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It worked for Jet.com. Then again, Jet.com existed when 0% interest rates were a thing. I don't think repeating that strategy in a 5.25%+ interest rate market

It worked for Jet.com. Then again, Jet.com existed when 0% interest rates were a thing. I don't think repeating that strategy in a 5.25%+ interest rate market will have the same effect. ------- On the other hand, China has what? 15+% unemployment right now? Chinese companies must be dumping goods in an effort to survive, even if it's below profit levels. Maybe TEMU can exist in this market from the Chinese / low cost supply side perspective.

alephnerd 3y ago
They raised around $1b in the secondary market on top of their IPO in 2018 raising around $1.6B and generate around $4-5B a quarter in revenue. They have a massive amount of cash on hand to allow them to execute their global expansion > Chinese companies must be dumping goods in an effort to survive, even if it's below profit levels The youth unemployment figure is largely due to a lack of white collar jobs, which is unrelated to industrial capacity. Low value manufacturing is still chugging along, and this is where PDD/Temu really shines - by providing a better marketplace UX for these kinds of manufacturers to sell globally. Medium value manufacturing would never sell via PDD/Temu, instead acting as a white label manufacturer or B2B.
- dragontamer 3y ago
  You've got my argument backwards. Unemployment is good for manufacturing. Unemployment means that factories have their pick of workers and are free to fire low performers. This tends to lead to better performance for export driven economies (and TEMU is an exporter). ------- High interest rates is bad for companies with (presumably) short term money losing / dumping strategies. It means that everyone's runway is proportionally less. $2.6 Billion in raised money means that the company needs to make $136 Million in profits PER YEAR to be comparable to a risk-free money market fund like VMFXX. The more money you raise, the more money you have to make to be comparable to the risk-free rate. It's a loadstone above and beyond. Jet.com had basically $0 vs MMFs because risk-free MMFs had nearly no money growth in 2016. --------- If your investors are willing to dump $2 Billion before turning a profit, your runway is far longer at 0% interest rates than at 5.25% interest rates.
  - alephnerd 3y ago
    The kind of person in the 16-24 bracket that is un/underemployed in the Chinese market is much more educated and unwilling to work in unskilled manufacturing. If you have a Bachelor degree it's a tough pill to swallow to work on an assembly line when your entire life you were told that a Bachelors degree would guarantee you a white collar job. Earning $5-6k working on an assembly line in a city where rent is around $200-300/month isn't worth it, so people decide to quit the job market to either take competitive civil service exams, studying to apply for grad school, or start small businesses (eg. Street vending, dropshipping, influencers) while staying with parents. We saw the same thing in the US after 2008 with skilled workers not as open to working service jobs. _________________ > If your investors are willing to dump $2 Billion before turning a profit, your runway is far longer at 0% interest rates than at 5.25% interest rates. Ok. Fair point. That said, PDD's stock has held pretty stable following their COVID era peak. They're still trading 4-5x above their listing price, which was what was used to raise the equity round, so they have a pretty healthy bottom line.
    - dragontamer 3y ago
      I see what you mean. I don't live in China so I'd be blind to an issue like that.
    - rhaway84773 3y ago
      We hear about the graduates in the news especially since Xi told them to go work on farms, but what percentage of Chinese youth get a degree (I genuinely don’t know). If it’s anything like the US the majority of people entering the workforce don’t have a degree. And manufacturing in China has really downsized over the past year. I suspect it isn’t easy for them to find jobs either.
      - alephnerd 3y ago
        Based on released govt and market data, the early career white collar market has bottomed out. Approximately 25% of 16-24 yr old jobseekers are college graduates (this is probably overstated as China recently began treating both Vocational Institutes and 4 year programs as colleges in statistics), but only around 15-18% of college graduates end up signing an offer by graduation, and most industries have seen around 50%-66% of companies reduce NCG hiring. [0] By most standards this is absolutely a skilled jobs or white collar recession. Manufacturing downsizing has happened, but that was done by Chinese companies either moving factories abroad to Vietnam, Laos, Cambodia, India, etc or begin automating manufacturing [1] Note: treat college in above as any post-secondary program (eg. Vocational school, 4 year degrees, graduate degrees) as all 3 types of programs are merged as a single bracket in Chinese govt statistics. [0] - https://pdf.dfcfw.com/pdf/H301_AP202305151586638633_1.pdf https://pdf.dfcfw.com/pdf/H301_AP202305151586638633_1.pdf [1] - https://www.mfat.govt.nz/assets/Trade-General/Trade-stats-and-economic-research/ECO-Research-Report-The-China-ASEAN-Dynamic-February-2016.pdf https://www.mfat.govt.nz/assets/Trade-General/Trade-stats-an...

