Temu Watch #3: Revenue, costs and profitability
How are the fully managed and semi-managed models doing financially? And what are Temu's plans for the future?
Contents
Things that caught our attention
Tech Buzz China’s Research Editor Ed Sander was a guest on the ‘The Negotiation’ podcast, which was recorded in two episodes. In the second episode, Ed and host Todd Embley take ‘A Deep-Dive Into Alibaba, JD, Douyin, and Little Red Book’. You can listen to the podcast here.
TechPlanet published a report on the current state of shared bikes in China. Ed shared a summary here.
Are you an investor ready to dive deep into China's thriving electric vehicle ecosystem? Seize this unique opportunity to immerse yourself in the heart of innovation with Tech Buzz China’s Exclusive Electric Vehicle Trip!
Over an exhilarating week, you'll explore two to five vibrant cities and get exclusive access to eight to ten top EV manufacturers, cutting-edge battery producers, and trailblazing LIDAR technology innovators. This isn’t just a tour—it’s a deep dive into one of the world’s most dynamic EV markets.
Spaces are extremely limited; secure your spot now and drive your knowledge to the next level! Reserve A Spot Now
Introduction
This is the third Temu Watch article we are publishing in August. After investigating the status of the semi-managed model, in which Temu lets merchants ship goods to overseas warehouses and deliver them to customers in these markets, we looked at how Temu is trying to deal with compliance issues and merchant complaints.
In this third Temu Watch, we update you on the platform's main statistics, costs, advertising spending, and overall profitability. We also discuss the route Temu might be taking from here.
The Temu Watch reports have been compiled from over 30 expert interviews we track in our partner Six Degrees Intelligence's steadily growing database. Many of these interviews are packed with valuable insights, and we will continue our Temu Watch series periodically in the future. To get access to the full reports, do consider supporting our work with a paid membership.
We will return to our regular biweekly publication schedule and topics like EVs in September.
Ed Sander, Research Editor
General Developments
Let’s start with a collection of general statistics about Temu’s development.
According to Sensor Tower, the Temu app has been downloaded more than 600 million times since its launch in September 2022. It was the eighth most downloaded app globally last year and remains number one in the US. [1]
Other sources claim Temu’s user base is between 400 million and 500 million, with about 200 million active users per month.
In Q1 2024, Temu’s GMV was about $9 billion. In the second quarter, this grew to $13 billion. After deducting cancelled and refunded orders, the net transaction volume in the first half of 2024 was $18 - $19 billion, more than the GMV over the whole of 2023. 2023’s GMV figures were $18 billion and $16.4 billion respectively.
The share of the European market in Temu’s sales is expected to be 37% this year, while its share in the North American market will shrink to 33%. As we explained in our May article this is an intentional strategy to make the platform less dependent on the American market. But make no mistake, in absolute terms the US market it is still growing.
Smaller markets such as Canada, Australia, New Zealand and Africa have little impact on overall performance.
USA
In the first half of 2024, Temu’s US performance did not meet expectations. The last week of April especially saw poor performance. US sales dropped 25% month-on-month, mainly due to reduced advertising volume and two-day delivery delays caused by customs inspections (see Temu Watch #2).
Temu and Shein have equal shares in the U.S. market. Together, they account for 70% of the total cross-border goods to the United States. Especially from September 2023 to Black Friday, Temu's shipment volume exceeded Shein in most cases. Although Temu may not be as good as Shein in terms of the number of clothing SKUs, it may have more advantages in other product categories.
Temu noticed that 70% - 90% of traffic is concentrated on popular products with lower prices, which is its main strategy for attracting consumers.
Europe
In the first half of 2024, growth rates in Europe have exceeded those in the US.
In the European market, the five countries of the United Kingdom, France, Germany, Italy and Spain account for 75% of the total European order volume.
According to Fox Intelligence, part of NielsenIQ, Temu had already entered the Top 5 platforms of several European countries by June 2024. [2]
Source: [2]
For example, in a year of operation in France, Temu has reached nearly 12% penetration, with an average of 3.3 purchases per year and an annual average spending of €112.50. Baby boomers and Gen X (index 146) are overrepresented among its French customers. Meanwhile Gen Z is overrepresented in Shein’s customer base (index 122) and underrepresented in Temu’s (index 76). Temu’s French customer profile stands out in their overall annual online spending (€2,500) and frequency (45.8) compared to the average French online shopper (€1,800 / 27.7). 96% of Temu’s French customers were returning customers from the previous 90 days. [3] The average French Temu order reached €25, exceeding AliExpress' €21.
Since entering the European market in April 2023, Temu has increased its advertising spending by 100 times, mainly on social media platforms. This aggressive marketing strategy has undoubtedly contributed to Temu's rapid growth in the European market.
Asia
In the Asian market, Japan shows fast growth but is unstable, South Korea has developed but fluctuates greatly, and Southeast Asia performs the worst.
When Temu entered Southeast Asia, its first stop was the Philippines in August 2023, because the Philippines' e-commerce growth rate ranks first in the world in 2023 (24.1%). It is also Southeast Asia's second most populous country: approximately 114 million, of which young people under 30 account for about 60%. [4]
However, despite the potential, the Philippines only accounts for 0.3% of Temu’s global traffic. Based on Temu's total monthly global traffic of 446 million (average in the past three months), the traffic of the Philippines site is estimated to be about 1.3 million, equivalent to the level of an independent website of a large-scale merchant. [4]
Malaysia was launched in September 2023. It took almost a year until Temu launched in another Southeast Asian market, Thailand. Recruitment of local sellers in Southeast Asia has been weak. [4]
Temu has encountered many obstacles in Southeast Asia: [4]
Strong positions and defence by Shopee, Lazada (Alibaba). The traffic of these webshops in the Philippines is almost 40 and 20 times higher than Temu’s. In Malaysia, these factors are nearly 100 and more than 20, respectively. TikTok is also very active in some Southeast Asian markets.
