The rise of Pinduoduo and Temu: profits and secrets | FT Film

When you start looking at Pindor Door, you quickly realize that this is not a normal company, so there is a lot of mystery surrounding the company and a lot of secrecy about how it works. PDD went from zero market share to, we believe, now a little over 20%. of the market, their number suggests a reinvention of what people once thought was possible in the world of complex retail listing. It's incredibly cheap and also fun, but at the same time there are a lot of questions about the way it was founded, the way it's structured. the way you interact with investors and those questions that some investors might see as red flags is essential for an online marketplace and it's really pioneering being an online dollar store that has all different types of products, not brands, all cheap prices, has grown by simply bringing these cheap ones. prices for consumers who cannot afford the brand name on other products in 2020, during the height of the mini Internet bubble, they had a market capitalization of almost 200 billion, which they are at again today, Pindor's door is has focused now with the launch of their app abroad - they expanded this company overseas, call it September 22nd and have now expanded to almost 50 countries worldwide, essentially leveraging domestic light manufacturing to sell all kinds of things to the rest of the world.

I mean the reason why Many readers are so intrigued by you because they suddenly saw their children, their friends, change their shopping habits almost overnight, so Timo is special, this is probably what biggest thing to happen to global e-commerce in quite some time, so I came across you um through social media I've ordered kids toys um preschool toys montauri toys um teddy bears I've ordered novelty socks I've ordered Taylor jewelry Swift cannot deny that pindor door and timu are selling huge quantities of merchandise to large quantities of people around the world, the problem is that I don't see how, given the lack of information about the company, anyone from the outside can really claim that Gets it right, they don't court Wall Street Equity analysts like the other Chinese e-commerce giants.

There are 56 Wall Street analysts covering PDD Holdings as a stock and 53 of them recommend their clients buy it? They think it's cool. The strange thing is that they don't really have much information to go on. PDD is known to be minimal. communicative when it comes to the business, they still haven't revealed any kind of financial details about you, for example, timu versus the national business and overall it's a very secretive business by nature, by culture, um, they don't tend to reveal too much. about earning sces and stuff like that no one can tell you how big the PD market is two years ago it was worth almost $400 billion in what we call gmv gross merchandise value and using some reasonable assumptions you can get a pretty wide range of estimates Let's say ridiculous, is PDD as big as Amazon or is it as big as Amazon Plus Walmart and if you really want to go with the flow, you can take some of the numbers that they publish and haven't explained, go ahead and hey, maybe PDD is actually as big. big like the Italian economy and that's a little crazy when we do our work in PDD and teu, the work is essentially a triangulation exercise between different data points that we talk to Merchant, we talk to many of the logistics providers that help so much to PDD as well as to teu in In the international market, we talk to different industry contacts who are in e-commerce both nationally and cross-border and, in addition, we get some management access where you know they can speak in qualitative terms and give you an idea of ​​what we are trying to achieve at a high level, so it is not fully operational, but yes, it is less practical when it comes to investors than, for example, some of my other companies that guide Cly's revenue and

profits

, etc., so pendoo is listed on NASDAQ, but unusually, since all these other Chinese companies have made these listings back home to list in Hong Kong and somehow decrease some of their risk in the United States.

Pindor is late. Having a listing in China gives you access to Chinese investors who you would think know your business better than anyone else, I think the question for PDD is why don't they want a second listing that glosses over the details of your business when is it a startup? It's to be expected when you're a $200 billion publicly traded company. Investors expect clarity on basic questions like Hello, where is your headquarters? I'm Jude Weber and I'm the island correspondent for the Financial Times. The first floor of this building behind me in central Dublin is what PDD Holdings has been telling us.

The regulators since March 2023 are their main executive office there is a plaque on the wall outside the office but in fact the company that is registered in Ireland is not PDD Holdings but another completely whale company CCO technology Limited. I wanted to go visit them and tried to get to the first floor, but they don't have a reception there and they asked me to email them. They are the only major Chinese Internet company to move its headquarters abroad. At least on paper, there are definitely reasons why PDD might want to be in Ireland. The island has a low corporate tax rate and that has helped attract other global tech companies such as Apple, Meta and Google, and that also means there is a pool of tech talent available here in Ireland.

Ireland is also an English speaking country and is based in the EU and the EU is a crucial Market if you want to expand globally China also has a cordial relationship with Ireland. The new Chinese Prime Minister, Le Chang, visited Dublin in January 2024 and large Chinese companies such as Tik Tock and Huawei and woi biologics have operations or offices in Ireland, but we really know it in depth. below, this is a Chinese company, it is based in Shanghai, that is where all the staff and management are, so what exactly are we dealing with here? Well, that's complicated.

