How to Invest in Temu

Temu burst onto the scene in late 2022. It launched as an initiative of Chinese multinational commerce group PDD Holdings (PDD 2.8%) as a platform to directly provide affordable and quality producty to consumers.

Consumers have flocked to the e-commerce platform, which has become increasingly popular. In fact, it has become as popular, if not more so, than rival Shein. The two companies are in an intense battle (including legal disputes) for suppliers and customers.

Temu's surging popularity and growth potential have many of its fans wondering whether they can buy shares of its stock. While it hasn't completed an initial public offering (IPO) yet, people interested in the company have other options to invest in its growth and the trends driving its growing popularity.

Is Temu publicly traded?

Is Temu publicly traded?

Temu is not a publicly traded company. It's part of PDD Holdings, a China-based multinational commerce group. PDD Holdings launched Temu in September 2022.

When will Temu IPO?

When will Temu IPO?

Temu didn't have an IPO on the calendar as of early 2024. As it's still in the early stages of its growth, the company likely won't seek to complete an IPO any time soon. PDD Holdings launched the company in late 2022 to help drive its growth. Before considering an IPO, it will likely want to continue supporting its new initiative and help it grow into a more mature company, including reaching solid profitability.

PDD Holdings might never complete an IPO of Temu. It could hold on to the company indefinitely as a growth driver for its investors. Another option it could consider is to spin off a portion or all of Temu to its shareholders instead of completing an IPO.

How to buy

How to buy Temu stock

You can't buy Temu stock yet because it hasn't completed its IPO. However, you can gain exposure to the fast-fashion and apparel trends driving its growth while you wait for an IPO. Here's a look at how to invest in Temu and some alternatives to consider while you wait to see whether the company will ever go public.

PDD Holdings

PDD Holdings launched Temu in September 2022, making it the most direct way to invest in Temu. PDD Holdings' investors can benefit from the growth of Temu and its other businesses, which include popular e-commerce platform Pinduoduo. PDD Holdings could eventually spin off some of its stake in Temu to shareholders, possibly either after or in lieu of conducting an IPO.

Amazon

Temu is putting a lot of pressure on Amazon (AMZN 3.43%) by selling similar products at lower prices. However, Amazon is a behemoth in the e-commerce space. It has the financial firepower to compete even more directly with rivals like Temu and Shein by lowering prices and increasing its marketing spend.

Amazon could afford to do that because it has a major higher-margin growth driver in its cloud computing business. The business, which is capitalizing on the artificial intelligence (AI) boom, could help power Amazon's stock price even as it battles Temu.

Alibaba

Alibaba (BABA 0.59%) competes with Amazon and PDD Holdings in the global e-commerce market. PDD's Temu (and its Pinduoduo platform) are also putting pressure on Alibaba. However, it has already battled competitors across its much longer operating history.

It also has several other business units to drive growth, including fintech Ant Group and a cloud computing unit. It offers diverse sources of revenue and growth that put it in a strong position to compete against upstarts like Temu and Shein.

Investors who want to buy one of these Temu alternatives can purchase shares in most brokerage accounts. Here's a step-by-step guide on how to invest in stocks like Temu.

Step 1: Open a brokerage account

You'll have to open and fund a brokerage account before buying shares of any company. If you still need to open one, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to decide how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.

You don't have to get there on the first day. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.

Step 3: Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about how it makes money, its competitors, its balance sheet, and other factors to ensure you have a solid grasp on whether the company can grow value for its shareholders over the long term.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill in all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (PDD for PDD Holdings, AMZN for Amazon, and BABA for Alibaba).
• Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the current market price.

Once you complete the order page, click to submit your trade and become a shareholder in one of these e-commerce stocks while waiting to see whether PDD Holdings conducts an IPO of Temu. Investors would follow a similar process to buy an IPO stock like Temu if it goes public. Once shares are available, fill out your brokerage account's order page with Temu's selected stock ticker and submit your trade.

Profitability

Is Temu profitable?

