PDD stock: Temu growth and lessons from Wish.com

PDD Holdings (NASDAQ: PDD) stock price surged in 2023, helped by the growing popularity of Temu, the fast-growing e-commerce company. The shares jumped to $150, its highest level since March 2021. They were up by over 80% in 2023, beating its top rivals like Alibaba, JD.com, and even Amazon.

Temu was the main reason why PDD Holdings stock price surged as the company became more popular. Data by SimilarWeb shows that it became the most downloaded e-commerce apps around the world. It had over 100 million downloads in Google Play Store and millions more in iOS.

This growth happened as the company boosted its marketing expenses and as its platform went viral because of its cheap products. The most recent results shows that the company spent over $2.9 billion in sales and marketing in the third quarter. It spent billions more in 2023.

Temu’s explosive growth is a good thing for PDD as it expands its business away from its Chinese market. However, it also comes with substantial risks, which the company will need to address in the long term.

In this case, PDD Holdings and its investors need to learn something from Wish.com, which also saw explosive growth a while ago. Temu and Wish.com are similar companies in that they focus on selling low-priced items and shipping them around the world.

The two firms are able to do that by sourcing their products in Asian countries like China. They also source their products directly from manufacturers, removing the markup that other companies go through.

By looking at Wish.com’s history, we see that it is hard to make a profit in this industry. According to SeekingAlpha, Wish.com’s annual revenue peaked at over $2.5 billion in 2020 as demand for e-commerce solutions rose. 

Since then, the company has been in a downhill. Its revenue in 2021 dropped to $2.08 billion followed by $571 million in 2022. The company’s revenue in the trailing twelve months stood at $357 million.

At the same time, Wish has continued to accumulate losses. Its net loss jumped from $208 million in 2018 to $359 million in the past four quarters. It has also seen the number of active users plunge in this period. Its most recent results showed that it had 11 million monthly active users in the last 12 months. Its monthly users stood at about 9 million in the third quarter. 

In contrast, the company had 60 million and 46 million active users, respectively, in the same quarter in 2021. All this explains why the WISH.com stock price has crashed by over 60% in the past 12 months.

Therefore, using Wish.com’s example explains why Temu and PDD faces several substantial risks ahead. The challenge is that it needs to spend more money on marketing in a bid to grow its market share. It also needs to ensure that its sales are profitable. 

Fortunately for PDD, it has a healthy balance sheet that can help it support Temu for a long time. It ended last quarter with over $27 billion in cash and short-term investments. It is almost debt-free as the total long-term debt stands at just $222 million. 

In the near term, the PDD stock price will likely continue rising as investors target the all-time high level of $212, which is about 43% above the current level.

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