Southeast Asian Prices are already low, so Temu doesn’t make the same impression as elsewhere. What’s more, Shopee, Lazada and TikTok have all implemented their own versions of the fully managed model and further lowered their prices.
Southeast Asian countries are not friendly to foreign low-price platforms. This is because the industrial system in Southeast Asia is not yet developed and is highly sensitive to the impact of foreign low-priced goods on local industries. For instance, after its e-commerce business was banned in Indonesia, TikTok had to acquire Tokopedia to be allowed to sell in that country again.
Sellers are not very interested in joining Temu, a platform that is new to the market and keeps pushing down prices. At the same time, from an operational perspective, platforms such as Shopee and Lazada have built mature ecosystems, including promotion systems and live shopping systems.
South Korea is the fourth-largest e-commerce market in the world. Nearly half of the country's retail spending comes from online, and the per capita online consumption level is second only to the United States. At the same time, this is also a very competitive market. Even Coupang, which currently leads by a number of users, only has a market share of about 20%. [5]
According to data from Wiseapp Retail Goods, a third-party market research agency, Coupang has 30 million monthly active users, ranking first in South Korea. However, AliExpress and Temu are growing faster. In February 2024, AliExpress' local monthly active users reached 8.2 million, while Temu, which has only been in the country for half a year, had nearly 5.8 million monthly active users. By March, Temu’s monthly active users exceeded 8 million. [5]
AliExpress and Temu are aggressively attacking South Korea's market. Advertisements of the two platforms are all over South Korea's TV, social media and subways. Before the end of March 2024, AliExpress used a "zero commission" policy to attract Korean merchants. Under normal circumstances, e-commerce platforms charge merchants a commission of 10% to 20%. They have also expanded the warehouse capacity in Shandong province, near South Korea, to speed up logistics. [5]
There are many reasons for Temu's success in the Japanese market. The platform entered the market through low-priced products, which initially did not attract much attention. However, it subsequently launched a continuous price reduction promotion strategy, which attracted many consumers who frantically bought during various flash sales and events, and sales fluctuated significantly. This shows that Temu's marketing strategy caters to the needs of some Japanese consumers. Although they pursue high quality, they also accept low-priced products.
Having said that, Japanese consumers' recognition of brands requires long-term effort. Established brands can form high stickiness. Temu has only been in the Japanese market for about a year. Although its sales volume is good, overall, it is still a long way from deep penetration. It is not clear what Temu's specific share of the Japanese e-commerce market is, but it certainly ranks behind Rakuten and Amazon. Although Temu's growth rate in Japan ranks second, gaining a real foothold will take a long time.
Logistics
In recent years, the structure of air cargo has changed significantly. Currently, the main items exported by air transport include clothing, cosmetics, and various small daily necessities. These products mainly come from e-commerce platforms, such as Temu. In today's air cargo, e-commerce-related goods account for 60%, while traditional trade goods account for 40%. The proportion of e-commerce goods in air transport is expected to continue to increase.
Especially in South China, including Hong Kong, e-commerce goods account for more than 60% of air transport volume. Shenzhen Airport has a higher proportion of e-commerce products, and many newly opened routes are dedicated to serving large e-commerce platforms such as Temu.
In some all-cargo flights, Shein's cargo accounts for nearly 60%, while Temu's cargo accounts for 40%. This e-commerce-led trend has also impacted the seasonal fluctuations in the air transport business. Traditionally, March to August is usually a low sales season, but due to the development of cross-border e-commerce, sales levels during this period remained high.
If these import policies remain unchanged, the proportion of e-commerce goods may reach 80%. These changes have also had an impact on cross-border logistics prices. Currently, the transportation cost from Shenzhen to Los Angeles is about RMB 40 per kilogram. Looking ahead to the next few months, due to the arrival of Black Friday and the Christmas shopping season, prices are expected to rise to around RMB 60 per kilogram in September and October.
Geographical Expansion
This year, Temu has adopted a relatively cautious strategy in terms of market expansion compared to 2022 and 2023. No large-scale new market expansion is expected this year or next year and only a few new markets will be added this year.
In 2024, Temu plans to expand to 10 new countries, including 3-4 European and some Asian countries. The goal is to control the number of covered countries to about 80; the current count is 77 (August 25th, 2024). Temu may exit some markets due to low order volumes and eventually operate in slightly over 60 countries.
Seven major European countries have started the semi-managed model (see Temu Watch #1). Meanwhile, the fully managed model was launched in 4 new countries at the start of 2024, and Temu planned to increase this to 8 countries, mainly in Europe and Africa. Temu also plans to expand the semi-managed model to Japan, South Korea, and Mexico by the end of August. [10]
Temu launched in Mexico in May 2024 and quickly became the most popular e-commerce app in terms of monthly active users (MAU). By the end of May, it had 19 million users, more than the 15.3 million for MercadoLibre and 4.8 million for Amazon. [6]
Temu launched in Brazil in June and is also considering entering large markets such as Taiwan, Hong Kong, India and Indonesia, although the negotiations in these markets are relatively complicated. Temu expects the legal and tax issues it faces in some of these regions to be resolved soon.
In addition, Temu is also paying attention to the development of emerging markets such as Latin America and the Middle East, as well as the Japanese and Korean markets, and plans to expand the African market further this year. The Middle East and Latin America are key markets for Temu. Still, the return rate in the Middle East is high due to the cash-on-delivery method, and the performance of the Brazilian market is lower than expected.
Temu has entered over 20 European countries, but some small countries remain. If US market access is affected, Temu will respond by opening more countries in Europe, northern Africa, and countries with better-developed economies.
The rest of the article, which includes insights into marketing expenses, customer retention, profitability and expectations for Temu’s future, is available to paid subscribers.
Contents
Things that caught our attention
Tech Buzz China’s Research Editor Ed Sander was a guest on the ‘The Negotiation’ podcast, which was recorded in two episodes. In the second episode, Ed and host Todd Embley take ‘A Deep-Dive Into Alibaba, JD, Douyin, and Little Red Book’. You can listen to the podcast here.
