PDD Holdings started in 2015; it functions as a ‘multinational commerce group that owns and operates a portfolio of businesses.’ Initially headquartered in Shanghai, the company became profitable in 2021 by utilizing Pinduoduo, a home appliance and daily grocery e-commerce app. PDD Holdings wished to expand upon its success and launch a Western-focused e-commerce platform. That led to the establishment of Temu in late 2022, which they headquartered in Boston.
In May, PDD Holdings made filings to switch its headquarters to Ireland. The move is likely an attempt to boost PDD Holdings’ international presence. These filings were made two months after Google suspended downloading the Pinduoduo app from its Play Store after they found malware in versions of the app.
On November 30, PDD Holdings achieved a market value of $196 billion - effectively surpassing its rival Alibaba by 8.7 billion. The boost in value is attributed to Temu’s massive earnings contributing to PDD - even as PDD’s operating margin decreased from 26% to 24%. A decrease in operating margin is a probable result of Temu bleeding costs from free shipping and handling (among other costs) to provide incredibly competitive prices. By doing so, Temu could achieve a higher foreign market share, as it now possesses 17% of the U.S. Discount Store market. PDD Holdings can bleed costs with Temu due to profitable domestic margins. Coming out of Q3, they had a 60% growth in operating profit.
Temu can sell products at a low rate by utilizing an extensive network of low-cost manufacturers and supply chain partners. Temu has a price bidding model where sellers place price bids on products, pitting suppliers against one another for customers. Given Temu's high traffic volume and presence on social media, sellers who sell at a slight loss get positioned to make up for the losses if they achieve enough order volume. This model pushes away small sellers that can’t handle high volumes.
From when Temu first launched in the U.S. in late 2022 til now, it has expanded to 40 additional countries. The latest expansion is in Europe, where PDD Holdings is establishing supply chain partnerships in Italy, the Iberian Peninsula, and Germany.
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