A $5.93 mobile phone holder seemed like a gamble worth taking for Michelle Zhang. During the past year, she has become a regular shopper on the cut-price ecommerce app Temu, mostly purchasing home and kitchen appliances. “Things on Temu are usually less than half of their prices on Amazon, and you don’t have to purchase in bulk,” she says, “even though some cups I bought broke easily, I got refunded pretty conveniently.”
Since launching in the US in September 2022, Temu—owned by the Chinese internet giant PDD Holdings, which also operates the massive ecommerce platform Pinduoduo—has leapt to the top of app stores, largely on the back of consumers like Zhang, who lives in Texas. The mobile phone holder she bought was heavily discounted as part of “up to 90 percent off” Black Friday deals on the app, which is investing heavily in Black Friday and Christmas promotions as it tries to compete with rivals Shein and Amazon and break the American market.
Temu is now live in 47 countries. The app launched in the Japanese market in July, and entered the Middle East, via Israel, and Southeast Asia, via the Philippines, in August. By November, it had been downloaded 250 million times, according to data from the consultancy Business of Apps. The company’s strategy of deep discounting via coupons and subsidies, and of spending big on advertising, seems to be paying off, at least in the short term. At the start of 2023, Temu set itself a target of $10 billion in total sales globally. Analysis from investment management company CICC forecasts that with a successful holiday season, sales will surpass $18 billion this year.
But that rapid growth has come at a cost. Sellers say Temu is struggling with warehouse capacity as it tries to fulfill orders and process returns. And, the company is still losing a lot of money. According to the Chinese news outlet 36kr, Temu makes a loss of around 30-35 percent on each US order, and an average of 40 percent on orders globally. The company budgeted 20 billion renminbi ($2.76 billion) in net loss for 2023, now it has increased that to 23 billion renminbi ($3.17 billion), according to 36kr.
When presented with reported estimates from 36kr and other similar projections for comment, Temu representatives responded that the figures are “significantly inconsistent with the facts,” but declined requests to be more specific. But a source with knowledge of PDD’s financial position, who spoke on condition of anonymity because they aren’t authorized to talk to the media, confirmed the numbers. Temu’s runaway spending has led to concerns among analysts—echoed by the company source—that the company may struggle to turn a profit from its enormous user base.
Jeff Li, a tech analyst and former director at consultancy Accenture China, thinks this is a signal of high risk: “If Temu expands to 47 countries in a year, but no country has a clear break even timetable, that would be quite dangerous.”
