Bernstein published an interesting report forecasting a margin annual profit for Temu in 2024 with US$54 billion GMV. This represents pretty interesting growth but perhaps even more interesting is that Temu is now thought to be profitable in the US and expected to turn a profit in the rest of the world within a year – The UK, Canada, and Australia are in particular looking very good for Temu.
Temu Q2 Performance
- Gross Merchandise Value (GMV) reached US$11-12 billion.
- Margins on GMV slightly improved quarter on quarter, driven by the adoption of the semi-consignment model in the US.
- Estimated full-year GMV for 2024 is US$54 billion.
Semi-Consignment Model (Seller fulfilled orders)
- Exceeds 25% of US GMV by June, contributing to over a third of global GMV in Q2.
- Enables entry into heavier, bulkier, higher Average Order Value (AOV) categories like appliances and furniture, boosting both platform and merchant margins.
- Allows 3-5 day fulfillment, reduces exposure to long-haul shipping costs, and reliance on the De Minimis provision.
- Semi-consignment sales began in Europe in late May.
Tariff Threat and Geopolitical Concerns
Removal of De Minimis which allows low value parcels to be shipped without tariffs would impact Temu, but perhaps less than expected – costs could be passed to consumers with prices still remaining competitive.
- Temu can remain cheaper than Amazon even with 20-25% tariffs due to lower value extraction, thinner merchant margins, and access to cheaper Chinese sourcing.
- Increased semi-consignment mix reduces exposure to potential tariffs.
- A third of Amazon’s third-party merchants are Chinese, who would also be affected by new tariffs.
Profitability
- Temu is now profitable in the US, with non-GAAP operating profits of roughly US$90 million in Q1 and US$150 million in Q2.
- The rest of the world is still modestly loss-making but expected to follow the US trend within 6-12 months.
- Forecast US$54bn of full year Temu GMV this year, and a marginal annual profit.
Temu Comparisons with Amazon
- The report suggests that comparing Temu directly with Amazon may misrepresent the market opportunity.
- The total retail market in the US is over US$7 trillion, with Europe and the UK adding another US$3 trillion, and possibly US$1-2 trillion for the rest of the world.
- 90% of this market is not Amazon GMV and involves various offline retailers sourcing from similar Chinese suppliers through multiple intermediaries and extracting “their pound of flesh”.
