Temu (PDD) is launching a search ad business on the model of Amazon (AMZN), according to a report in The Information, raising the prospect of the Chinese firm cannibalizing more of its U.S. rival’s revenues.
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The report says Temu has launched a pilot program focussed on selling advertising space to merchants who ship locally from the U.S., allowing them to promote products on the site and charging them on a cost-per-click basis.
Furthermore, the scheme allows merchants to increase the visibility of their items through a mix of higher rankings in search results and display ads that appear on Temu, The Information said.
Since launching in the U.S. in late 2022, PDD’s Temu has parked its tanks firmly on Amazon’s lawn. Fighting back, the U.S. company in November launched a new outlet called Haul which caps the price of products on sale at $20.
PDD Wants Some of AMZN’s Ad Sales
Indeed, PDD has been spending billions on advertising as it seeks to gain market share from AMZN in the world’s largest consumer market. And it has also focused on attracting sellers to its marketplace, differentiating itself from its rival by not charging commissions or add-on fees.
But now it wants a slice of the advertising pie, which is growing significantly. AMZN reported ad sales grew 19% in its Fiscal third quarter to $14.3 billion. And its global advertising revenue is projected to increase from $46.9 billion in 2023 to as much as $94 billion by 2026, according to forecaster EMARKETER.
PDD already has a strong ad business in China, worth about $7 billion in the last quarter alone. However the move into U.S. ad sales marks a new phase of expansion for the Chinese company and could pressure AMZN further.
PDD Tests App Store
PDD is also said to be in the early phase of launching an app marketplace offering software tools for online merchants.
Allowing apps to plug into Temu’s software could help with logistics, inventory and accounting, and may help attract sellers.
Is PDD a Good Stock to Buy?
Overall, Wall Steet has a Moderate Buy consensus rating on PDD stock, based on six Buys, five Holds and one Sell. The average PDD price target of $135.57 implies 38% upside from current levels. Shares of PDD have declined by 31% in the last 12 months.