alephnerd 3y ago

They raised around $1b in the secondary market on top of their IPO in 2018 raising around $1.6B and generate around $4-5B a quarter in revenue. They have a massive amount of cash on hand to allow them to execute their global expansion > Chinese companies must be dumping goods in an effort to survive, even if it's below profit levels The youth unemployment figure is largely due to a lack of white collar jobs, which is unrelated to industrial capacity. Low value manufacturing is still chugging along, and this is where PDD/Temu really shines - by providing a better marketplace UX for these kinds of manufacturers to sell globally. Medium value manufacturing would never sell via PDD/Temu, instead acting as a white label manufacturer or B2B.

dragontamer 3y ago
You've got my argument backwards. Unemployment is good for manufacturing. Unemployment means that factories have their pick of workers and are free to fire low performers. This tends to lead to better performance for export driven economies (and TEMU is an exporter). ------- High interest rates is bad for companies with (presumably) short term money losing / dumping strategies. It means that everyone's runway is proportionally less. $2.6 Billion in raised money means that the company needs to make $136 Million in profits PER YEAR to be comparable to a risk-free money market fund like VMFXX. The more money you raise, the more money you have to make to be comparable to the risk-free rate. It's a loadstone above and beyond. Jet.com had basically $0 vs MMFs because risk-free MMFs had nearly no money growth in 2016. --------- If your investors are willing to dump $2 Billion before turning a profit, your runway is far longer at 0% interest rates than at 5.25% interest rates.
- alephnerd 3y ago
  The kind of person in the 16-24 bracket that is un/underemployed in the Chinese market is much more educated and unwilling to work in unskilled manufacturing. If you have a Bachelor degree it's a tough pill to swallow to work on an assembly line when your entire life you were told that a Bachelors degree would guarantee you a white collar job. Earning $5-6k working on an assembly line in a city where rent is around $200-300/month isn't worth it, so people decide to quit the job market to either take competitive civil service exams, studying to apply for grad school, or start small businesses (eg. Street vending, dropshipping, influencers) while staying with parents. We saw the same thing in the US after 2008 with skilled workers not as open to working service jobs. _________________ > If your investors are willing to dump $2 Billion before turning a profit, your runway is far longer at 0% interest rates than at 5.25% interest rates. Ok. Fair point. That said, PDD's stock has held pretty stable following their COVID era peak. They're still trading 4-5x above their listing price, which was what was used to raise the equity round, so they have a pretty healthy bottom line.
  - dragontamer 3y ago
    I see what you mean. I don't live in China so I'd be blind to an issue like that.
  - rhaway84773 3y ago
    We hear about the graduates in the news especially since Xi told them to go work on farms, but what percentage of Chinese youth get a degree (I genuinely don’t know). If it’s anything like the US the majority of people entering the workforce don’t have a degree. And manufacturing in China has really downsized over the past year. I suspect it isn’t easy for them to find jobs either.
    - alephnerd 3y ago
      Based on released govt and market data, the early career white collar market has bottomed out. Approximately 25% of 16-24 yr old jobseekers are college graduates (this is probably overstated as China recently began treating both Vocational Institutes and 4 year programs as colleges in statistics), but only around 15-18% of college graduates end up signing an offer by graduation, and most industries have seen around 50%-66% of companies reduce NCG hiring. [0] By most standards this is absolutely a skilled jobs or white collar recession. Manufacturing downsizing has happened, but that was done by Chinese companies either moving factories abroad to Vietnam, Laos, Cambodia, India, etc or begin automating manufacturing [1] Note: treat college in above as any post-secondary program (eg. Vocational school, 4 year degrees, graduate degrees) as all 3 types of programs are merged as a single bracket in Chinese govt statistics. [0] - https://pdf.dfcfw.com/pdf/H301_AP202305151586638633_1.pdf https://pdf.dfcfw.com/pdf/H301_AP202305151586638633_1.pdf [1] - https://www.mfat.govt.nz/assets/Trade-General/Trade-stats-and-economic-research/ECO-Research-Report-The-China-ASEAN-Dynamic-February-2016.pdf https://www.mfat.govt.nz/assets/Trade-General/Trade-stats-an...