The news: Pinduoduo owner PDD’s Q4 revenues grew 46% year-over-year (YoY) to 39.82 billion yuan ($5.79 billion)—far outpacing rivals JD.com and Alibaba. However, that result fell short of Refinitiv estimated revenues of 41.01 billion yuan ($5.96 billion).

• Revenues from marketing and other services accounted for the majority of PDD’s revenues, growing 38% YoY in Q4 to 30.97 billion yuan ($4.49 billion).
• The company’s non-GAAP operating profits rose 38% YoY to 11.60 billion yuan ($1.68 billion).

China’s strict zero-COVID-19 policy cast a shadow over much of PDD’s Q4, which contributed to the company’s slower-than-expected growth.

China’s economic situation: China’s gross domestic product grew 3% last year, its weakest annual performance in decades, and well short of its 5.5% official target.

• Retail growth slowed last year in China. Retail ecommerce sales growth decelerated from 14.0% in 2021 to 6.1% last year, per our Retail & Ecommerce Sales, China forecast. We expect retail ecommerce growth to reach 8.0% this year.
• There are signs that China’s economy is on the upswing, including companies ranging from Walmart to Ralph Lauren noting an uptick in demand and traffic from Chinese consumers.
• However, a return to the days of rapid growth is unlikely, particularly given Beijing is not engaging in any large-scale fiscal stimulus to jolt spending. That’s one reason PDD is looking to other growth channels such as its Temu shopping app.

Temu’s growth strategy: PDD has big ambitions for Temu, which has been growing extremely quickly. The app went from zero to 44.5 million unique visitors between September and December of last year, according to Comscore.

• In the long term, PDD aims for Temu to directly compete with Amazon and eBay. And, in the short term, it wants it to surpass Shein’s gross merchandise volume (GMV) for at least one day by the time of its one-year anniversary on September 1, per Bloomberg.
• It is off to a good start. Temu generated nearly $200 million in sales in January alone, even before its buzzy Super Bowl ad aired.
• PDD fueled Temu’s rapid growth with expensive and aggressive paid media and active influencer strategies that include unboxing videos, try-on hauls, and promo codes. But it remains unclear whether it can turn short-term interest into lasting gains.

The big takeaway: The end of China’s zero-COVID-19 policy hasn’t unleashed the flood of consumer spending that some expected. Instead, China’s consumer spending recovery is off to a relatively slow start with retail sales rising just 3.5% YoY in January and February, per China’s National Bureau of Statistics.

• That’s unlikely to change in the short term as many Chinese consumers remain reluctant to spend.
• That’s why PDD is wise to seek to diversify its business via Temu. That said, it’s unclear whether it can find long-term profitable growth when its early-stage capital rationalizes.

Go further: For more on China’s ecommerce landscape, read our China Ecommerce Forecast 2022.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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