News / Temu pledges to support its merchants in the face of 'external headwinds'

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Temu owner PDD Holdings has pledged to support its merchants in the face of trade volatility, even as it announced a 38% fall in operating profit in its first quarter. 

Revenues rose 10%, to $13.1bn – of which $6.4bn was from transaction services – while costs rose 25%, mainly from “increased fulfilment and payment processing fees”. Operating profit was $2.21bn. 

Chair and co-CEO Chen Lei explained in an earnings call: “Competition in the Chinese ecommerce sector has further intensified. As a third-party marketplace, we face inherent limitations when it comes to passing on policy incentives to consumers, which puts our merchants at a clear disadvantage compared with our competitors that have a first-party business.  

“And second, in our global business, radical change in external policy environment, such as tariffs, has created significant pressure for our merchants, which often lack the capability to adapt quickly and effectively.” 

He said the platform had introduced an Rmb10bn ($1.38bn) fee reduction programme, and added: “And this year, after it has become increasingly clear that the merchants are expected to face further pressure, and convinced in the long-term value of our merchant support initiative, the management team made the strategic decision to launch the Rmb100bn support programme.” 

He continued: “We understand a marketplace platform is built on collective success of its merchants. In challenging times like these, it’s essential for us to step forward to help our merchants endure and emerge more resilient. If we do nothing, merchants could be overwhelmed by these external shocks.” 

Claiming that short-term wins were not important, Mr Lei explained: “This effort will likely weight off our profitability in the short term, and even for a considerable period to come. However … we are not a conventional company and we do not evaluate our strategic decisions based on quarterly financial results. 

“Instead, our focus is on long-term intrinsic value over five years, ten years, or even longer. And we believe our long-term investors will share this perspective. When seen from another angle, the decline in profit this quarter can be attributed to one overarching factor.” 

The chairman pledged that “in response to macro policy changes and external headwinds, we’ll continue to take proactive actions while strictly upholding regulatory compliance …  

“Our merchants are under considerable pressure, given the recent policy changes, and many lacked the capability to respond effectively, making it very challenging for them to keep up. 

“In light of these circumstances, we believe it is our obligation as a platform to increase support for merchants and invest platform resources to support their businesses 

“If the platform fails to set in and offer support when merchants are experiencing difficulties, the merchants may be overwhelmed by the short-term market volatilities. It is only when merchants are doing well can we deliver high-quality products and services to consumers, and meet their increasingly diverse consumption needs.

“We believe this is not only a responsibility that ecommerce platform should take on, but also fundamental to building a healthy and sustainable ecommerce ecosystem.” 

Net income fell 47%, to $2bn, while cash and cash equivalents fell about 9% from the end of December, to some $50bn at the end of March.