Temu and Shein’s soaring popularity has Wall Street eyeing China’s influence on tech earnings

Temu and Shein’s soaring popularity has Wall Street eyeing China’s influence on tech earnings


In just 17 days after launch, Temu surpassed Instagram, WhatsApp, Snapchat and Shein on the Apple App Store in the U.S., according to Apptopia data shared with CNBC.

Stefani Reynolds | Afp | Getty Images

Temu and Shein have exploded in the U.S. by going on an online marketing blitz and offering consumers inexpensive goods from China, whether it’s a $3 pair of shoes or a $15 smartwatch.

The rise of the discount shopping apps, along with TikTok Shop from China’s ByteDance, have generated fresh competition for U.S. e-commerce companies Amazon, eBay and Etsy.

Much of their growth, according to some industry experts, is the result of a trade loophole, known as the de minimis exception, which allows for packages shipped from China valued at under $800 to enter the U.S. duty free. Amazon’s top public policy executive, David Zapolsky, calls it a “concerning trend” that should be further examined by global regulators.

“I think there’s a question about the extent to which some of their business models are subsidized,” Zapolsky told CNBC in a recent interview, speaking broadly about Chinese companies. “At a very tactical level, there are rules around what you can show as your list price vs. the sale price, and I think those rules are not always enforced.”

The topic of Temu and Shein’s growth will hover over tech earnings this week, as Amazon reports second-quarter results alongside Meta, eBay and Etsy. Investors will be watching for any commentary about the impact of Temu and Shein on e-commerce marketplaces and for discussion of their ad spending, which has helped fuel Meta’s recent expansion.

Tech earnings season got off to an ominous start last week. Late Tuesday, Alphabet reported a slight beat on revenue, but missed estimates on YouTube ad sales, pushing the stock down 5% on Wednesday. Tesla shares plunged 12% that day, the biggest drop since 2020, on weaker-than-expected earnings and a second straight quarter of declining auto revenue.

This week’s calendar also includes reports from Apple and Microsoft, as well as Intel, Qualcomm, Block and Snap.

Facebook marketing partner on the potential slowdown in digital ads

In Amazon’s report on Thursday, the company is expected to show revenue growth of about 11% to $148.6 billion, according to LSEG. However, net income is expected to increase 63% from a year earlier, reflecting the company’s hefty cost-cutting moves, including eliminating tens of thousands of jobs.

While retail is no longer Amazon’s growth engine, it’s still the business that makes up the bulk of revenue. And third-party sellers now account for over 60% of goods sold on the site. That’s where Temu and Shein come into play, as merchants now have new ways to get products to American consumers. They’re able to offer such low prices in part because they cut out intermediaries by selling direct from factories in China to consumers across the world, and they use slower delivery options.

Shein launched in the U.S. in 2017, and has recently flooded Google and Facebook with ads to fuel expansion. It’s reportedly valued at $66 billion. Temu, owned by PDD Holdings, debuted in the U.S. in 2022, and quickly plowed billions of dollars into marketing, most noticeably through its “Shop like a billionaire” TV spot that ran during this year’s Super Bowl.

Amazon has continued to highlight its delivery prowess and its focus on speed in the face of growing competition from Temu and Shein. CEO Andy Jassy noted in February that recent changes to the company’s fulfillment network have allowed Amazon to invest in faster deliveries, while profitably expanding its roster of cheap products.

“We have a saying that it’s not hard to lower prices, it’s hard to be able to afford lowering prices,” Jassy said on the company’s fourth-quarter earnings call. “The same is true with adding selection. It’s not hard to add lower [average selling price] selection, it’s hard to be able to afford offering lower ASP selection and still like the economics.”

Regarding the economic advantage for Temu and Shein, officials in the U.S., the European Union and elsewhere are considering whether to close the trade loophole and increase duties on cheap goods, which could dent the continued growth of those platforms.

An Amazon contract worker pulls a cart of packages for delivery in New York, US, on Monday, April 22, 2024. 

Angus Mordant | Bloomberg | Getty Images

A Temu spokesperson told CNBC in a statement that its growth isn’t dependent on the de minimis exemption. The site’s prices are competitive, the representative said, because of the company’s direct-from-factory model that eliminates the need for “numerous middlemen and their associated costs.”

Shein didn’t respond to requests for comment.

Does the ad blitz continue?

Meta has other concerns, as there are some signs that Temu may be pulling back its ad spend. Barclays data from May noted that the number of new shoppers on Temu peaked in the third quarter of 2023, and has declined in each of the last two quarters. The firm said Temu may have been adjusting its marketing efforts to focus on existing shoppers instead of new app metrics.