TechPlanet published a report on the current state of shared bikes in China. Ed shared a summary here.
Are you an investor ready to dive deep into China's thriving electric vehicle ecosystem? Seize this unique opportunity to immerse yourself in the heart of innovation with Tech Buzz China’s Exclusive Electric Vehicle Trip!
Over an exhilarating week, you'll explore two to five vibrant cities and get exclusive access to eight to ten top EV manufacturers, cutting-edge battery producers, and trailblazing LIDAR technology innovators. This isn’t just a tour—it’s a deep dive into one of the world’s most dynamic EV markets.
Spaces are extremely limited; secure your spot now and drive your knowledge to the next level! Reserve A Spot Now
Introduction
This is the third Temu Watch article we are publishing in August. After investigating the status of the semi-managed model, in which Temu lets merchants ship goods to overseas warehouses and deliver them to customers in these markets, we looked at how Temu is trying to deal with compliance issues and merchant complaints.
In this third Temu Watch, we update you on the platform's main statistics, costs, advertising spending, and overall profitability. We also discuss the route Temu might be taking from here.
The Temu Watch reports have been compiled from over 30 expert interviews we track in our partner Six Degrees Intelligence's steadily growing database. Many of these interviews are packed with valuable insights, and we will continue our Temu Watch series periodically in the future. To get access to the full reports, do consider supporting our work with a paid membership.
We will return to our regular biweekly publication schedule and topics like EVs in September.
Ed Sander, Research Editor
General Developments
Let’s start with a collection of general statistics about Temu’s development.
According to Sensor Tower, the Temu app has been downloaded more than 600 million times since its launch in September 2022. It was the eighth most downloaded app globally last year and remains number one in the US. [1]
Other sources claim Temu’s user base is between 400 million and 500 million, with about 200 million active users per month.
In Q1 2024, Temu’s GMV was about $9 billion. In the second quarter, this grew to $13 billion. After deducting cancelled and refunded orders, the net transaction volume in the first half of 2024 was $18 - $19 billion, more than the GMV over the whole of 2023. 2023’s GMV figures were $18 billion and $16.4 billion respectively.
The share of the European market in Temu’s sales is expected to be 37% this year, while its share in the North American market will shrink to 33%. As we explained in our May article this is an intentional strategy to make the platform less dependent on the American market. But make no mistake, in absolute terms the US market it is still growing.
Smaller markets such as Canada, Australia, New Zealand and Africa have little impact on overall performance.
USA
In the first half of 2024, Temu’s US performance did not meet expectations. The last week of April especially saw poor performance. US sales dropped 25% month-on-month, mainly due to reduced advertising volume and two-day delivery delays caused by customs inspections (see Temu Watch #2).
Temu and Shein have equal shares in the U.S. market. Together, they account for 70% of the total cross-border goods to the United States. Especially from September 2023 to Black Friday, Temu's shipment volume exceeded Shein in most cases. Although Temu may not be as good as Shein in terms of the number of clothing SKUs, it may have more advantages in other product categories.
Temu noticed that 70% - 90% of traffic is concentrated on popular products with lower prices, which is its main strategy for attracting consumers.
Europe
In the first half of 2024, growth rates in Europe have exceeded those in the US.
In the European market, the five countries of the United Kingdom, France, Germany, Italy and Spain account for 75% of the total European order volume.
According to Fox Intelligence, part of NielsenIQ, Temu had already entered the Top 5 platforms of several European countries by June 2024. [2]
Source: [2]
For example, in a year of operation in France, Temu has reached nearly 12% penetration, with an average of 3.3 purchases per year and an annual average spending of €112.50. Baby boomers and Gen X (index 146) are overrepresented among its French customers. Meanwhile Gen Z is overrepresented in Shein’s customer base (index 122) and underrepresented in Temu’s (index 76). Temu’s French customer profile stands out in their overall annual online spending (€2,500) and frequency (45.8) compared to the average French online shopper (€1,800 / 27.7). 96% of Temu’s French customers were returning customers from the previous 90 days. [3] The average French Temu order reached €25, exceeding AliExpress' €21.
Since entering the European market in April 2023, Temu has increased its advertising spending by 100 times, mainly on social media platforms. This aggressive marketing strategy has undoubtedly contributed to Temu's rapid growth in the European market.
Asia
In the Asian market, Japan shows fast growth but is unstable, South Korea has developed but fluctuates greatly, and Southeast Asia performs the worst.
When Temu entered Southeast Asia, its first stop was the Philippines in August 2023, because the Philippines' e-commerce growth rate ranks first in the world in 2023 (24.1%). It is also Southeast Asia's second most populous country: approximately 114 million, of which young people under 30 account for about 60%. [4]
However, despite the potential, the Philippines only accounts for 0.3% of Temu’s global traffic. Based on Temu's total monthly global traffic of 446 million (average in the past three months), the traffic of the Philippines site is estimated to be about 1.3 million, equivalent to the level of an independent website of a large-scale merchant. [4]
Malaysia was launched in September 2023. It took almost a year until Temu launched in another Southeast Asian market, Thailand. Recruitment of local sellers in Southeast Asia has been weak. [4]
Temu has encountered many obstacles in Southeast Asia: [4]
Strong positions and defence by Shopee, Lazada (Alibaba). The traffic of these webshops in the Philippines is almost 40 and 20 times higher than Temu’s. In Malaysia, these factors are nearly 100 and more than 20, respectively. TikTok is also very active in some Southeast Asian markets.
Southeast Asian Prices are already low, so Temu doesn’t make the same impression as elsewhere. What’s more, Shopee, Lazada and TikTok have all implemented their own versions of the fully managed model and further lowered their prices.
Southeast Asian countries are not friendly to foreign low-price platforms. This is because the industrial system in Southeast Asia is not yet developed and is highly sensitive to the impact of foreign low-priced goods on local industries. For instance, after its e-commerce business was banned in Indonesia, TikTok had to acquire Tokopedia to be allowed to sell in that country again.
