Temu Can't Last Forever, But Will Forever Change the Landscape in the Meantime
Make hay when the sun shines they say. Well, right now the sun is shining on Temu. A recent Bloomberg article quotes an AppTopia study stating that users spend twice as much time on Temu as other apps. More than Amazon, eBay, Etsy, and all the others.
And the time spent by users is still rising.
It's easy to figure out why people like it: in a heavy deal-oriented economy, the lowest of the low prices at scale gets the most attention. The gamification doesn't hurt either, but it's an effect not the cause.
What's the cause? Let's say it out loud: Temu is prepared to lose billions, and users are getting products below cost with all the discounts and subsidies. A report from Wired earlier this year indicates that Temu loses approximately $30 an order, estimating that the service could lose mid to high hundreds of millions this year.
One analyst (Sanford Bernstein) states that if Temu just keeps hitting its targets, it could lose over 2 billion by 2025. The company's average product cost $7, AOV approaching $50 (up from $25-30 last year), and shipping is almost always free.
But that growth!
* It's parent PinDuoDuo stock is soaring because revenue is growing. Investors estimate that it has does about $1B of turnover a month the second half of this year.
* Doubling growth. On top of that, the company has set a $30B GMV goal for 2024. (Just for comparison, Amazon's 3P sales last year were around 200B). That would be double 2023.
Let's be clear, no one is doubling at this scale right now. Big players are paying attention.
You thought Amazon was a "dot bomb" but The company never lost this much money (especially if you take out their Rivian investment in 2022). Even during the boom times of 1999 the company was only losing a few million dollars. So this is another level.
Again, it can't last forever. Eventually the money runs out when the numbers get large enough. So how long could that take? Quite a long time.
Just take a peek at PinDuoDuo (its parent company) is still at a 22% net operating margin and $28B cash on hand. You can afford to lose a lot of money, much more in fact, to capture marketshare and disrupt the landscape.
Most retailers are simply left hoping consumer behavior does not change permanently and there is backlash against so many cheap items. The marketing hope is a return to quality. But in this world, is that a niche market?
