For Pinduoduo, 2023 is undoubtedly a year worth remembering forever. In the same year, Pinduoduo's share price soared, and its market value exceeded that of Ali, who had dominated the list for many years, and it officially became the top e-commerce player in China.
There is no false scholar under the fame, and he really has the real ability to spell many. On November 28, 2023, Pinduoduo released its financial report for the third quarter of the year, achieving a revenue of 68.84 billion yuan in the quarter, up 93.9% year on year. It is reported that the income growth of Pinduoduo may mainly benefit from the rapid development of overseas business, among which the contribution of overseas version of "Pinduoduo" Temu cannot be underestimated.
In September 2022, the overseas platform Temu under Pinduoduo will be officially launched in the United States. However, no one would have thought that just one year later, this humble "little man" would burst out with huge energy that global giants like Amazon dare not ignore. It is reported that Temu estimates that the GMV will reach 14 billion dollars in 2023, and will further increase to 30 billion dollars by 2024.
Although GMV is still far from Amazon's 100 billion level, The growth potential of Temu cannot be underestimated. It not only ranks first in the list of free application downloads in the U.S. App Store in 2023, but also shows its attraction far beyond its peers. According to data from Apptopia, American users spend almost twice as much time on Temu as on applications from major competitors such as Amazon.
For Temu, we can easily sum up many reasons for its success, such as the marketing investment regardless of the cost. Last February alone, the Super Bowl advertising cost 14 million dollars, and the large-scale user subsidies, so that a U.S. order for Temu will cost 5 dollars... However, these can only be used up for a while, and any amount of money will burn up, Subsidies regardless of cost will not last. Returning to Temu's business model, we can find that, The key to the biggest driving force for Temu's performance growth is to use the Internet to link the sinking market of the United States and cheap goods in China, so as to eat the big cake of "consumption degradation".
Savings are falling, prices are rising, and Americans have no money in their pockets. To many people's surprise, the surplus grain of American families is not much now. Last year's strong consumption was largely the result of excessive consumption of savings. According to statistics, as of November last year, the excess savings of American households had decreased from a peak of $2.3 trillion to $0.94 trillion, which could be exhausted by the middle of this year as soon as possible. What's more, the inflation level in the United States remains at a high level. In December, the CPI rose by 3.4% year on year, and the core CPI rose by 3.9% year on year. The rise in prices further accelerated the consumption of excess savings. In this case, Temu once again repeated the success of Pinduoduo in the mainland. The price of the single product was far lower than that of Amazon and other competitors. By virtue of the "lowest price in the whole network", Temu successfully grabbed the biggest piece of cake in the consumption downgrade.
Temu's business mechanism has almost reached the acme of cheapness. Different from the prevailing B2M model in the Chinese market, Temu has adopted the C2M mode overseas, which is similar to Amazon 1p's full "trusteeship" self support mode. Merchants only need to be responsible for the supply and delivery to the warehouse. Logistics companies and express companies are responsible for the distribution of goods. The platform is responsible for the rest of the selection, pricing, shelf sales and many other aspects. The platform makes unified pricing, and finally settles with the merchants based on the supply price. The platform will compare prices on a regular basis, and products whose prices are not low enough will face the risk of being out. In this mode, the platform replaces middlemen and directly connects with manufacturers, which almost compresses channel costs and manufacturers' profits to the extreme. At the same time, manufacturers no longer need to worry about diversion, after-sales, remittance and many other links, but only need to focus on creating "low price blockbusters", and the operation cost is almost allocated to the extreme by the scale effect. Other platforms can't compete with the "low price" rolled out in such a completely competitive market close to the economic sense. Amazon was even forced to remove Temu from the price comparison system, because Amazon could not lower the commodity price to the same level as Temu, and price comparison was meaningless.
Many people attribute the success of Pinduoduo in the mainland to the victory of the extremely low price under the "consumption downgrade". Now it can be seen that this logic is not only applicable to the mainland, but also can be promoted to Europe, America and even the world. Temu is the proof of this logic's success again. To predict the future expansion and growth of Temu, the most important thing is to see how long and far the "consumption degradation" can run.