Teemo says it was founded in September 2022 in Boston. Waleco was incorporated in Ireland in July 2022. but Waleco does not mention any of PD's official filings with the US regulator, meanwhile teu tells European clients to contact the Dublin office to which we went and the data protection query must be sent to the same office, but addressed to Waleco as usual. You have to have some kind of major asset or star where you say your headquarters is and it kind of points to this bigger question about PDD, what are American shareholders really buying because you have this complicated system where what they own is a stake in a Cayman Islands company that company has some contracts with operating companies in China in China all of their operating companies are owned by several people, which could be a problem if there is any dispute between the shareholders and the people who own them Of all these companies that produce the majority of its revenue, Pindor's origin story is also confusing, but what it does show is that founder Colin Hang has this history of muddying the waters on who exactly owns what to do with his companies a decade ago, Colin Hong, who was this former Google.

The engineer ran a number of companies in this building in Shanghai and they basically sold cheap stuff to Americans, although Colin Hong was behind them, he didn't own any of the paper companies in China, this is known as wearing white gloves, um or B showel I followed the address on the business documents to the house of one of these shareholders and he was a 65 year old man and he answered the door with no shirt on and the TV blaring and then there was the company that became pindle which was Similarly, there was this woman who was in her 60s and owned 90% of the company, but when it later listed on NASDAQ, investors were told that Colin had controlled the company since its inception.

I think if you come across a company that is pushing the limits. In one area, it might make you wonder what else they're doing that we can't see, they haven't had a CFO since they went public and instead went through VPs of Finance last year. The Pindo Door app was suspended from the Google Play store saying it contained malware, now the company said nothing malicious was happening but it raises questions about what kind of culture is happening and that could happen when talking to employees, even if they don't really know their colleagues. real names use nicknames group chats between staff members are actively discouraged.

If you look at that from a positive perspective, you could say that they are doing it because they are facing Alibaba and JD and they don't want to reveal how they operate in their specialty. competitors, maybe that's true, but it's a little strange, isn't it? And I really think that doesn't seem like a very satisfactory explanation and it certainly goes against what we might have learned from a lot of business schools about how innovation happens within companies. pindle is essentially an online marketplace where anyone can sell products to Chinese buyers and they have differentiated themselves by taking a lower cut of each sale and also not developing any logistics infrastructure that JD and Alibaba have so they are truly an eCommerce Marketplace asset light, all online PDD nationwide, basically outsourcing fulfillment to the express delivery industry.

It's all very well using third parties nowadays, when everything is fine, but what about Singles' Day, when a large number of people in China send packages? How has PDD been? managed user experience if you look at staffing levels, PDD told us it had around 13,000 employees, which is much smaller than Alibaba which has hundreds of thousands. Amazon, by the way, has between 1 and 2 million people working for it if PDD has been able to grow. at this huge size without having their own logistics without having control, then I think many business schools will have to rewrite some textbooks, so in 2020 and in the previous years they sometimes spent more on sales and marketing than their total revenue , so they really went all-in on ad subsidies to learn users and have shown, at least within China, that they can retain those users once ad spending starts to decline as a proportion of their business.

The question is, will it really do the same? The model runs on teu and will work with US buyers and European PDD buyers domestically. It's very, very cash-generating. This year 2023 we think the domestic business is probably on track to generate something like $25 billion of free cash flow and that, at some level, is funding timu's growth at least in the first instance Teo is spending significant amounts on grow the business. Our estimate is that they will lose more than $4 billion in all of 2023 for the business to take off. We hope they lose. money in 2024 and then will most likely reach profitability sometime in 2025 2026 don't tell investors much, if any, about the company, they don't mention Teemu in their financial reports, except for a couple of quick mentions, they don't show how teu is growing or what they are spending to grow teu, the ceo was asked about it on the call and he just said it's at an early stage, we think 2023, full year , most likely um teu will get somewhere. in the range of $17 billion of gross merchandise value, about a third of Shien, which has been around much longer and is the other major cross-border e-commerce platform.

Shen is a fast fashion company founded in China that shipped cheap clothing directly from Chinese factories to Shoppers in the west feel like they know the teu combination and then other stores like Sheen and Tik Tok are facing this charge of expanding globally and selling essentially around the world and in my opinion will impact some of the global headlines, we are in the early days of the U story, but the reason this company is potentially very important is because they could replicate the story of shien growth quickly in the online market if you are able to replicate the speed. of Shen's growth through his mix of fun and cheap, easy shopping, then he could be as disruptive a force for the online market for players like Amazon as Sheen has been in fast fashion, which is why investors are extremely excited about Teemu's potential, which seems worth it.

