Temu's strong rebound: Is it time to reassess Pinduoduo?
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Despite the turbulence caused by tariff policies, Temu has demonstrated strong resilience through the successful transformation of its business model and robust operations.
According to Zhui Feng Trading Desk, UBS analysts Kenneth Fong and Sardonna Fong stated in a recently released research report that earlier this year, amid volatile trade conditions, the market was once concerned about Temu’s growth prospects. However, Temu stabilized its position through a series of strategic adjustments.
This resilience mainly stems from Temu’s rapid transformation in the US market from a “fully managed” model to a “semi-managed” model. The report points out that the new model shifts more responsibility for logistics and tax compliance to merchants, effectively addressing tariff pressures. At the same time, Temu’s active expansion in non-US markets also offset some of the impact.
Based on Temu’s recovering growth momentum, UBS raised Pinduoduo's target price from $176 to $198 and reiterated its “Buy” rating. The bank believes the market has yet to fully account for Temu’s long-term growth potential.
The “Semi-Managed” Model Mitigates Tariff Impact
Facing a challenging external environment since 2025, Temu’s core strategy has been to decisively adjust its business model.
The report notes that Temu quickly shifted its focus in the US market from a “fully managed” to a “semi-managed” model, where merchants are responsible for logistics and warehousing while Temu retains control over operations and pricing.
The key here is that it changes the basis for tariff calculation. Tariffs are now levied on the merchant’s product cost, rather than the retail price, effectively reducing the impact of tariffs on the final selling price from 54% to about 13-18%. According to UBS estimates, by Q2 2025, Temu’s GMV in the US has shifted from 70% fully managed in H2 2024 to 70% semi-managed.
In addition to its model transition, Temu has taken several steps to mitigate risk, including expanding overseas warehouses and exploring new markets.
The report shows that by mid-2025, Temu has established 110 warehouses in the US and 10 in Europe, ensuring delivery speed by pre-stocking popular products. Furthermore, while stabilizing the US market, Temu has accelerated expansion into non-US regions like Europe and Latin America to diversify geopolitical risk.
Long-Term Value Driven by Supply Chain Efficiency
UBS believes the market may be overly focused on geopolitical risks while overlooking the long-term value that Temu creates through improved supply chain efficiency.
The report emphasizes that Temu’s low-price advantage does not simply rely on platform subsidies or temporary tax incentives but is instead based on sustainable efficiency gains, enabling it to maintain a 10-15% price discount compared to competitors.
This efficiency is rooted in its unique business model, which can effectively capture and redistribute value from the following processes:
- Logistics and Platform Efficiency: By integrating orders and centralizing logistics procurement, Temu can fulfill orders at lower unit costs.
- Product Sourcing Efficiency: The platform holds pricing and traffic allocation power, uses an internal bidding system to select the lowest-cost merchants, and removes intermediary steps.
- Squeezing Middlemen Profits: Temu’s model compresses the traditional profits of trading companies and distributors, passing this value on to consumers.
The analysis suggests that Temu’s semi-managed model could achieve high single-digit operating profit margins (as a percentage of GMV) by 2029, significantly higher than Pinduoduo’s domestic e-commerce business margin of around 3%.
Pinduoduo’s Stock Price Has Not Fully Reflected Temu’s Potential
Despite the effectiveness of its strategic adjustments, Temu will continue to face financial pressure in the short term.
Due to expansion into new markets with relatively lower margins, a lower monetization rate under the semi-managed model, and increased marketing spending in new markets, UBS projects that Temu’s operating loss will rise from RMB 32 billion in 2024 to RMB 50 billion in 2025.
Nevertheless, the long-term outlook remains positive. As Temu matures across different markets, accelerates monetization through advertising, and sees improvements in operational efficiency, the report forecasts Temu is likely to achieve quarterly breakeven by the end of 2026.
UBS expects Temu’s operating margin (as a percentage of GMV) to reach 6% by 2029, higher than the market consensus of 4%. In terms of GMV, the bank forecasts Temu will reach $75 billion in 2025 and $90 billion in 2026.
UBS believes that Pinduoduo’s current stock price does not fully reflect its intrinsic value, especially Temu’s growth potential. The analysis notes that after excluding Temu, Pinduoduo’s core domestic business is trading at just 9x projected 2026 earnings, comparable to competitors Alibaba and JD.com’s 8-11x, but with a faster domestic growth rate.
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The above content is from Zhui Feng Trading Desk.
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