Sellers are not very interested in joining Temu, a platform that is new to the market and keeps pushing down prices. At the same time, from an operational perspective, platforms such as Shopee and Lazada have built mature ecosystems, including promotion systems and live shopping systems.
South Korea is the fourth-largest e-commerce market in the world. Nearly half of the country's retail spending comes from online, and the per capita online consumption level is second only to the United States. At the same time, this is also a very competitive market. Even Coupang, which currently leads by a number of users, only has a market share of about 20%. [5]
According to data from Wiseapp Retail Goods, a third-party market research agency, Coupang has 30 million monthly active users, ranking first in South Korea. However, AliExpress and Temu are growing faster. In February 2024, AliExpress' local monthly active users reached 8.2 million, while Temu, which has only been in the country for half a year, had nearly 5.8 million monthly active users. By March, Temu’s monthly active users exceeded 8 million. [5]
AliExpress and Temu are aggressively attacking South Korea's market. Advertisements of the two platforms are all over South Korea's TV, social media and subways. Before the end of March 2024, AliExpress used a "zero commission" policy to attract Korean merchants. Under normal circumstances, e-commerce platforms charge merchants a commission of 10% to 20%. They have also expanded the warehouse capacity in Shandong province, near South Korea, to speed up logistics. [5]
There are many reasons for Temu's success in the Japanese market. The platform entered the market through low-priced products, which initially did not attract much attention. However, it subsequently launched a continuous price reduction promotion strategy, which attracted many consumers who frantically bought during various flash sales and events, and sales fluctuated significantly. This shows that Temu's marketing strategy caters to the needs of some Japanese consumers. Although they pursue high quality, they also accept low-priced products.
Having said that, Japanese consumers' recognition of brands requires long-term effort. Established brands can form high stickiness. Temu has only been in the Japanese market for about a year. Although its sales volume is good, overall, it is still a long way from deep penetration. It is not clear what Temu's specific share of the Japanese e-commerce market is, but it certainly ranks behind Rakuten and Amazon. Although Temu's growth rate in Japan ranks second, gaining a real foothold will take a long time.
Logistics
In recent years, the structure of air cargo has changed significantly. Currently, the main items exported by air transport include clothing, cosmetics, and various small daily necessities. These products mainly come from e-commerce platforms, such as Temu. In today's air cargo, e-commerce-related goods account for 60%, while traditional trade goods account for 40%. The proportion of e-commerce goods in air transport is expected to continue to increase.
Especially in South China, including Hong Kong, e-commerce goods account for more than 60% of air transport volume. Shenzhen Airport has a higher proportion of e-commerce products, and many newly opened routes are dedicated to serving large e-commerce platforms such as Temu.
In some all-cargo flights, Shein's cargo accounts for nearly 60%, while Temu's cargo accounts for 40%. This e-commerce-led trend has also impacted the seasonal fluctuations in the air transport business. Traditionally, March to August is usually a low sales season, but due to the development of cross-border e-commerce, sales levels during this period remained high.
If these import policies remain unchanged, the proportion of e-commerce goods may reach 80%. These changes have also had an impact on cross-border logistics prices. Currently, the transportation cost from Shenzhen to Los Angeles is about RMB 40 per kilogram. Looking ahead to the next few months, due to the arrival of Black Friday and the Christmas shopping season, prices are expected to rise to around RMB 60 per kilogram in September and October.
Geographical Expansion
This year, Temu has adopted a relatively cautious strategy in terms of market expansion compared to 2022 and 2023. No large-scale new market expansion is expected this year or next year and only a few new markets will be added this year.
In 2024, Temu plans to expand to 10 new countries, including 3-4 European and some Asian countries. The goal is to control the number of covered countries to about 80; the current count is 77 (August 25th, 2024). Temu may exit some markets due to low order volumes and eventually operate in slightly over 60 countries.
Seven major European countries have started the semi-managed model (see Temu Watch #1). Meanwhile, the fully managed model was launched in 4 new countries at the start of 2024, and Temu planned to increase this to 8 countries, mainly in Europe and Africa. Temu also plans to expand the semi-managed model to Japan, South Korea, and Mexico by the end of August. [10]
Temu launched in Mexico in May 2024 and quickly became the most popular e-commerce app in terms of monthly active users (MAU). By the end of May, it had 19 million users, more than the 15.3 million for MercadoLibre and 4.8 million for Amazon. [6]
Temu launched in Brazil in June and is also considering entering large markets such as Taiwan, Hong Kong, India and Indonesia, although the negotiations in these markets are relatively complicated. Temu expects the legal and tax issues it faces in some of these regions to be resolved soon.
In addition, Temu is also paying attention to the development of emerging markets such as Latin America and the Middle East, as well as the Japanese and Korean markets, and plans to expand the African market further this year. The Middle East and Latin America are key markets for Temu. Still, the return rate in the Middle East is high due to the cash-on-delivery method, and the performance of the Brazilian market is lower than expected.
Temu has entered over 20 European countries, but some small countries remain. If US market access is affected, Temu will respond by opening more countries in Europe, northern Africa, and countries with better-developed economies.
The rest of the article, which includes insights into marketing expenses, customer retention, profitability and expectations for Temu’s future, is available to paid subscribers.
Marketing
Temu's advertising strategy has changed significantly between 2023 and 2024, reflecting the company's strategic adjustment in global market expansion. Overall, Temu 's advertising volume has decreased in the first half of this year. This is mainly due to the slowdown in the opening of new markets, and its operating model shifting from fully managed to semi-managed.
Before April 2023, Temu’s advertising was almost entirely concentrated in North America, with a proportion as high as 98%, because it hadn’t launched in other countries than Canada, New Zealand and Australia (and even those in March and April). From May to November 2023, the North American share dropped to 40% - 50%. By December 2023, North America's share dropped to 42%; in January 2024, it dropped to 39%. When Temu encountered customs clearance problems in North America (see Temu Watch #2), it removed a large number of SKU advertisements. t the end of May 2024, North America's share fell to 31%, but it rose to 34% at the end of June.