While PDD Holdings is a publicly traded company, it doesn't currently break out Temu's financial results. In its 2022 annual report, the company wrote: "Due to its short operating history and the early stage of development, Temu did not have a material impact on our financial results in 2022."

The business unit isn't likely profitable yet. According to an article by The Information, Temu is losing a lot of money as it spends heavily to win customers in the U.S. The company planned to spend $1.4 billion on U.S. advertising in 2023 and $4.3 billion in 2024 to win market share from rivals like Amazon. It's also subsidizing the high cost of international shipping.

While Temu is likely far from becoming profitable, PDD Holdings is solidly profitable. The company reported its third-quarter results in late 2023, posting $9.4 billion in revenue (an eye-popping 94% increase from the prior year) and $2.1 billion in net income (47% more than the previous year).

Due to surging costs (a 262% increase in total cost of revenues and a 55% increase in sales and marketing expenses), likely driven by heavy spending to grow Temu, the company's profits aren't growing nearly as fast as revenue. But PDD Holdings can easily afford to subsidize Temu's growth, given its strong overall profitability, cash flow ($4.5 billion in net cash generated from operating activities in the quarter), and cash position ($27.8 billion at the end of the period).

Temu will likely hold back PDD Holdings' profitability in the near term as it ramps up advertising spending and continues to subsidize shipping. However, that headwind could become a tailwind as it scales the business.

Should I invest?

Should I invest in Temu?

While you can't invest directly in Temu since it hasn't completed an IPO, you can buy shares of its parent company, PDD Holdings. That company gives you exposure to the growth of Temu and its leading Chinese e-commerce platform, Pinduoduo. PDD Holdings is using the profits of Pinduoduo and its other businesses to grow Temu.

PDD Holdings could have a lot of upside potential. Temu's rapid expansion is driving significant revenue growth. While Temu's losses will hold back its profitability, PDD is still very profitable, delivering strong earnings growth across its other operations. So, it could be a compelling long-term investment.

However, PDD Holdings isn't without risk. It operates in China, which carries geopolitical risks. Meanwhile, it's spending heavily to subsidize Temu's growth to compete against large rivals like Amazon, Alibaba, and JD.com (JD 6.12%). Competitors could ramp up their spending to wrestle customers back from Temu, potentially stunting its growth and hurting PDD Holdings' profitability.

ETF options

ETFs with exposure to Temu

Many people prefer to passively invest in a company or trend rather than actively picking a portfolio of stocks they need to manage. Investing in exchange-traded funds (ETFs) makes that easy.

Although you can't use ETFs to invest passively in Temu, you can use them to gain exposure to its parent, PDD Holdings. According to ETF.com, 124 ETFs hold 52 million shares of PDD Holdings in early 2024. The following ETFs had the largest allocation to PDD Holdings:

• Global X MSCI China Consumer Discretionary ETF (CHIQ 2.91%): The fund tracks large and mid-cap consumer discretionary companies in China. The ETF held shares of 80 companies in early 2024, led by PDD Holdings at 11.5% of its assets. It also held shares of Alibaba (its second-largest position, at 9.6% of its assets). The fund had an ETF expense ratio of 0.65%.
• Invesco China Technology ETF (CQQQ 3.69%): The ETF tracks investable Chinese technology stocks. The fund held shares of 151 companies in early 2024, including PDD Holdings (its second-largest position, at 10.2% of its assets). The ETF had a 0.65% expense ratio.
• ProShares Online Retail ETF (ONLN 2.44%): The fund focuses on online retailers. It had 19 holdings as of early 2024. PDD Holdings was its second-largest position, at 9.7% of its assets; Amazon was its top holding, at 24.7%. The ETF has a 0.58% expense ratio.

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The bottom line on Temu

While you can't buy Temu shares directly, you can invest in its parent company, PDD Holdings, which also owns leading Chinese e-commerce platform Pinduoduo. The profitability of the platform and its other businesses gives PDD the funds to invest heavily in expanding Temu as it competes against large rivals like Amazon. Although PDD has its share of risk, it could be a great investment, especially as Temu grows and eventually starts making money.

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