In 24 years, the US economy has been under pressure, inflation still exists, and the consumption degradation will continue. In 2023, the US economy will show strong resilience under high interest rates, mainly due to strong consumption and high government spending. However, these two major supporting factors are gradually weakening. Excess savings are likely to be exhausted by the middle of this year, which will restrain consumption. The total amount of U.S. government bonds due within the year is up to $7.6 trillion. The high principal and interest of U.S. government bonds will also squeeze a large part of the government budget, reducing government spending. At the same time, considering the stickiness of inflation, the US CPI and core CPI remain above 3%, and it still takes some time to fall back to the inflation target of 2%. In this way, the risk of the U.S. economy stalling still exists, prices will rise rapidly, and Temu's high-quality and inexpensive goods are expected to continue to be favored by American consumers.
The logic of consumption downgrade is not only applicable to China and the United States. The world is experiencing "pain". On January 9, the World Bank again lowered its global economic growth forecast for 2024 to 2.4%, which is the third consecutive year that the world economic growth has slowed down. At the same time, the rise in prices caused by geographical conflicts will continue. The Russia Ukraine conflict and the Palestine Israel conflict have faint signs of expansion. The "de Chinesization" led by the United States has led to the diseconomy of the global industrial chain. The resulting contraction of energy supply, food shortages, and the decline in supply chain efficiency have increased the risk of global stagflation. In addition, countries have followed the steps of the Federal Reserve into the interest rate cutting cycle, and the inflation inflation in 24 years is expected to maintain a longer time and a higher level. In the new year, the world may have to be careful, but this also creates great opportunities for Temu's future expansion around the world.
However, although it seems that the future will be smooth, compared with Amazon and other major competitors, Temu still has a long way to go. According to ecommerceDB's prediction, Amazon's GMV is expected to reach 839 billion dollars in 2023. In contrast, Temu's GMV of 14 billion dollars is more like a brilliant start. In the future, we still need to "bury our heads in the plow" for both volume and price to rise.
Temu will set foot in more countries and regions in the future. For Temu, the platform of "exchanging price for quantity", constantly increasing the quantity is the eternal impulse in the platform gene, and also the biggest driving force for win-win between businesses and platforms. Temu can prove the success of its business logic of "consumption degradation+low price winning" in a highly developed country like the United States. It will be even easier for Temu to enter countries and regions with lower economic prosperity, such as Europe, Southeast Asia and Latin America, where consumers pay more attention to cost performance. In fact, in the past year, Temu has been racing around the world and has achieved good results. For example, Temu has more than 11 million visitors per month in the UK, successfully becoming the top 5 retailer in the UK. In Germany, the number of visitors once exceeded Cdiscount and AliExpress, ranking in the top four traffic lists.
Temu will sell more expensive things in the future. Selling more and more expensive things does not mean that Temu needs to change its current business strategy of "winning at low prices", but to introduce more product categories, expand the sales proportion of high unit price and high gross profit varieties, and indirectly increase the customer unit price and gross profit rate. At present, the main categories of Temu are still living, home furnishing, clothing, shoes and hats, which are of low value and can contribute little profit. However, with the gradual expansion of the platform coverage to medium and large electrical appliances, jewelry and other categories, the optimization and adjustment of commodity categories will also become a strong driving force for Temu's performance growth.
The year 2023 is undoubtedly a painful year for China concept stocks. The NASDAQ China Golden Dragon Index fell 3.39% that year, significantly outpacing the 43.42% rise of the NASDAQ Index that year. The economic downturn, the conflict between China and the United States... all kinds of negative factors are making the market look at Chinese stocks with suspicion. At this moment, going out to sea has become one of the few stories that can be told by China probability stocks. It is more realistic to see a rise of 79.41% over the years. Only going out to sea can have a future. For Temu, which is expanding rapidly in the world, the story has just begun!
[Note: The market is risky, so investment should be cautious. In any case, the information or opinions contained in this subscription number are only for exchange of views, and do not constitute investment suggestions for anyone. Except for special remarks, the research data in this paper is supported by Flush iFinD]
This article was originally written by "Xingtu Financial Research Institute", and the author is Wu Zewei, a researcher of Xingtu Financial Research Institute
