PDD, the firm behind the fast-growing shopping app Temu, is shaking up China’s Big Tech club.
On Thursday, news of Alibaba’s market cap sliding under that of PDD made headlines all over the Chinese internet. This development marked a historic shift in China’s e-commerce space, where for years Alibaba had held the crown jewel. Now the 24-year-old incumbent is facing its greatest challenges while eight-year-old PDD catches up with an impressive ascent.
PDD, which saw its market value surge over $188 billion after reporting a doubling in revenue year-over-year, isn’t even trading at its all-time high, which was recorded in early 2021. The moment is a reminder of Alibaba’s gradual descent from its heights in recent times.
Alibaba’s troubles began in late 2020 after its founder Jack Ma publicly criticized Chinese regulations, sending shockwaves through the country’s tech industry. His remarks were widely seen as the catalyst for the suspension of the initial public offering of Ant Group, the fintech giant he created. In the two years that followed, Beijing kicked off a series of crackdowns on the internet sector in an effort to rein in powerful players like Alibaba.
As Ma retreated from public view, Alibaba had been working on splitting into six independent entities, but parts of the plan were abruptly abandoned. In September, the firm said it decided to discontinue the spin-off of its cloud computing unit, citing “uncertainties” triggered by U.S. export controls of advanced computing chips to China. It also put the planned IPO of its grocery operation Freshippo on hold. The series of news wiped billions of dollars off Alibaba’s market value.
Meanwhile, PDD has been forging ahead thanks to growth at home and overseas. In recent years its domestic marketplace Pinduoduo has become a formidable rival to Alibaba’s Taobao, offering a wide range of low-cost products and deep shopper discounts, though its traction has come at the cost of heavy marketing expenses and squeezed merchant margins.
Undeterred by its skyrocketing sales and marketing expenses — which rose to 55.6 billion yuan ($7.6 billion) in the first nine months of 2023, compared to 36.6 billion yuan in the same period last year — Temu has taken its growth recipe from China to some 40 markets. The firm generated $21.8 billion in revenues from the first three quarters of this year.
With its catchy tagline “Shop like a billionaire,” Temu’s aggressive marketing is paying off. For the last 90 days, the app has sat at the top of the shopping category in the U.S. App Store and Google Play Store, according to market intelligence firm data.ai.
Temu’s ascent has become a threat to industry incumbent Amazon and upstart Shein. Both targeting cost-sensitive consumers and relying on supply chains in China, Shein and Temu have been in a legal battle but recently dropped their lawsuits against each other.
Unsurprisingly, U.S. authorities already have an eye on Temu’s rise. In April, the U.S.-China Economic and Security Review Commission under Congress published a report detailing the “challenges” presented by Chinese fast fashion platforms, calling out Temu and Shein. Those challenges include “exploitation of trade loopholes; concerns about production processes, sourcing relationships, product safety, and use of forced labor; and violations of intellectual property rights.”
Temu might become the next TikTok if its influence continues to grow in the U.S., which will then alarm politicians who regard China-affiliated apps as posing security threats. But before any action to restrict the platform materializes, Temu will continue to attract users by relentlessly spending on ads and discounts.