Temu/Pinduoduo: Shop like a billionaire comes with strings attached
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Those looking for information about Chinese retailer Temu often ask if it is a real company. That didn’t detract from his popularity. Just weeks after its launch last September, PDD’s US-based subsidiary, formerly known as Pinduoduo, became the top shopping app in Apple’s US app store. It may be the ticket for buyers, but investors should be careful.
Temu’s shopping app has taken a top spot, bolstered by its eye-catching Super Bowl promotional debut, which urged consumers to “shop like a billionaire” on its app.
PDD has spent an estimated $20 million+ on these ads and has given away $10 million to users through online sweepstakes. However, products offered for sale in the app are hardly noticeable. Most of the items listed – from shoes and cosmetics to electronics – cost less than $10 with free shipping and rely on efficient Chinese logistics.
Comparable fast fashion app Shein’s dramatic revenue growth — which is projected to grow from $23 billion last year in sales to nearly $60 billion by 2025 — also hinges on rock-bottom prices and excited young U.S. shoppers.
However, investors should consider the regulatory risk related to the data these apps collect about US users. TikTok, the popular social media app, is in the spotlight of US government watchdogs. They worry about data being shared with the parent company, the Chinese company ByteDance. TikTok user data can range from email addresses and phone numbers to personal viewing preferences.
The range of personal data used in cross-border shopping apps – from home addresses to shoe sizes to credit card information – is much larger than in a short video app.
Nasdaq-listed PDD shares have performed well, up more than 70 percent over the past year. At 24 times forward earnings, its valuation is more than double that of local e-commerce competitor Alibaba. This reflects PDD’s operating margins, which have turned positive since last year, and its overseas growth prospects. Shein has a private valuation of $100 billion.
Based primarily on its at-home e-commerce business, PDD already has a public market value of over $118 billion. The growing global user base can only encourage this. However, ongoing political tensions between China and the US suggest that investors should brace themselves for increased regulatory scrutiny and the real chance of stock price volatility to come.
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