PDD is going crazy overseas

Author | Huang Yu

Editor | Zhou Zhiyu

Nine years ago, no one would have believed that PDD, a newcomer labeled with "low prices," would one day become the biggest competitor of the big brother Alibaba.

However, with the great changes of the times, the continuous performance growth exceeding expectations, and the broad market potential brought by the cross-border e-commerce business TEMU, PDD has gained market favor and is competing with Alibaba for the top spot in e-commerce market value.

PDD hopes to create another PDD overseas through TEMU. TEMU has also stirred up a storm overseas, transitioning from fully managed to semi-managed. Setting itself ambitious growth targets, TEMU aims to outperform the "Four Dragons of China's Cross-border E-commerce" and become one of the top players in global cross-border e-commerce.

In the first quarter of this year, transaction service revenue mainly driven by TEMU surpassed online marketing business for the first time, becoming PDD's largest source of revenue. Several securities firms believe that TEMU's losses have significantly narrowed, even approaching breakeven.

Although the cross-border e-commerce industry has passed the initial stage of rapid growth, the competition remains fierce. Moving forward, TEMU will face more external challenges. It needs to proceed steadily, continuously optimize its operational model, in order to replicate the success story of PDD's rise in the domestic market.

The road ahead will not be easy.

Sharp Increase

With the domestic e-commerce industry reaching its peak in terms of incremental growth, TEMU is the breakthrough that PDD seeks for new growth points. It is also seen by the outside world as a potential entity that can recreate another PDD.

In September 2022, like a catfish, TEMU plunged into the blue ocean of cross-border e-commerce, rapidly expanding to 48 countries and regions by 2023, ranking among the top ten in global app downloads and becoming one of the most downloaded apps in the United States, relying on its low-price strategy and innovative "fully managed model."

Since the beginning of this year, TEMU has continued to expand into more countries and regions. According to Wall Street News, as of now, TEMU has opened approximately 68 sites, covering all continents, with the largest number of sites in Europe and the largest market size in the United States.

PDD's latest financial report shows that its first-quarter revenue increased by 131% year-on-year to 86.81 billion yuan, with transaction service revenue driven mainly by TEMU growing significantly by 327% to 44.36 billion US dollars, surpassing online marketing business for the first time to become PDD's largest source of revenue.

One of the main factors contributing to TEMU's rapid expansion since last year is its shift from the platform model used by PDD domestically to the fully managed model. This model greatly reduces the barriers for cross-border merchants to go global, with the platform providing one-stop services such as store operations, warehousing logistics, and after-sales services, while sellers only play the role of "suppliers." "Full hosting" has enabled TEMU to achieve success in the first phase, making full hosting a "standard configuration" for major cross-border e-commerce platforms.

With the promising growth prospects brought by TEMU, after the first quarter financial report was released, Pinduoduo's pre-market stock price surged by more than 13% at one point, reaching $158.46 per share. As of May 30th, Pinduoduo's market value once again surpassed Alibaba's.

Up to now, Pinduoduo has not publicly disclosed the specific GMV of TEMU, but Pinduoduo has ambitious plans.

Guosen Securities estimates that TEMU's GMV in the first quarter exceeded $13 billion, with 58% included in revenue, contributing approximately RMB 35.3 billion in revenue. Looking at the GMV for the whole year, PuYin International predicts that TEMU's annual GMV may exceed $40 billion, while CICC predicts a growth of over 200% to reach $50 billion.

Multiple sources have revealed that TEMU itself has an even more aggressive GMV target, aiming for as high as $60 billion, which is 3.33 times the approximately $18 billion in sales revenue from last year.

According to Sensortower data, as of April 2024, TEMU's MAU has reached 190 million, surpassing SHEIN's 170 million.

With further expansion in scale and the launch of the semi-hosting model earlier this year, TEMU is on track to profitability.

PuYin International research report points out that with TEMU's rapid growth, it is expected to turn a profit in 2025, with annual transaction service revenue expected to grow by 357% year-on-year, with about 80% coming from TEMU's business. CICC predicts that TEMU is expected to achieve profitability first in the United States this year.

