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Temu parent PDD’s shares rise after revenue beats estimates

Written by Nikkei Asia Published on   3 mins read

The low-cost e-commerce giant is targeting agriculture and national brands in 2024.

PDD Holdings’ stock climbed 3.5% in trading on March 20 after the Chinese e-commerce giant reported better-than-expected earnings in the fourth quarter amid overseas expansion.

PDD, owner of the Temu bargain-hunting app, reported revenue of RMB 88.88 billion (USD 12.5 billion) for the October-December quarter, up 123% from a year earlier. Analysts had forecast RMB 79.2 billion (USD 11.1 billion), according to LSEG Data & Analytics, formerly Refinitiv. With the results well above expectations, the company’s shares had surged more than 17% in premarket trading.

“2023 represents a pivotal chapter in our corporate history as we transition towards high-quality development,” chairman and co-CEO Chen Lei said in a news release. “In 2024, we remain dedicated to further improving consumer experiences, enhancing technology innovations, and generating positive impacts in our communities.”

PDD’s full-year revenue increased 90% to RMB 247.64 billion (USD 34.8 billion). Online marketing services and others contributed RMB 153.54 billion (USD 19 billion), while transaction services contributed RMB 94.1 billion (USD 13.2 billion).

“In 2024, we will continue to ramp up our support for high-quality supply and enhance our ability to deliver good value and excellent service,” Chen said on an earnings call. “We will refine our supply chain insight and technology capabilities to help manufacturers reduce costs, increase efficiency, and develop more products that resonate deeply with consumers,” he said.

Known for offering cheap goods, PDD has survived the tough economy in China, where consumer confidence remains weak. Temu, its overseas platform launched in 2022, quickly attracted American customers also wanting low-priced products—two-dollar kitchenware, ten-dollar T-shirts, and more. “Temu: Shop Like a Billionaire” has a nearly five-star rating on US app stores.

“As we expanded into multiple countries and regions, we encountered diverse consumer habits, cultures, and a rapidly evolving market landscape,” Chen said on March 20’s earnings call. “We firmly believe that the consumers’ demand for more savings and better services is universal,” he said.

But the executives did not mention Temu in the call. This comes as Temu has caught the attention of American authorities. Congressional lawmakers accused Temu and rival Shein last year of having a high risk of their supply chains being contaminated by forced labor in China.

James Joholske, director of the Office of Import Surveillance at the US Consumer Product Safety Commission, told a hearing of the US-China Economic and Security Review Commission this month that the huge number of goods shipped directly to American consumers from factories in China is interfering with American authorities’ ability to enforce product safety standards.

Temu does not own any stores and only uses third-party courier services, but the way it handles logistics is an important factor in attracting vendors. As long as sellers’ products are approved by PDD, they need only ship the goods to a designated warehouse in southern China’s Guangdong province. Temu looks after everything from that point on, including shipping abroad and after-sales service, according to Nikkei.

PDD has also ramped up spending on advertising and promotions. Sales and marketing expenses reached RMB 26.64 billion (USD 3.7 billion) in the fourth quarter, up 50% on the year. Total costs of revenue surged 293% to RMB 35.1 billion (USD 4.9 billion), mainly on increased fulfillment fees, payment-processing fees, maintenance costs and call center expenses.

Zhao Jiazhen, executive director and co-CEO of PDD, said on the earnings call that PDD has noted growing demand for consumption upgrades but in a “rational manner.”

“Consumption upgrade is not about high consumption or overspending; it is more about offering our users better products and services at more accessible prices to bring more savings,” Zhao said.

PDD will emphasize connecting the agriculture industry to shoppers in 2024. Chen said on the call that it will invest in “new drivers of high-quality development,” including technology in manufacturing and agriculture. National brands or local brands in China have also become popular among consumers.

“We will step up our investments in the three key areas of high-quality consumption, supply, and platform ecosystem to further optimize our capabilities in offering more savings and better services,” Zhao said. “We see tremendous potential in the large number of quality national brands and agricultural products,” he said.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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