Pinduoduo's Temu significantly reduces losses in the first quarter, expected to achieve overall profitability by 2025

[Ebrun Original] On May 23, Pinduoduo released its first quarter financial report for 2024. The data shows that the company achieved a total revenue of 86.812 billion yuan in the first quarter, a year-on-year increase of 131%; net profit attributable to the mother was 27.998 billion yuan, a year-on-year increase of 246%. Reports from CICC and other institutions indicate that in this quarter, Pinduoduo's cross-border e-commerce platform Temu effectively controlled costs, significantly narrowed the loss rate, and is expected to achieve profitability by 2025.

CICC's report shows that Temu's transaction volume reached 10 billion US dollars in the first quarter, and the expected loss rate is narrowed to 9%. The full-year transaction volume is expected to increase by more than 200% to reach 50 billion US dollars (previously 46.5 billion US dollars). The monetization rate continues to rise, while the loss rate is narrowed to 8%. In addition, it is expected to achieve profitability in the U.S. region in 2024, and overall platform profitability in 2025.

Meanwhile, CICC's analysis pointed out that the significant increase in Temu's monetization rate in the first quarter may benefit from a substantial decrease in subsidies, coupled with improvements in logistics costs and marketing expenses on a month-on-month basis. Considering that Temu has successively launched various new models and has a relatively low mark-up rate, CICC predicts that the promotion of new models may be accompanied by a large proportion of subsidies and investment in the early stage. It forecasts that Temu's full-year operating loss will be approximately 4.1 billion yuan.

The reduction in Temu's loss rate is closely related to revenue growth and its business adjustments in the first quarter.

Specifically, in terms of globalized business, Temu launched new models such as semi-fulfillment and OBM in the first quarter of this year: the former allows sellers with warehouse logistics partners in target countries to independently decide on warehousing and logistics solutions, greatly relieving the platform's fulfillment pressure; while the latter extends an olive branch to domestic brand merchants in specific product categories, aiming to optimize product structure.

In terms of expanding the supply chain, Temu conducted dozens of industrial belt docking activities in the Yangtze River Delta, the Pearl River Delta, the Beijing-Tianjin-Hebei region, and the Jiaodong region this quarter, promoting business development through offline exchanges and resource tilt.

In addition, the platform has accelerated business development in regions such as the Middle East, Europe, and Latin America to reduce potential risks of a single region's market share being too high.

In response to market concerns about its globalized business, Pinduoduo's Chairman and Co-CEO Chen Lei stated in a conference call that Duoduo Cross-border is still in the exploration stage and there is still considerable room for improvement. During the period of "fighting tough battles," the Group will not overly focus on the short-term growth of Duoduo Cross-border, nor will it deliberately smooth out financial data, but instead choose to "strengthen internal capabilities, consolidate the foundation, and enhance supply chain, compliance, and service."

"When these capabilities form a joint force, bringing more and more value to consumers in different countries and merchants seeking international market expansion, we hope the platform will also gain more welcome and recognition from more markets and people," Chen Lei said.