Despite a declining share of the total budget, in 2023, Temu’s marketing budget was mainly concentrated in the US (80%, $2.4 billion). This year’s marketing budget increased from $3 billion to $4.3 billion, but more attention is given to the global market. 60% of the total budget will be spent in the second half of 2024. The focus will be on countries where fully and semi-managed models have been launched. The actual expenses may be less than $4 billion since Temu has reduced investment in North America, and other regions have not performed as expected.
The US advertising effect wasn’t as good as last year. The brand’s second Super Bowl advert, shown in 2024, also didn’t perform as well as the one from 2023. In 2023, Temu’s Super Bowl commercial allegedly faced backlash because it had shown products with different prices for people from different racial backgrounds. According to one expert, Temu had switched to a cartoon-style commercial for that reason. The advert avoided comparisons while still featuring characters from many different ethnic backgrounds. However, audiences didn’t respond well to the new cartoonish approach.
Still from the 2023 commercial (you would think that longer wigs being more expensive is logical).
Still from the 2024 commercial.
In the second quarter of 2024, Temu’s performance advertising (CPC) investment reached $420 million, an increase from $368 million in the first quarter. This compares to $372 million in the first quarter and $429 million in the second quarter of 2023, demonstrating continued investment. Of course, the 2024 data covers multiple international markets, while spending in the first half of 2023 was mainly concentrated in North America.
In the first half of 2024, Temu reduced its advertising budget in the United States and increased spending in Europe, Japan, South Korea, the Middle East, and Latin America. In the United States, it continues to advertise on platforms such as YouTube, Facebook, and Instagram, but user growth is close to saturation. Temu, therefore, needs to adjust resource allocation, focus on markets with growth potential, and solve specific challenges each region faces.
In March, Temu started shifting more advertising towards the European market. The platform advertises in markets that make up 3% - 5% of its European sales. In the second quarter, 70% - 75% of the marketing budget of $800 million to $1 billion would be spent in five European countries. Latin America would receive $150 - $200 million, the Middle East $100 million, and Australia and New Zealand $20 million each.
In 2023, Temu invested a lot of advertising funds in Europe when it launched in several European countries in Q2. On average, each potential user has been exposed to advertising more than seven times. However, growth in advertising has been limited due to political instability and logistical challenges. Temu’s European advertising volume was even reduced due to antitrust and intellectual property issues.
In May 2024, Europe’s share in Temu's advertising was 24%, a significant decrease from 45% in the same period last year. By June 2024, this proportion dropped to 19%, an even more significant decline compared to the 40% share in the same period last year.
In June, Temu increased its advertising budget again, partly to expand in the Southeast Asian market. Advertising spending was expected to increase in North America and Europe in July, with the French market in particular launching Olympics-related products. Ad spending in North America will likely return to 2023 levels in the coming months, accounting for between 45% and 50% of total spending. This is in line with the general trend of the e-commerce industry, which is to increase advertising in the second half of the year to prepare for the peak sales season from September to November. From June to September, the advertising volume will gradually increase, consistent with industry expectations.
Temu's future advertising will grow significantly in regions such as Southeast Asia and Latin America (Mexico and Brazil). Temu’s advertising volume in Latin America currently accounts for over 20% of its overall advertising volume. This shows that it is constantly adjusting its global advertising strategy to adapt to market characteristics and challenges in different regions.
Temu will adjust its global advertising strategy in the second half of the year to ensure that the $60 billion GMV target is met.
It’s interesting to see how the advertising budget is spent. The advertising strategies of e-commerce platforms are mainly focused on increasing app downloads and user acquisition, while also promoting specific products through social media to boost sales. With Temu, we can see that the changes in its advertising strategy reflect the shift in its business model. In the early stages, Temu spent 90% of its budget on app downloads and user acquisition. However, since the second half of 2023, they have shifted 90% of their budget to directly promote sales of low-priced goods.
In 2023, 60% - 70% of advertising in North America was used for customer acquisition and 30% - 40% for customer activation; in 2024, activation advertising will account for more than half of the budget.
Under the current circumstances, Temu needs to balance advertising investment with basic capacity building carefully. If the company's overall traffic, brand awareness, product quality and after-sales service do not improve significantly, simply increasing the advertising budget may lead to a decline in ROI. Therefore, Temu should focus more on improving its basic capabilities at this stage rather than blindly increasing advertising investment. Specifically, the company should focus on expanding product categories, speeding up logistics, and improving customer service quality. Before these fundamental problems are solved, increasing the advertising budget will not significantly improve overall performance. Only after consolidating these foundations can Temu lay a solid foundation for future advertising investment, achieving better long-term growth and ROI.
Google and Meta
At the beginning of 2024, Temu monthly advertising spending on Google was RMB 10 - 15 million (AliExpress spent RMB 30 - 40 million, and Shein spent close to RMB 6 million).
Temu spends about $40 - $60 million per quarter on Google (primarily SEA). The budget for Meta is much higher because it is more suitable for remarketing. Google performs well in attracting new users but poorly in activating existing ones. Google’s targeting is also not as accurate as Meta’s (for instance, showing cosmetic ads to middle-aged men), resulting in lower conversion rates. Temu chose to advertise on the Meta platform mainly because of its significant social communication and influencer promotion advantages.
Meta has assigned three dedicated account managers to Temu, which reflects the importance Meta attaches to Temu. In 2023, Temu’s advertising expenditure plan on Meta was $1.8 billion. In 2024, Temu signed an advertising framework agreement with Meta worth $2.5 billion, but as of the end of June, less than $800 million had been completed because of external factors in the US and legal disputes in France. Temu plans to increase advertising spending on Meta in the second half of 2024.
The strategy for Meta advertising has changed. Only 40% is now spent on new customer acquisition while 60% is spent on activating existing users through remarketing campaigns.
Temu uses software to analyse the best-selling product data of competitors and other major e-commerce platforms to provide references for Meta advertising and recruit relevant sellers. Verified and more competitively priced products perform well in promotions because consumers tend to choose similar-looking but cheaper products.
