How Temu parent PDD dethroned Alibaba to become China’s most valuable e-commerce company

PDD’s value-for-money positioning and growth of its Temu marketplace has helped the company lead China’s e-commerce arena, analysts said, making it the country’s most valuable company in the segment.

PDD Holdings reported stellar first-quarter results on Wednesday last week, sending its shares surging as much as 7.5%, and driving its market-cap past that of rival Alibaba Group. PDD shares have more than doubled in value — up 109% — in the past year, according to LSEG data.

PDD, which also owns Chinese discount shopping app Pinduoduo has a market-cap of about $208 billion, compared with Alibaba’s $196 billion, according to LSEG data. JD.com is a distant third with a market-cap of $48 billion.

“We think Temu’s profitability will improve faster than previously estimated due to its introduction of the half consignment model, under which logistics costs will be borne by merchants,” Morningstar said in a note on Thursday.

“We also believe PDD’s domestic platform will be able to defend its position given the strong consumer perception of its value-for-money positioning,” Morningstar analyst Chelsey Tam said, adding that PDD comes up top in their preferences, while JD.com and Alibaba are in second and third spots respectively.

Goldman Sachs on Friday raised PDD’s rating to “buy” from “neutral,” noting the firm’s continued growth momentum in advertising revenue in the first quarter as well as Temu’s potential.

The upgrade comes “on the back of its adtech capabilities combined with China’s cost-competitive suppliers/merchants /supply chains alongside favorable risk-reward, with the current market cap implying no valuation ascribed to Temu,” Goldman Sachs analyst Ronald Keung said in the note.

The market has “now more than priced in” the two key concerns – domestic competition and U.S.-China tensions – which were behind our earlier downgrade on PDD in March, said Keung.

PDD overtook Alibaba’s market-cap in the fourth quarter last year as well, but lost the top spot to Alibaba in the first quarter, according to LSEG data.

PDD on Wednesday reported that its net income attributable to ordinary shareholders in the March quarter surged 246% to $3.87 billion (27.99 billion Chinese yuan) from a year earlier, beating LSEG estimate of 12.86 billion yuan by a huge margin.

Revenue from transaction services, also known as merchant fees, came in at $6.14 billion, an increase of 327% from the same period a year earlier.

“We proactively responded to the consumption promotion policies and launched a series of promotional activities to meet users’ shopping needs during the spring festival and other seasonal events,” PDD said on its earnings call.

“We are confident in the consumer market in China,” PDD said.

Meanwhile, Alibaba’s net income attributable to ordinary shareholders in the March quarter plunged 86% to 3.3 billion yuan from a year earlier. Alibaba owns e-commerce platforms such as AliExpress, Alibaba.com, Taobao and Tmall.

PDD’s first major push overseas came with Temu in September 2022 whose popularity skyrocketed shortly after it aired a Super Bowl ad in 2023 that invited customers to shop “like a billionaire.”

Bargain-hungry Americans have been flocking to Temu, as it looks to continue growing rapidly in the U.S. Temu has also aggressively expanded into Australia, New Zealand, France, Italy, Germany, the Netherlands, Spain, as well as the U.K.

BofA in a report earlier this month said Temu, TikTok and AliExpress are “leveraging the experience” of their parent and sister companies, adding that it considers Temu to be “relatively better placed” among the lot.

Clarification: The story has been updated to reflect that PDD reported results on Wednesday last week.