“Meta investors have been worried about a possible US slowdown from outbound China advertisers, particularly Temu, and this data around new buyer activations would suggest that some of these fears are warranted, and likely baked into the 2Q guidance which shows around a 6 point deceleration in ad revenue growth,” Barclays wrote in a note to clients in May. The firm recommends buying Meta shares.

In April, Meta issued a weaker-than-expected forecast, sending the stock tumbling. Finance chief Susan Li said on the earnings call that the company wasn’t quantifying the contribution from China in the quarter, but she said advertising revenue in the Asia-Pacific region increased 41% from a year prior, making it the fastest growing region, and that it was boosted by online commerce and gaming.

A Meta spokesperson declined to comment for this story.

EBay has shrugged off the idea that Chinese rivals are stealing share, with CEO Jamie Iannone telling analysts in May that its differentiated selection sets the site apart. Etsy, meanwhile, has taken steps to emphasize its sellers’ role in sourcing or creating artisan goods.

Temu still has 'a long way to go' in taking market share from larger incumbent e-commerce players

Temu and Shein may represent just a short-term phenomenon in the U.S. Wish, founded in San Francisco in 2010, surged in popularity with its ultracheap direct-from-China goods pushing the company to a valuation of $14 billion at the time of its initital public offering in 2020. Then users fled and the business faltered. Wish was acquired by Singapore-based Qoo10 earlier this year for $173 million.

Bank of America analysts said in a May note that Amazon and Walmart are the most “insulated” from Chinese competitors.

“Data on shipping times suggest Temu/TikTok/Shein shipping speeds trail industry leaders, which could limit traction over time,” the analysts wrote. “We think reducing shipping times will be an important factor in long-term competition.”

Temu’s shipping times vary from four to 22 days on average, while Shein items take three to 14 days to arrive, Bank of America said. Amazon has moved to increase delivery speeds from two days to a day or less.

Amazon remains by far the largest online retailer in the U.S., and is projected to capture roughly 40% of e-commerce sales in the country this year, according to eMarketer. However, while it’s long touted itself as the “lowest-priced U.S. retailer,” Amazon has shown that it’s well aware of Temu and Shein’s increasing popularity.

At an event with Chinese sellers in June, Amazon said it plans to launch a discount store that will feature mostly unbranded items priced below $20, according to a presentation viewed by CNBC.

The storefront would take advantage of the same de minimis rule used by platforms like Temu and Shein, The Information reported last month, citing a person familiar with the company’s plans.

Amazon’s Zapolsky said the company hasn’t taken a stance on whether lawmakers should clamp down on de minimis shipments. Regardless, he said, Amazon has to win over consumers.

“We know we have to compete with them,” Zapolsky said, “to convince customers that they can get the best quality and best prices from Amazon.”

WATCH: Prime Day is a big marketing event for Amazon

Prime Day is a big marketing event for Amazon, says Evercore ISI's Mark Mahaney



Source

Adobe shares plunge 13% on disappointing revenue guidance
Technology

Adobe shares plunge 13% on disappointing revenue guidance

Adobe CEO Shantanu Narayen speaks during an interview with CNBC on the floor of the New York Stock Exchange on Feb. 20, 2024. Brendan Mcdermid | Reuters Adobe shares fell 13% on Thursday and headed for their steepest drop since March after the software vendor issued disappointing revenue guidance. Sales in the fiscal first quarter […]

Read More
ServiceTitan pops to 1 in cloud software vendor’s Nasdaq debut after selling shares at
Technology

ServiceTitan pops to $101 in cloud software vendor’s Nasdaq debut after selling shares at $71

Vahe Kuzoyan, president & co-founder of ServiceTitan, poses for photos after ringing the opening bell at the Nasdaq MarketSite on Dec. 12, 2024. Michael M. Santiago | Getty Images News | Getty Images ServiceTitan shares popped 42% in their Nasdaq debut on Thursday after the provider of cloud software to contractors raised around $625 million […]

Read More
Texas House introduces bill to establish a strategic bitcoin reserve
Technology

Texas House introduces bill to establish a strategic bitcoin reserve

Legislation was introduced in the Texas House of Representatives Thursday to establish a strategic bitcoin reserve, which could serve as a proving ground for the U.S. Treasury. The proposed bill would enable the state to start building a strategic bitcoin reserve by accepting taxes, fees and donations in bitcoin that would be held for a minimum of five […]

Read More