As Temu shakes up global ecommerce, PDD is about to overtake Alibaba

PDD, the company behind fast-growing shopping app Temu, is rocking China’s Big Tech club.

Last Thursday, Alibaba’s market cap news slide under that of PDD became the headline of the entire internet in China. This development marks a historic shift in China’s e-commerce space, where for years Alibaba has held the crown jewel. Now the 24-year-old incumbent faces the biggest challenges as the eight-year-old PDD has made an impressive ascent.

PDD, which saw its market value rise to $188 billion after that report a doubling of revenue every year, not even trading at its peak, set in early 2021. The moment is a reminder of Alibaba’s slow descent from its recent heights. .

Alibaba’s troubles began in late 2020 after its founder Jack Ma publicly criticized Chinese regulations, sending shockwaves through the country’s technology industry. His words were widely seen as the reason for the suspension of the initial public offering of Ant Group, the fintech giant he created. Over the next two years, Beijing began a series of crackdowns on the internet sector in an effort to rein in powerful players like Alibaba.

With Ma retreating from public view, Alibaba worked to split into six independent entities, but parts of the plan were suddenly abandoned. In September, the company SAYS it decided to stop the spin-off of its cloud computing unit, due to “uncertainty” caused by US export controls on advanced computing chips to China. It also put on hold the planned IPO of its grocery operation Freshippo. The series of news wiped billions of dollars off Alibaba’s market value.

Meanwhile, PDD is moving forward thanks to growth at home and abroad. In recent years his local marketplace Pinduoduo has become a formidable rival to Alibaba’s Taobao, offering a wide range of cheap products and deep discounts to shoppers, though its traction has waned. -come at the cost of heavy marketing costs and squeezed merchant margins.

Undeterred by rising sales and marketing costs – which rose to 55.6 billion yuan ($7.6 billion) in the first nine months of 2023, compared to 36.6 billion yuan in the same period last year – Temu has brought its growth recipe from China to about 40 markets. The company generated $21.8 billion in revenue from the first three quarters of this year.

With the catchy tagline “Shop like a billionaire,” Temu’s aggressive marketing paid off. For the past 90 days, the app has been sitting at the top of the shopping category in the US App Store and Google Play Store, according to the market intelligence firm.

Temu’s rise has become a threat to industry incumbent Amazon and upstart Shein. Both targeting cost-sensitive consumers and relying on Chinese supply chains, Shein and Temu have been in a legal battle but recently dropped their lawsuits against each other.

Unsurprisingly, US authorities are already watching Temu’s rise. In April, the US-China Economic and Security Review Commission under Congress published a report detailing the “challenges” presented by Chinese fast fashion platforms, calling out Temu and Shein. Such challenges include “exploiting trade loopholes; concerns about production processes, sourcing relationships, product safety, and the use of forced labor; and violations of intellectual property rights.”

Temu could become the next TikTok if its influence continues to grow in the US, alarming politicians who consider Chinese-affiliated apps to pose security threats. But before any action is taken to control the platform, Temu will continue to attract users by relentlessly spending on ads and discounts.

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