PDD stock slid Monday after analysts at Morgan Stanley said the rapid adoption of PDD Holdings' Temu shopping app could be "cresting" in the U.S.
On the stock market today, PDD stock shed 8.2% to close at 130.15. The drop pushed shares for the China-based company's stock below its 50-day moving average, according to IBD MarketSmith.
Morgan Stanley analysts on Monday sounded a warning about the rapidly growing shopping app Temu, which sells discounted items from merchants in China to shoppers in more than 40 countries.
Temu was the top downloaded app in the U.S. last year. But Morgan Stanley analysts Simeon Gutman and Brian Nowak said in a client note that Temu's momentum with American consumers is moderating, citing third-party data.
Last year, PDD stock surged nearly 80%, helped by the growth of its Temu subsidiary. PDD Holdings also includes Pinduoduo, an e-commerce competitor to Alibaba and JD.com in China. BABA and JD stock are also trading lower Monday, though less sharply, amid broader concerns about the Chinese economy.
Temu's Share Of U.S. Retail
Launched late in 2022, a Super Bowl commercial promising users can "shop like a billionaire" helped Temu quickly capture attention last year. PDD also blanketed Facebook and Instagram with ads for Temu products. The Temu app racked up 123 million downloads in the U.S. last year, according to market intelligence firm Sensor Tower.
That helped Temu capture sales. Morgan Stanley estimates Temu recorded roughly 5% of incremental retail sales growth in 2023. That was more growth than any company outside of retail kings Amazon and Walmart. But Temu's share of all U.S. retail sales is still just 0.2%, Morgan Stanley estimates. And further share gains "may be more modest given a cresting pace of adoption," the report said.
PDD does not disclose individual results for Temu. Morgan Stanley's Gutman and Nowak based their analysis on survey and third-party data.
"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," the Morgan Stanley client note said. "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 focused on Temu in the U.S., not PDD stock as a whole. Separately, Morgan Stanley analyst Eddy Wang holds a positive overweight rating and 181 price target for PDD.
PDD Stock: Temu's Super Bowl Plans
PDD has plans of its own to build on its big year. The company will run a new advertisement during the Super Bowl next month, the Wall Street Journal previously reported.
Temu is also opening its website to sellers in the United States in March, as was first reported in Chinese media last week. European sellers will be able to join later this year. The more than 100,000 sellers on Temu are currently all in China, according to research from Marketplace Pulse.
Investors will be closely watching the efforts to further grow Temu. Beyond just the impact on PDD stock, Temu's rise has been eyed as a possible threat to Amazon stock. And PDD's huge spending on marketing has helped boost sales for Facebook and Instagram parent company Meta. Meta stock and shares of Amazon were both closed higher in trading Monday.
PDD stock has slumped to start the year, down about 3%. Shares have lost value five of the past six trading days, according to Dow Jones Market Data.