Meta's financial report shows that in 2024 Q1, advertising revenue contributed by advertisers in the Asia-Pacific region increased by 41% year-on-year, but in Q2, the revenue growth contributed by advertisers in the Asia-Pacific region slowed down to 28%. CFO Susan Li said in the earnings call that "the strongest period of demand from Chinese advertisers has passed." [9]
Google's financial report also showed that YouTube's advertising revenue growth rate fell 8% from the previous quarter to 13%. Management explained that e-commerce companies from the Asia-Pacific region had begun to invest heavily in the second quarter of 2023, resulting in a high base. [9]
Acquisition costs
In the North American market, Temu now spends about $6 to acquire a new user, while the first purchase cost of a new user is about $35. Specifically in the US market, Temu spends about $10 to acquire a new user, while the cost of acquiring a new paying user is between $38 and $45.
The advertising costs on Meta have risen sharply. The specific KPI’s for Meta have developed as follows:
The number of orders needed to recover the acquisition costs hasn’t increased as fast as the acquisition costs, mainly because Temu adjusted its early marketing strategy. With the cancellation of subsidies, the increase in shipping and commodity prices, and the introduction of the semi-managed model, operating costs have decreased, and the user's single payment amount has also increased.
Temu does not expect user acquisition costs to rise significantly next year and thinks it could drop in 2025.
Customer retention
Temu has encountered a bottleneck in user growth in the US, partly because some users left after getting their initial discounts. Product prices are no longer attractive, and logistical timeliness and product quality remain issues. They don’t meet the expectations of consumers earning $50K - $100K. Product quality issues have also led to user losses.
In the US, Temu’s monthly repurchase rate (customers who have at least bought once and come back to buy more than one time) is 50% and its quarterly repurchase rate is 38%. This is lower than last year because of the spike effect of Black Friday. The decline in the second quarter was lower (only 3% - 5%) than in the first quarter.
In April, the one-month retention rate (customers buying from month to the subsequent month) dropped from 21% - 22% to 18% (Amazon’s one-month retention rate is slightly over 20%).
In the European market, Temu’s performance is relatively stable, and there is still growth potential.
In June, Bloomberg quoted an Omnisend survey among 1,000 American consumers that showed Temu had more repeat customers than eBay. It found that 34% purchased at least monthly on Temu, compared to 29% on eBay. Amazon ranked first with around 75%. [7]
Logically, in the same research, Temu scored well on consumers’ evaluation of ‘deals’ and ‘prices’, while it scored significantly lower on delivery times (just like Shein, AliExpress and TikTok Shop) and product quality (like Shein). Amazon and Walmart scored low on deals/discounts but better than other platforms on delivery time. [7]
Profitability
Note: The data in this section comes from various expert interviews conducted between May and August 2024. Data might sometimes be slightly contradictive or not add up exactly, but we decided to include as much available information anyway. Also, carefully note the region, timing and platform model (fully or semi-managed) for each data set and graph.
Fully Managed Business
In 2023, the fully managed business was making 27% loss.
Temu's fully managed business is still making losses, but the loss rate is expected to decrease by the end of the year. Temu is taking several measures to improve profitability. First, it will gradually increase prices, enhance the quality of products, and narrow the gap with competitors such as Amazon. Secondly, it plans to gradually reduce or cancel some subsidy measures, reduce discounts, and bring prices to normal levels.
These measures have begun to show results. The loss rate of the fully managed business dropped significantly in the second quarter, from about 20% in Q1 to 12% - 13%. At present, the gross profit margin of the fully managed business is 55% (fluctuating between 40% and 70% per product), the advertising cost (customer acquisition) has dropped from 20% to nearly 10%, the customer subsidy cost has dropped from 30% to nearly 20%, the logistics cost remains between 20% - 25%, and the domestic warehousing and labour costs total about 5%.
Note: the information above did not add up to -13%, so we added a category ‘others’ of -8% in the chart below. In 2023 this category was also present and includes other management and labour overhead and operating expenses.
Although Temu has implemented a variety of strategies, logistics costs remain high. From the data, the logistics costs in 2023 only decreased by 3.3%, and in the first quarter of 2024 and in June of this year they even increased by 9%, limiting the options for cost reduction. Costs are expected to continue to increase in August and during the year-end shopping season. To meet this challenge, Temu intends to reduce the pressure by adjusting subsidy and advertising strategies.
The picture looks more positive in the US market, where logistics costs have dropped from more than 30% to about 28%, but that’s still a long way from the target of 25%.
In the long run, Temu will optimise the supply chain, increase the number of high-quality suppliers, appropriately adjust pricing strategies and strengthen product development and inventory management to maintain or increase profits. However, overall, the gross profit margin of fully managed services is expected to remain at the current level, with limited growth potential.
Semi-Managed Business
In the semi-managed business, the US market has already achieved a small profit, while other markets are still at a slight loss. Gross profit margin is 40%, advertising costs 10%, subsidy costs 20%, warehousing costs 8%, and a final operating profit margin of about 2%.
Note: The warehousing costs are remarkable here since Temu doesn’t have semi-managed goods in its own warehouses, and the merchant is responsible for logistics costs in the semi-managed model. We assume these costs are related to certified warehouses and merchant subsidies as described in Temu Watch #1.
Temu has adopted a low-price strategy to expand its market share in markets outside the United States, sometimes even selling at a loss. Therefore, the gross profit margin in the European market is between 20% and 30%, while in regions such as Canada and Australia, it is even lower than 10%. Although this strategy may affect profits in the short term, it aims to build a market position in the long term.
Overall, losses in the semi-managed model are still higher than in the fully managed model because of its recent launch in March. The gross profit margin is, on average, 25%. In May, the losses were -30%. By July, it had improved to -16%, and Temu hopes to reduce this to 10% by the end of the year.
By the end of the year, the loss of the semi-hosted business is expected to be 5% -10% more than that of the fully managed business.
Note: costs per category are estimated based on the available information for the US business.
