The 'Black Box' Finances Of The Chinese Company Behind The Popular Shopping App Temu Are Called Into Question
Temu, having seemingly come out of nowhere to become nearly ubiquitous amongst online shoppers for its extremely cheap merchandise, has taken the American market by storm.
According to GWS Magnify, a consumer insights and performance metrics data aggregator, Temu's skyrocketing app engagement was used by 82.4 million shoppers in September, up from 4.6 million a year earlier.
Temu ads with its "shop like a billionaire" tagline are widespread, with one Temu ad appearing during the Super Bowl.
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Temu's model of shipping heavily discounted goods directly from China to consumers, with strong use of gamification that has been described as addictive, is no stranger to controversy.
For example, Melanie McGovern, director of public relations and social media for the Better Business Bureau, said, "They're making delivery promises, and people aren't getting their stuff when they're supposed to be."
Now, a recent in-depth report by The Financial Times goes further, calling the finances of Temu's parent company, PDD Holdings Inc. (NASDAQ:PDD), a "black box," and asking why "U.S. investors have so much confidence in an opaque operation whose financial statements seem to lack much pattern or explanation."
To help back its point, The Financial Times compares stats provided by Temu to online competitors.
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For example, Temu's less than 13,000 employees at the beginning of last year were far fewer than Amazon.com Inc.'s (NASDAQ:AMZN) staff of 1.5 million, and while Alibaba Group Holding Inc. (NYSE:BABA) spends about $5 billion a year on property and equipment, Temu owns only $146 million of hard assets.
One of Temu's investors, Hayden Capital, agreed that many investors have been put off by PDD's "lack of transparency and concerns about corporate governance."
But this was not a sticking point for Hayden, which said, "Just because a company doesn't give investors disclosure doesn't necessarily mean they don't care about investors."
PDD's stock has had a torrid start to the year, down over 15% year to date, much worse than the KraneShares CSI China Internet ETF (NYSE:KWEB), which is up 4.5% over the same period. Chinese stocks in general have been underperformers in part because of China's broader macroeconomic woes.
However, investors who have ridden the company's shares for longer have been rewarded so far, with its stock up close to 350% since its 2018 initial public offering (IPO).
Consumers overall have also been happy. With close to 1 million reviews on Apple Inc.'s (NASDAQ:AAPL) App Store, Temu has 4.7 stars.
That said, for investors wondering whether the dip in PDD is worth buying might have less information to go off of than they may otherwise be accustomed to when evaluating stocks.
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