The market value of PDD Holding (parent company of Temu), a distinctive Chinese E-commerce giant, plummeted by more than USD$50 billion overnight last week.
On August 26th, following the release of its second-quarter business performance report, PDD's stock price fell by nearly 30%, causing its market value to drop from about USD 180 billion to about USD 130 billion.
What led to this situation? The primary reason is that despite Temu's rapid growth and high profitability, it still fell short of market expectations. Additionally, PDD and its overseas brand, Temu, have aggressively expanded over the years, allowing competitors to study and adapt their business model, with many now trying to catch up. Taking the Chinese domestic market as an example, Alibaba and JD.com are adopting the “low price” strategy to secure their position in the budget sector and regain lost ground, while Douyin (internationally known as TikTok) has launched the price comparison feature to compete with PDD's pricing strategy.
In the past 2-3 years, Temu's share of PDD's business rose from 20% to 40%. As a result, many investors believe that PDD will generate significant growth from Temu in the future. However, as we all know, despite the potential, this company faces challenges following its rapid growth. One of its key advantage has been the tax-free status for small parcels, but as more countries crack down on tax-free policies, Temu must find another way out.
Next, Europe and the USA have tightened their regulations and oversight on e-commerce platforms like Temu, which will present additional challenges for the company. At the same time, competitors such as eBay, Shein, and TikTok are accelerating their global expansion, intensifying the competition Temu faces.
One of the most pressing issues is the escalating tension between Temu and its merchants, particularly regarding the 'refund-only' policy, which has generated significant dissatisfaction among the public. This situation has led to decreased investor confidence and contributed to Temu's recent decline.
Its greatest advantage lies in its ability to simplify complexity, focusing on traffic and pricing strategies. To compete effectively with Temu, companies like Alibaba and JD.com must reduce management fees and operational costs. Only by doing so can they challenge Temu's efficient, low-asset business model.
At last, we would like to say, the ideal competitive scenario is one where each party leverages their unique strengths: you with your distinctive advantages, and I with my own competitive edge.
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