However, it is worth noting that other companies have been asked to comment on what the impact has been on their businesses and practically the answer has been yes, we are aware of this, it will surely have some consequences, but we have not seen any impact on our business still and that raises questions about how effective thebig Teemu expansion. Certainly, Etsy's CEO raised questions about the effectiveness of all this money Teemu has been investing in advertising. They certainly couldn't see the basis for a good return on investment there. So, would you like to see what's inside me?

You'd love to see what's inside me. I've found that their marketing campaign has been very, very dedicated, so I think they may have given you rose-colored glasses so you can't. Look beyond the fact that you are getting a great deal, the only difference between this thing I bought in teu for € and the product the company was advertising here is that maybe they had an extra media or two. There are a lot of companies that have tried this cross-border e-commerce model that ships packages directly to us and European consumers and no one has been able to do it yet and make a lot of money from it, although Sheen is starting to show that the model could have done it .

Potential I'm Ryan Mcaro. I'm normally in Beijing, but I happen to be in San Francisco at the time I ordered this package. We were originally going to go to the factory and

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how it was made, but unfortunately the local government intervened. Our Way It's a very basic bag that costs about $8, so you can't expect too much, but it looks like what I ordered, although it is a little smaller. The low prices are essentially a function of two things, one is the fact that you know, compared to peers like Amazon timu is currently charging a much lower acceptance fee than what we hear merchants have to pay, let's say Amazon um , and the second thing that PDD has done prolifically in the domestic market is something they call c2m customer to manufacturer where the platform actually aggregates consumer feedback and sales platform data from other sources and actually tells the producer that repeats the product in different ways.

One of the ways they do this is often that the platform tells the merchant to design something at a slightly cheaper price. specifications, so the quality is a little lower but significantly lower in terms of production cost. The products that we, as Western consumers, buy on platforms like Amazon, for example, the high cost of them has a lot to do with the fact that they need to be created. a brand, they spend a lot on marketing, they survey consumers to try to find out what we want, all of this costs money and is included in the price of the product that Teemu has removed, they have basically said, okay, let's go directly to the manufacturer, use algorithms to predict what buyers want online, eliminate this entire brand building fee cost structure and ship these products directly from factories to buyers in the west at $8, this bag is cheap , but when I looked at comparable bags on Amazon we are selling it for about 15, the thing is that shipping this bag through China is less than a dollar, but the cost to get it to San Francisco from Los Angeles is probably about half that of the total cost of the bag, raising questions about how they keep costs down.

In China to make this business model work now that the volumes are much higher, we hear that there are discussions between traders and teu about supplying teu not only from the manufacturing base in and around Guago, but also to supply the platform from inventory. That's already in the US, where the merchant has already taken on the full long leg inventory risk and that has a purpose which is to allow Timu to sell more expensive items to sell heavier items, which if you ship things in brown paper. China hawks in the US are certainly not happy about American consumers becoming increasingly reliant on these platforms, but the question is whether they can really do anything about it.

Obviously, there is the potential for geopolitics to play a role. the business one of the most visible things is the DI Minimus provision in the US which allows packages to enter the US duty free if their value is less than $800. The team takes advantage of this according to a committee This committee is also looking into where Teus sources its products in China, so there is some push to look at whether Teus sources any of its products from Shinjang and whether that enters the US illegally. We are in a time where it has become very obvious that there is an environmental cost. to fast fashion and overconsumption, but in the last couple of years we've seen these companies whose business model is based on us buying more, throwing it away, and updating our wardrobes, filling them with things we didn't even know we had. necessary or desired and the key question here is whether through their business model they are really creating this new demand or not, whether they are encouraging and driving those who buy to constantly add to their cart and buy things that, frankly, they probably don't need my close friends.

One of them recently placed his own order. Last week he said: "My God, we've created a monster." My basket is full again and I can't wait to check it out. As a buyer, if you just visit the TEU website, you will have no idea that this is a Chinese company on the Teemu website. They have been sporadically updating their founding story and at one point listed their connection with Pendle Door on their website. but for now they have removed any mention of China and say they were founded in Boston in 2022. I think it's okay for a company to be secretive.

Apple is famous for its secrecy. The strange thing about PDD is that it doesn't tell you anything. Pretty basic things about your business, which is not the special source, nor your innovation, but really just trying to understand the financial figures that you publish. These are some pretty standard questions you would expect a publicly traded company to answer. Timu's story is really a story of how dominant Chinese manufacturing continues to be. We've seen geopolitical tensions between the US and China, but despite all those trends, we've seen these companies ship Chinese manufacturing almost directly to consumers in the West, which is a testament. to the continued strength of the Chinese manufacturing base since I started following it, and the question for me has been why they operated the way they do with this extreme secrecy, at least within China, and it has really shown that their model business works according to your finances. statements the question is whether they will be able to recreate this with teu abroad