PDD Holdings, the owner of the Pinduoduo and Temu e-commerce platforms, reported higher revenue in the third quarter and said it will increase spending on research and development to enhance its core capabilities. The Nasdaq-listed company reported total quarterly revenues of RMB 35.5 billion ($4.99 billion), up 65% from last year, while operating profit was RMB 10.4 billion.
“We need to continue to deepen our value creation, increase our R&D investment to help further improve the supply chain efficiency,” Chen Lei, Chairman and CEO of PDD, said during a Monday earnings call.
In the earnings call, Chen was asked about the progress of Temu — the US online marketplace launched in September. Based in Boston, Temu has sought to differentiate itself in the US e-commerce industry as a destination for value-savvy consumers.
With Temu, the group will “start from the fundamental needs of consumers and apply the operations and supply chain know-how that we have gained over the years, and strive to create our own unique value,” Chen said.
“We also understand the need to constantly experiment and expect the process to be full of challenges. We will be patient and work toward creating long-term value for consumers and our partners,” he added.
Temu advertises that it can offer prices closer to the cost of production because of its access to manufacturers keen to bypass traditional stores and market directly to consumers. Many of these factories produce merchandise to specification for global brand names, while others offer their designs to be relabeled and sold by global brand names.
“Temu has entered the North America market, and it will continue to leverage the operation and supply chain know-how it has accumulated over the past few years to provide long-term value for users,” Goldman Sachs analysts wrote in a research note.
PDD Holdings pioneered the use of the “team purchase” — in which consumers can band together to purchase items at a lower price — to quickly and directly connect demand and supply. The group also incubated nearly 1,000 factory brands since its founding in 2015.
“We have leveraged digital technology to shorten the product development cycle and help manufacturers create products that closely match market needs. This can help manufacturers to build their brands,” Chen said.
Temu may be able to carve out a niche for itself in the competitive US e-commerce industry if it can offer new value-for-money brands to consumers. But it would first have to overcome the lack of brand recognition and earn consumers’ trust as a legitimate and trustworthy e-commerce site.
Online sales during Black Friday, the biggest shopping day in the US, climbed 2.3% to $9.12 billion, Adobe Analytics said on Nov. 26. Consumers mainly spent on electronics, smart-home items, and audio equipment, while toys and sporting goods also performed well. The National Retail Federation, an industry trade group, is forecasting a jump of 6% to 8% over the $890 billion consumers spent online and in stores in November and December of 2021.
To grab a slice of this retail pie, Temu would have to offer something new and better than what’s available in the market. Winning consumers’ trust in the US could open the door for forays into other markets.
“We are still in the early stage of exploration, and we have many areas to improve in terms of the services we provide,” Chen said of the group’s expansion into North America. “The process of learning and optimizing will take time, but I’m certain the experience we gain along the way will be very valuable for our company and our team.”