Feb 01, 2024 02:56 AM EST
Temu and competitor Shein are smearing advertisements on Facebook and Instagram in an attempt to establish their brands and draw customers away from Alibaba and Amazon. PDD Holdings owns Temu, a Chinese business that relocated its main office to Ireland in the previous year. Shein was established in China, and in 2022, it moved its main office to Singapore.
Both businesses are reaching American consumers by utilizing China's cheaper manufacturing costs as well as trade regulations that protect them from paying import duties on shipments under $800, according to claims made by US politicians.
Temu and Shein are significantly affecting Meta's financials and may be giving an inaccurate impression of the company's growth pace. Analysts and investors are attempting to determine how much of an impact two online retailers from the China region are having on Meta's top line, as well as the sustainability of that growth given the limited track record of those clients, as Meta gets ready to update Wall Street with its fourth-quarter earnings reports on Thursday.
According to analysts surveyed by LSEG, previously Refinitiv, Meta is predicted to announce sales increase of 22% for the quarter, reaching $39.2 billion.
Read Also: Biden Aims to End Debt Spiral with Drastic Overdraft Fee Cut
Temu started in 2022, while Shein was created in 2012, it wasn't until the last few years that the company began to aggressively advertise on social media.
Susan Li, the chief financial officer of Meta Finance, reiterated remarks she made in April when she stated on the most recent earnings call in October that the firm had "benefited from spend among advertisers in China reaching customers in other markets."
Despite the fact that Temu and Shein were not mentioned by name in Meta's statement, analysts conjectured that, given their recent meteoric growth, they were primarily to blame for the sales boost.
According to JMP analysts, Temu and Shein spent around $200 million and $600 million on Instagram and Facebook advertisements in the third quarter, respectively. According to JMP, that implies they contributed around 3% of Meta's overall growth throughout that time.
According to data.AI research done by CNBC, Temu saw 73.87 million downloads in 2023, a 500% increase over the previous year. Over that time, Shein's downloads rose by almost 52% to 36.93 million.
Meta is soaring ahead of Thursday's earnings release. The stock continues to rise after setting records last week and this week. This year, it has increased by 12%, having nearly tripled in 2023.
That came after a wretched 2022 in which Meta had an almost two-thirds value loss. Rising interest rates, sharp increases in inflation, and a widespread exodus from IT stocks all hurt the corporation. It was also in disarray because of Apple's late 2021 iOS privacy update, which significantly increased the difficulty for marketers to target customers.
Although they acknowledge the advantages of new investment from Chinese merchants, Meta Bulls assert that the firm does not depend on it.
Even yet, every bit of growth matters for a business that had three quarters of revenue decline in 2022 and is predicted to see expansion in the low teens for 2024-well below historical norms.
Temu and Shein are possible threats from that angle. The legal dispute between the two is one problem. According to court records, Temu filed a lawsuit against Shein in December, accusing her of dubious business activities and "mafia-style intimidation of suppliers."
That came one month after Shein filed in confidence to go public, with an anticipated 2024 U.S. release date. However, a source with knowledge of the situation said that Shein's supply chain presence in China is currently the subject of a security examination by the nation's most powerful internet regulator, the Cyberspace Administration of China.
Sources states that Shein's handling of data regarding its partners, workers, and suppliers in the area is the main focus of the review.
Related Article: Retail Rebound or Bubble Burst? December Surge Hides Underlying Inflation Concerns