Battle

The battle in the cross-border e-commerce market has reignited. Last year, TEMU took the lead in launching full hosting, quickly stirring up the market. Now, it has quickly followed suit with competitors by introducing the semi-hosting model.

By initiating the "semi-hosting" model, TEMU hopes to further expand its scale.

Sources close to TEMU told Wall Street News that this is to better adapt to the growth changes of merchants, providing them with more flexibility and initiative, with product categories covering clothing and jewelry, furniture and home furnishings, beauty and personal care, outdoor sports, industrial equipment, etc.

"Sem-hosting" has become a new battlefield for major cross-border e-commerce platforms this year. However, the first to launch the semi-hosting initiative is no longer TEMU, but the relatively low-key leader, AliExpress, last year.

Following AliExpress, after the New Year, TEMU began recruiting semi-hosted merchants, and officially launched in the United States in mid-March. In just two months, it has opened in 9 major sites including the United States, Canada, the United Kingdom, Germany, Italy, France, Spain, Australia, and New Zealand. It is reported that global sites are accelerating their opening.

The main difference between TEMU's semi-hosting and full hosting models lies in warehousing and logistics. There is currently no difference in other platform services for various complex processes, such as website traffic, store operations, customer service, intellectual property legal affairs, etc. The semi-hosting model is more suitable for cross-border merchants who are relatively mature in the field of cross-border e-commerce and have their own warehouse logistics partners According to Wall Street News, unlike TEMU, which still controls store operations and product pricing, AliExpress's semi-managed model means that the platform is only responsible for warehousing, logistics, and after-sales services, while store operations and pricing are the responsibility of the merchants themselves.

Sources close to TEMU revealed that the semi-managed model allows TEMU to maintain a good quality-to-price ratio while achieving faster speed. In the future, if merchants' own capabilities become stronger, TEMU may give them more space and freedom.

Industry insiders pointed out to Wall Street News that by 2024, "semi-management" may overtake and become a key competitive factor for cross-border players.

The capital market generally views TEMU's introduction of "semi-management" positively.

Several brokerage institutions have stated that TMEU's semi-management can drive an increase in the proportion of large goods, thereby increasing the average customer price, coupled with reducing the average logistics cost. This can improve the user experience, optimize its unit economic model, enhance profitability and market competitiveness, and potentially significantly improve TEMU's overall business losses and achieve profitability earlier.

However, currently, TEMU's revenue mainly comes from the price difference between terminal sales price and merchant settlement. To attract merchants, whether semi-managed or fully managed, TMUE does not charge any commission.

At the same time, having gone through the first stage of rapid growth, TEMU also needs to pay more attention to improving user experience. While there cannot be major adjustments in selling prices, it should focus more on providing more efficient logistics services and higher-quality products to enhance user satisfaction and loyalty.

Clearly, in the cross-border e-commerce business, TEMU has replicated Pinduoduo's strategy of conquering the domestic market.

However, the competition in the cross-border e-commerce battlefield is becoming increasingly fierce, and it is not easy for TEMU to expand in new markets.

Gao Yan, General Manager of Yijiu Junze Network Technology Co., Ltd., told Wall Street News that this year, as a cross-border merchant, the deepest feeling is that the competition among Chinese cross-border e-commerce platforms will become more diversified and intense, including comprehensive competition in professionalism, product strength, brand power, and innovation.

In this context, while maintaining their existing advantages and genes, major cross-border e-commerce platforms should focus more on establishing differentiated competitive advantages, improving user experience, and enhancing technological innovation.

In addition, TikTok's situation in the United States also serves as a warning to TEMU that it needs to guard against policy risks in overseas markets. Since the first quarter, TEMU has accelerated its business expansion in regions such as the Middle East, Europe, and Latin America to reduce the potential policy risks of over-reliance on the U.S. market.

Pinduoduo's rapid rise in China was the result of a combination of timing, geographical advantages, and human factors. Now, its overseas expansion seems to once again benefit from these favorable factors, but this battlefield is even more complex.

To become a winner in China's cross-border e-commerce and even reshape the global e-commerce landscape, Pinduoduo has a long and arduous journey ahead