The Unknowns of Temu Development
On May 26, PDD Holdings Announces First Quarter 2023 Unaudited Financial Results. Total revenues in the quarter were RMB37,637.1 million (US$15,480.4 million), an increase of 58% from RMB23,793.7 million in the same quarter of 2022. Net income Attributable to ordinary shareholders in the quarter was RMB8,101.0 million (US$1,179.6 million), an increase of 212% from RMB2,599.5 million in the same quarter of 2022.
According to the financial report, Pinduoduo pointed out that the company’s revenue growth in the first quarter of 2023 is mainly due to the increase in revenue from online marketing services and transaction services, and its cross-border e-commerce project Temu. Temu is still in the early investment stage and represents a relatively small percentage of revenue. However, some insiders pointed out that Temu not only accounts for a small proportion of total revenue, but it can even be said to be in a stage of losing money.
In recent days, it has been reported that Temu is investing a lot of money to break into the US market. From the results of the data, the average loss of each order is about $30. It is understood that the composition of this fee mainly includes international transportation costs, discounts and cash coupons provided, and service and management costs. Even for a small package, the cost of shipping from Temu’s Guangzhou warehouse to the United States is about $14. Although Temu’s logistics partner J&T Express bears a small part of the cost, Temu still needs to pay $9 to $10 for each shipment. It can be said that it bears most of the transportation costs.
Relevant data show that the average daily sales volume of Temu is about 200,000 orders. That’s a lot of money. If calculated according to this data, Temu’s annual loss will reach about $2.2 billion. This does not include other losses. At the same time, the data also shows that Temu’s customers in the United States are mainly Asian, or low-income buyers with annual household incomes below $30,000. Professionals from Temu said that placing a large number of advertisements on the market to gain brand awareness is the best option to expand the audience. They will focus on preparing for this marketing method. As a result, Temu plans to spend $1.4 billion on marketing in the U.S. this year and another $4.3 billion next year.
Since its launch in September last year, Temu has complied with the downgrade demand of overseas consumption under the pressure of high inflation, and has been able to achieve explosive growth in a short period of time. According to MarketplacePulse data, as of February 2023, Temu has already ranked first in the list of most downloaded shopping apps in countries such as the United States, France, Italy, Spain, Germany and the United Kingdom. But at the same time, from the above sales data, we can see that the rapid development of Temu is achieved by increasing exposure, continuously lowering prices, sacrificing the profits of sellers and suppliers, and rapidly attacking overseas sinking markets. Therefore, while Temu’s popularity continues to rise, its profit model has been questioned. It can be seen that Temu gives up the interests of merchants and platforms to consumers, but whether this model can be sustained for a long time has been questioned. Enterprises will definitely not allow long-term loss-making projects, so how to turn losses into profits after this has become a matter of great concern to every seller. They don’t know what other plans Temu has in the future.
According to a data in May, 18% of the sellers surveyed are currently settled in Temu, and 82% are not yet settled in Temu. Among them, 34% of sellers have no intention of entering Temu at all. 15% of sellers who have settled in think that Temu can only operate in the short term and will not operate for a long time. 8% of sellers believe that Temu can be operated for a long time. Sellers who are optimistic about Temu believe that Temu’s platform is well-known and the transaction is easier. Compared with Amazon, Temu’s operation is simpler, the overall cycle is shorter and the threshold is lower. For some sellers, this is a better opportunity to go overseas. However, many sellers also said that Temu’s ultra-low prices are due to sellers’ profit sharing, and the competition will increase, and its stocking and fine risks are higher than other platforms. And because the platform is not perfect, some new policies are often released. Sellers need time to adapt as soon as possible.
At present, Temu is still relying on low-priced products and rapid marketing, but these strategies obviously require huge capital to maintain, and it is still relatively unknown how long it will last. How to maintain Temu’s future is a problem. Sellers still need to follow the changes and make changes accordingly.