In the semi-managed model, expenses such as promotion, coupons, and traffic delivery have not yet brought income, and many merchant fees are currently waived. Subsidies are still as high as 30% and are expected to be on par with the fully managed model, but they will eventually go down to 10% -20%.
Temu hopes to reduce these subsidies and gradually increase customer unit prices through cooperation with domestic and foreign brands. Temu has established cooperations with some large foreign trade brands with sales networks on Amazon and offline.
Estimations of the share of the semi-managed model in Temu’s total business range from 23% to 35%. By adjusting the pricing strategy and improving service quality, Temu expects the GMV of the semi-managed model to reach the level of the fully managed model.
In the fully managed model, the price of goods is relatively low, only 60% of Amazon's price. For the semi-managed model, it’s 85% of Amazon’s price, and different types of goods mainly cause this difference.
In the semi-managed model, the average order amount is currently $10 to $12 higher than in the fully managed model, and Temu hopes to keep it above $60. However, the number of purchases in the semi-managed model is lower, estimated to be about 20 to 30 times a year, half of the fully managed model.
Overall Business
For Temu, the profitability of the two models currently roughly compares like this:
(1) Note that while gross margins are lower, the selling price in the semi-managed model is often higher because customers are willing to pay more for fast delivery.
(2) As scale expands and processes are optimized, subsidies are expected to gradually decrease, reducing the loss rate.
Temu is increasing the amount of each transaction by eliminating merchants with extremely low prices and replacing merchants with sustandard quality.
Logistical costs in the fully managed model were reduced through direct contracts with airlines (e.g., an annual framework contract with China Eastern), and standard delivery instead of express delivery, which saved at least one dollar per order. Economies of scale also further reduced logistical costs.
Temu’s loss improved in the second quarter compared to the first quarter. The loss rate was -22% in Q1 2024 and is estimated to have been -20% in Q2 2024 (2023 saw a 27% loss). The improvement is due to lower total logistics costs (owing to the semi-managed model) and reduced subsidies in the fully managed model. Logistics costs of the overall business are expected to drop to 18%, and customer subsidies will be between 20% and 30%.
Where is Temu heading?
Temu has now set a goal to keep overall losses below 15% (the goal was 18% at the time of our May report). If the semi-managed model can reach $20 billion in sales in 2024, the combined loss rate of fully and semi-managed can be controlled to -10% to -15%. The fourth quarter might, however, be a challenge because of the costs around Black Friday in advertising and logistical capacity.
Losses in the US increased in Q4 2023 because of the costs of subsidies and the fully managed model. If these costs can be controlled, Temu expects to turn losses into profits in the US by the end of 2024. Europe and other regions will follow. As a matter of fact, according to 36Kr, Temu's US business had almost achieved EBITDA profitability by July this year, mainly due to the reduction of advertising and other costs. [9]
Temu expects the European market to perform at the same level as the United States in the third quarter and to surpass the United States in the fourth quarter. Therefore, its attention is gradually shifting to Europe.
Temu aims to reduce the overall fully managed business loss rate for 2024 to 15%, which is expected to be achieved ahead of schedule. It should even be possible to control the operating loss to single digits. In the US and Europe, the semi-managed model is expected to turn profitable this year, but the fully managed model won’t, and the profits of the semi-managed will not fully offset the losses of the fully managed business yet. However, Temu expects to break even in 2025 and be fully profitable in 2026.
To take the lead in the cross-border e-commerce market, Temu formulated a series of specific strategies. To compete with large companies such as Amazon and AliExpress, it continuously optimises its supply chain, improves logistics efficiency, and attracts high-quality merchants through preferential policies (in Temu Watch #2, we described how Temu is trying to improve the level of quality).
However, traffic may drop when Temu stops subsidising and using heavy advertising. Therefore, a sustainable business model needs to be found.
While PDD Holdings does not release specific data on Temu, its quarterly reports show Temu’s growth in the ‘revenues from transaction services' category. Judging from the revenue from transaction services, Temu’s growth is already slowing down and hitting a ceiling.
Due to the global situation's instability, Temu finds it difficult to set clear quarterly profit targets. If policy changes cause the fully managed model to be suspended (see Temu Watch #2), Temu will have to switch to a semi-managed model completely. Therefore, it can only set a year-on-year growth target for GMV each quarter and cannot accurately predict the decline in net profit margin.
Despite the high costs of advertising in the US, Temu plans to achieve $25 billion in sales in the US in 2024. In terms of specific goals, Temu has set a 2024 goal of achieving a GMV of $60 billion, of which semi-managed should account for $20 billion. For 2025, Temu has an overall GMV goal of $100 billion and expects Europe to account for $30-40 billion in that goal. As we’ve seen, business is currently mainly concentrated in five European markets, but there is still potential for expansion in other European countries.
Temu is confident it can achieve the goal of $ 60 billion in 2024. However, there are many challenges to attain the goal of $100 billion in 2025, and the market environment is complex and volatile.
Currently, the American and European markets account for 70% - 75% of the total GMV, and mastering these two markets should result in achieving the $100 billion target in 2025. However, if policies change unfavourably, it will make it more difficult to achieve the target.
At present, the main challenges facing Temu include an insufficient number of merchants, insufficient product variety, low brand awareness, and the need for improved sales services and logistics efficiency. In the second half of 2024, Temu 's strategic focus will be increasing the number of sellers and enriching the variety of goods to achieve its total merchandise transaction volume goals. The company plans to strengthen marketing in emerging markets such as Southeast Asia and the Middle East while continuing to promote in main markets such as the United States.
Temu has recently started recruiting local US and European brands to sell in its semi-managed model. For now, it is invite-only. [8] This is probably the result of the semi-managed model being behind on targets after it primarily invited Chinese merchants, but many were reluctant to make the necessary investments (see Temu Watch #1). As with other merchants in the semi-managed business, brands will have to authorise Temu to determine the consumer selling price.
