has disappeared behind a smokescreen of dark gray words: “healthy ecosystem,” and “high-quality development.”
