Temu/Pinduoduo: shopping like a billionaire comes with strings attached

Those searching for information about Chinese retailer Temu often ask whether it is a real company. That has not hindered its popularity. Just weeks after its launch last September, the US-based subsidiary of PDD, formerly known as Pinduoduo, became the top shopping app in Apple’s US app store. It may be the real thing for shoppers, but investors should stay wary.

Temu’s shopping app has held a top spot boosted by its flashy Super Bowl advertising debut urging consumers to ‘shop like a billionaire’ on its app.

PDD has splurged an estimated $20mn plus on those ads and has given away $10mn to users through online sweepstakes. Products on sale on the app are hardly flashy, however. Most of the items listed — from shoes and cosmetics to electronics — cost under $10 with free shipping, relying on efficient Chinese logistics.

Peer fast fashion app Shein’s dramatic sales growth — revenue of $23bn last year is expected to surge to nearly $60bn by 2025 — also depends upon rock-bottom prices and enthusiastic young US shoppers.

Yet investors should consider regulatory risk regarding the data these apps collect about US users. TikTok, the popular social media app, has been under the spotlight by US government watchdogs. They worry about data passing to its parent company, Chinese-owned ByteDance. TikTok user data can range from email addresses and phone numbers to personal viewing preferences.

Yet the range of personal data used in cross-border shopping apps — from home addresses and shoe sizes to credit card information — is much broader than for a short video app.

Nasdaq-listed PDD shares have done well, up more than 70 per cent in the past year. At 24 times forward earnings its valuation is more than double that of local ecommerce peer Alibaba. That reflects PDD’s operating margins which have turned positive since last year and its overseas growth prospects. Shein has a private valuation of $100bn.

Based mostly on its ecommerce business at home, PDD already has a public market value over $118bn. Its surging global user base can only boost this. But persistent political tensions between China and the US suggest investors should brace for heightened regulatory scrutiny and the real chance of share price volatility to come.