Temu, a Chinese-owned shopping app launched in the US last September, has become a key factor driving strong revenue growth for its parent PDD Holdings, briefly vaulting the company’s market value above that of Alibaba Group Holding in the US stock market.

The exceptional popularity of Temu, which offers cut-to-the-bone pricing so consumers can “shop like a billionaire”, contributed to a 94 per cent surge in revenues for PDD Holdings and a strong stock price rally, prompting Alibaba founder Jack Ma, who is no longer involved in day-to-day operations, to congratulate the “decisions, execution and efforts” of his rival on an internal website. Alibaba owns the South China Morning Post.

Temu, along with other China-backed apps such as Shein and TikTok Shop, are emerging as super shopping tools connecting overseas consumers with China’s vast manufacturing machine. PDD chairman and co-CEO Lei Chen said during the Tuesday earnings call that Temu “has made meaningful progress since its launch a year ago”.

While PDD did not break out Temu in its quarterly financial results or provide any specific business information about the app, analysts are revising their valuations of PDD because of Temu’s popularity.

Morningstar Equity Research nearly doubled its “fair value” estimate of PDD’s American Depositary Receipts (ADRs) to US$213 per share from a previous US$117 “due to incorporation of the overseas platform Temu”.

PDD’s market cap briefly overtook Alibaba’s, reaching US$192 billion in Nasdaq on Wednesday morning (US time), while Alibaba fell below US$190 billion.

Temu gained fame with a TV ad that ran during the Super Bowl in February, and the app has expanded to over 40 markets, including Australia, New Zealand, UK, Germany, France, Spain, Mexico, Japan, South Korea and the Philippines.

Temu is wooing Chinese merchants by saying it will offer a “one stop service”, where the platform takes care of pricing, marketing and consumer services while the manufacturers just have to ship their goods to designated warehouses in China. In turn, Temu boasts in a brochure that it can sell more than 10 million items every day to overseas buyers, giving examples like a US$11.98 waterproof smartwatch and US$26.9 hiking boots.

Li Chengdong, founder of Beijing-based think tank Dolphin, estimated that Temu may generate up to US$20 billion in revenue this year. “The potential of its international arm has become the major engine to drive its market cap,” Li said.

PDD’s third-quarter revenue rose 94 per cent to 68.8 billion yuan (US$9.6 billion), much faster than bigger rivals Alibaba and JD.com, whose sales grew only 9 per cent to 224.8 billion yuan and 1.7 per cent to 247.7 billion yuan, respectively, in the same period.

PDD is a relative latecomer to the industry. Its Pinduoduo platform, popular with Chinese buyers for group shopping and bargain prices, was launched in 2015. In comparison, Alibaba was founded in 1999 and JD.com in 1998.

It has taken its business model overseas at a time when other Chinese-owned platforms, including Alibaba’s Lazada, Shein and ByteDance’s TikTok, have taken competitive rivalry to a new level. For example, Lazada, with a focus on Southeast Asia, recorded double-digit order growth during the third quarter, according to Alibaba’s financial disclosure. TikTok chief executive Chew Shou Zi said in June that the company would pour billions of dollars into Southeast Asia in the coming years.

But geopolitical tensions could hinder growth. Analyst Li said Temu faces risks overseas “just like what occurred to TikTok in Indonesia”. In September, TikTok had to suspend online shopping in the Southeast Asian country, two years after its launch, to comply with new regulations. The company is in the process of obtaining a permit, state news agency Antara reported on Wednesday, citing a local official.

Morningstar analysts said about 60 per cent of Temu’s gross merchandise value comes from the US, making it vulnerable to changes in the American market. “A ban on Temu in the US due to national security and introduction of a customs tax on goods under US$800 shipped directly to the US will substantially reduce Temu’s valuation,” Morningstar said.

In April, Temu was accused of possible intellectual property infringements by the US-China Economic and Security Review Commission. Separately, its sister app Pinduoduo was suspended by Google Play in March following complaints about the presence of malware to bypass user security permissions and access private messages.

PDD chairman Chen said Temu “is still in its early stage and will face uncertainties”, adding that the company is “excited and intrigued by the opportunities and challenges that come with international development”.

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