PDD Holdings (NASDAQ: PDD) shares plunged over 8% on Monday following remarks from Morgan Stanley analysts who suggested that the swift adoption of PDD Holdings’ Temu shopping app might be reaching its peak in the United States.
Morgan Stanley analysts have issued a cautionary note regarding Temu, the fastest-growing shopping app. The app facilitates the sale of discounted goods from Chinese merchants to consumers across more than 40 countries.
Temu, which dominated app downloads in the United States last year, is now experiencing a slowdown in its popularity among American consumers, according to analysts Simeon Gutman and Brian Nowak of Morgan Stanley. He referenced third-party data to support this observation in a note to clients.
The stock of PDD, driven significantly by the growth of its Temu arm, saw a remarkable surge of almost 80% last year. PDD Holdings (NASDAQ: PDD) also includes Pinduoduo, a notable e-commerce rival to Alibaba (NYSE: BABA), and JD.com (NASDAQ: JD) within the Chinese market. Shares of Alibaba and JD.com also declined on Monday, albeit less steeply, amid broader concerns about the Chinese economy.
Temu’s Share of U.S. Retail
In 2022, Temu gained quick attention with a Super Bowl commercial that promised users the ability to “shop like a billionaire.” In addition, PDD extensively advertised Temu products on Facebook and Instagram. According to Sensor Tower, the Temu app amassed 123 million downloads in the United States last year.
The surge in downloads contributed to Temu’s sales growth. Morgan Stanley’s estimation for 2023 suggests that Temu accounted for around 5% of the incremental growth in retail sales, outpacing all companies except retail behemoth Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT). Despite this, Temu’s total U.S. retail sales share remains at a mere 0.2%. The report suggests that further share gains might be more limited due to a slowing pace of adoption.
PDD does not publicly reveal individual results for Temu. Morgan Stanley’s Gutman and Nowak conducted their analysis using surveys and third-party data sources.
The Morgan Stanley client note said,
“Per our latest data, the number of households shopping on Temu continues to fall (now about 20% lower than September 2023) with future purchase intentions also lower than most other discounters/e-tailers in our survey.”
It added,
“Despite Temu buying millions of monthly app downloads, U.S. web traffic and app usage data also shows stalling/moderating uptake since October, even through the holiday period. App download velocity also now seems to be stalling.”
The report concentrated on Temu’s performance in the U.S. market rather than evaluating PDD stock comprehensively. In addition, Morgan Stanley analyst Eddy Wang maintains a positive overweight rating on PDD with a price target of $181.
PDD Holdings (NASDAQ: PDD) Stock Price Action
PDD stock plummeted -8.20% on Monday. The traders had exchanged hands with 25,724,281 (27.52 million) shares compared to the average daily trading volume of 7.56 million.
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