PDD Skyrocketing: Can Low-price Strategy Work Again Overseas?
$Pinduoduo Inc.(PDD)$ rose to a 1-year high after beating earnings expectations
The company saw revenue growth of 65% YoY to $4.99 billion, beating expectations of $4.31 billion. Revenues from online marketing services rose 58%, transactions services 102%, and merchandise sales fell 31%. With that said, its merchandise sales are not a material business line for them. It also posted a non-GAAP operating profit of $1.729 billion, a 277% YoY jump. From that, it generated $1.64 billion in operating cash flow.
Temu: Pinduoduo’s oversea project topped the US AppStore within two months
On September 1, 2022, Temu was officially launched overseas. Since November, the US website has surpassed Amazon to become the most downloaded shopping app. In fact, Temu's popularity is largely due to its low-price model conforming to the current consumption trend, and its price advantage is due to Pinduoduo's well-established supply chain in China in the past, enabling it to minimize Intermediate costs. Pinduoduo has quickly become a competitor to established e-commerce giants such as $Alibaba(BABA)$ and $JD.com(JD)$ in China through cheap goods directly provided by the factory, and Temu has also done the same.
Incremental users with low price strategy
In the U.S. market, Temu adopted the strategy of "invite a new user to register and get a 40% discount for both parties; invite 25 new users to register and get a reward of $20", which not only brought initial traffic to the platform but also brought a large number of accurate users. As a sub-platform of Pinduoduo, Temu also has strong user screening capabilities.
The research report of China Merchants Securities estimates that Temu will bring a loss of 5 billion yuan($0.69 billion) to Pinduoduo in the first year (2022.9.1-2023.9.1). Like Pinduoduo in the early stages of its development, Temu has adopted a cost-effective, high-subsidy discount mode of play, and this strategic loss is also expected.
However, the loss of 5 billion yuan in the early stage has little effect on the quarterly revenue of 35 billion yuan. The profitability of Pinduoduo can fully support temu, a project that needs to burn money in the early stage.
Pinduoduo has always been controversial, whether it is the product itself or the way to attract new users. Temu has also launched a similar referral bonus model in the North American market in an attempt to attract new players.
From the perspective of the business itself, Pinduoduo's profitability is beyond doubt. From a marketing perspective, I don't think the attract users method that Pinduoduo used still works in overseas markets.
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