Temu User Growth Divergence; U.S. Market Shows Strong Performance

Overview

Morgan Stanley released a May operational data tracking report on PDD Holdings, reaffirming its 'Overweight' rating and USD 129 target price. The report notes Temu’s global user growth exhibits regional divergence: the U.S. market shows standout performance driven by low-base effects, while Europe and Latin America remain tepid.

Core views

Operationally, May’s global MAU for Temu stood at 486 million (+2% YoY, -5% MoM). U.S. growth surged 87% YoY, largely due to the low base effect following the removal of tariff exemptions. In contrast, Europe and Latin America declined 6% and 8% YoY, respectively. Regarding user engagement, the global DAU/MAU ratio rose 0.4 percentage points year-on-year to 18%, signaling improved user stickiness. Notably, U.S. app downloads surged 227% YoY, reflecting enhanced user acquisition efficiency. On valuation, the report employs a DCF model, assuming a weighted average cost of capital (WACC) of 14%—consistent with the average for Chinese internet peers—and a terminal growth rate of 3%, aligning with industry benchmarks.

Analysis framework

Analysts dissected regional operational data and compared growth dynamics across markets, attributing Temu’s stronger-than-expected U.S. performance primarily to the low-base effect triggered by regulatory changes. The DCF methodology was used for valuation, with key parameters benchmarked against industry averages. The report also established a sensitivity analysis framework, highlighting that outperformance in user growth or unit economics would pose upside risks, whereas intensified competition or stricter overseas regulatory scrutiny could dampen share price performance.

Methodology notes

• Valuation MethodDCF (Discounted Cash Flow)

  Estimates intrinsic company value by forecasting future free cash flows and discounting them to present value

  This report assumes a WACC of 14% and a terminal growth rate of 3%, consistent with valuation parameters for Chinese internet companies, ensuring cross-sectional comparability

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• PDD Holdings Inc (PDD.US)

  Directly benefits from Temu platform growth

  Strengths

  U.S. user growth exceeds expectations; improved user acquisition efficiency

  Weaknesses

  Lackluster growth in Europe and Latin America

  Comparison

  Leads peer Chinese cross-border e-commerce platforms in unit economics

  Risks

  Stricter overseas regulatory scrutiny may constrain expansion speed

Key data

• Global MAU486 million+2% YoY, -5% MoM
• U.S. DAU Growth+86%Year-on-year change, benefiting from low-base effect
• Europe MAU Growth-6%Year-on-year decline
• Target Price Upside51%Relative to current price of USD 85.4

Impact & implications

The report suggests the robust performance in the U.S. market may offset weakness elsewhere, sustaining an optimistic outlook on PDD. Should the trend of consumer downgrading persist, Temu’s value-oriented positioning could further expand its market share—however, evolving overseas regulatory policies warrant close monitoring for potential operational impacts.

Risks

• Intensified competition may dampen profit improvement
• Declining user engagement post-reduction in subsidies
• Changes in overseas regulatory policies affecting Temu’s expansion

What to watch

• Sustainability of U.S. market growth
• Ability of Europe and Latin America to stabilize
• Evolution of overseas regulatory policies