It remains to be seen how successful they will be considering AliExpress, Wish and Shein tried this before and never made much of a dent. Alibaba even created a separate B2C platform, Miravia, in Spain to solve the issue. Shein removed the requirement to operate a warehouse in China in May, but only recruited around one thousand US merchants. Many established brands don’t want to be associated with a low-price platform that often sells questionable quality goods (see Temu Watch #2). Temu might have a shot at acting as an outlet store for established brands though. [8]
Next year, the target for the US market is $35 billion, accounting for 35% of the global total target of $100 billion. The sales target for the European market is higher, reaching $40 billion, accounting for 40% of the global target. The total sales target for other regions is $25 billion.
To achieve the GMV growth target of 60% next year, Temu’s main strategy is to increase the purchase frequency and the average order amount. Temu’s AOV is still lower than Amazon's $70-$80. Taking the United States as an example, the average order amount in the fully managed model is currently about $40, and the purchase frequency is about twice a month, or about 20 purchases throughout the year. Temu’s ideal goal is to increase the average order amount of the fully managed model to $50 and increase the purchase frequency to 50 times a year. In this way, each user can spend up to $2,500 on the platform each year. Total sales will increase significantly when users reach 110 million to 120 million.
Temu wants to increase the European AOV to $40 and the AOV in other markets to $35. The semi-managed model should help accomplish this. The average order value in the semi-managed model is $70, significantly higher than in the fully managed model. Overall, the current average AOV on the Temu platform is about $45, which has not yet reached the $50 standard. The platform is expected to break even if the average order value can be increased to $60.
In Southeast Asia there is fierce competition from local e-commerce platforms. Although it entered the Southeast Asian market last year, the operation scale is small. Sales in Indonesia, Malaya and the Philippines have reached approximately US$ 200 million this year. In response to these challenges, Temu plans to increase investment in the Southeast Asian market in the second half of this year to compete directly with competitors such as Shopee. Given that the semi-managed model is ineffective and major merchants have been covered, the company will introduce new merchants and products through the full-managed model and increase investment promotion efforts.
When entering the Southeast Asian market, Temu attracted users through a low-price strategy instead of immediately launching large-scale advertising. This approach is similar to attracting users through free goods or large coupons. First, it used price advantages to expand the user base quickly, and then it conducted a second round of advertising to achieve better results. This strategy is designed to quickly build market share while laying the foundation for future branding.
In terms of profitability, Temu’s goal is to break even in 2025 and achieve a small profit in 2026. It has formulated a detailed loss rate reduction plan to achieve these goals. If the loss rate of the fully managed model drops to 15% by the end of the year, the loss needs to be reduced by 3% - 5% each quarter in the following year to achieve break-even. Under the semi-managed model, the loss needs to be reduced by 2% - 3% each quarter.
The long-term vision
Pinduoduo has invested a lot of resources in the international market but still regards the domestic market as its strategic core. Domestic business scale far exceeds overseas markets and has achieved profitability, while overseas markets are still making losses. Pinduoduo plans to reduce the loss rate by expanding the scale of its overseas business, thereby doubling its business. Under the current circumstances, Pinduoduo's recruitment focus is mainly on overseas markets, while the domestic market remains relatively stable.
Temu aims to develop the semi-managed model into a self-operated brand model similar to AliExpress or a low-priced version of Amazon.
In the long run, when Temu's GMV reaches $150 billion, a goal it wants to reach between 2026 and 2027, it expects its net profit margin to reach 10%. After GMV exceeds $100 billion, its growth rate will slow down, gradually decreasing from the current 20% to 30% per quarter to about 10%.
Temu’s vision is to become a leader in the cross-border e-commerce market in the United States and Europe. However, they expect to rank relatively low in markets with large local players, such as South Korea and Japan. The long-term vision is to rank among the top two in the US market (after Amazon) and become the leader of cross-border e-commerce in Europe, where it competes with many different smaller independent webshops.
Key Takeaways
Temu’s net transaction value was $19 billion, more than 2023’s GMV and almost 40% of Temu’s annual target of $60. Temu has been downloaded more than 600 million times and has 200 million monthly active users.
Temu is performing well in Europe, underperforming in the US and showing disappointing sales in Southeast Asia.
In today's air cargo, e-commerce-related goods account for 60% and Temu accounts for about 40% of shipments in all-cargo flights.
Temu’s geographical expansion is slowing down. Temu now is operating in 77 countries and hopes to control the total around 80.
Temu’s marketing budget increased from $3 billion in 2023 to $4.3 billion this year, 60% of which will be spent in the second half of 2024. In markets where Temu has gained a position, advertising spending is shifting from customer acquisition to customer activation.
Temu spends between $38 and $45 in the US to acquire a purchasing customer. It breaks even after 4.2 purchases per new customer. Temu’s US retention rate has been dropping.
In the fully managed model, Temu has significantly reduced losses from 27% last year to 13%. It aims to reduce the loss rate for the full year to 15%. In the US, the semi-managed model is already profitable. Combined, the two models are expected to break even in 2025.
Temu’s GMV goals for the coming years are $60 billion (2024), $100 billion (2025), $125 billion (2026) and $140 billion (2027).
Temu’s biggest challenges are insufficient merchants/SKUs, compliance issues, product quality issues, and logistics efficiency.
Temu’s long-term vision is to rank among the top two in the US market (after Amazon) and become the leader of cross-border e-commerce in Europe, where it competes with many different smaller independent webshops.
Temu aims to develop the semi-managed model into a self-operated brand model similar to AliExpress or a low-priced version of Amazon.
Sources
Temu Watch #1 - #3 have been compiled from an analysis of around 30 expert interviews of the Six Degrees Intelligence network. The information has been augmented with the following sources:
[1] CNN 2024-08-01 [2] Fox Intelligence 2024-07 [3] Fox Intelligence [4] 白鲸出海 2024-05-17 [5晚点LatePost 2024-05-10 [6] Bamboo Works 2024-07-11 [7] Bloomberg 2024-06-11 [8] Marketplace Pulse 2024-08-27 [9] 36氪未来消费 2024-08-27 [10] Chinasellers 2024-08-26
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