Foreign. If you've been on the internet over the past few months, you'll be familiar with the new eCommerce platform called Timu, which is taking the World by storm. While it only launched last fall, they have spent hundreds of millions of dollars on an extremely aggressive marketing campaign including a 14 million dollar Super Bowl ad. Timu has skyrocketed in popularity, especially among the younger.

Generations As of March of this year, it was the single most downloaded app in the US. By far, Tmu's main selling point is that their prices are extremely cheap. For example, if you look up waterproof Bluetooth speakers on Amazon, even the generic unbranded options will be at least 27. On Tmu, you can find options for as low as seven dollars with free shipping included.

With such competitive prices, it's no wonder they're attracting tens of millions of Shoppers. Usually when something seems too good to be true, it is. How can they possibly afford to sell products for such cheap prices? They Source the majority of their products from China and other low-cost manufacturing countries, but in many cases the prices appear to be lower than the shipping cost alone own. It's strikingly reminiscent of Wish.com another e-commerce platform which sources products from China and sold them for incredibly cheap prices.

They ipo'd in late 2020, but they've never been able to make a profit and the stock price has fallen by 99 in this video. We'll take a deep dive into Teamers business model and how they're able to sell goods for so cheap. I Personally ordered a few items from Timu to assess their quality. We'll go over an unboxing later in the video.

To be clear, this video is not sponsored by Teamlu and we don't have any affiliate links. We're trying to be as objective as possible about the quality of Team who's offering and see whether or not their business model is sustainable. Demon was founded quite recently in the summer of 2022 and the platform didn't go live until September. They are technically based in Boston, but the majority of their employees appear to be based in Shanghai.

According to LinkedIn, it was created and is fully owned by the massive Chinese e-commerce company. Pinduo Duo or PDD PDD is listed on the NASDAQ and has a 90 billion dollar market cap. Founded in 2015, it was a relative latecomer to the Chinese e-commerce industry. At the time, Alibaba and Jd.com had already established dominant Market positions.

Yet, Against All Odds PDD has been a huge success, gaining 13 market share within China. Their share price has massively outperformed their peers, gaining 178 over the past five years, compared to a 13 loss for JD and a 55 loss for Alibaba. There were three main innovations that allowed PDD to achieve such remarkable success. They developed a gamified social shopping experience, established shorter manufacturing lead times, and finally, they kept their prices low to appeal to low-income consumers.

For every item listed on PDD, there are two prices: an individual price and a team price. If you opt for a team purchase, you need to find other people who also want the product. The number of people required per team varies, but is generally around 10.. you can go on social media and invite your friends to join the team.

If enough people join, you all get to buy the item at a discounted price. This is beneficial for two reasons. Firstly, it creates a social experience whereby people talk about the deals that they see on the PDD app. Greater engagement leads to Greater purchase frequency.

Also, by referring their friends to team purchases, they're effectively turning their customers into sales people, massively accelerating their user growth. Ptd's second Innovation is the extreme gamification of the app. It is full of colorful pop-ups and promotions, which almost make it look more like a video game than an e-commerce platform. In fact, they've even gone so far as to create in-app mini games.

For example, they have duo duo Orchard where you can grow a virtual tree one. Once the tree is ripe, you get a real package of fruit delivered to your house. While these types of giveaways cost money, they also keep people coming back to the app where they are bombarded by pop-ups and discounts, ultimately enticing them to buy more stuff. The second pillar of Pdd's success is its cheap product prices.

Prices on PDD are generally much cheaper than those offered by Alibaba or JD the two main competitors. Firstly, they mostly sell unbranded items, which they purchase directly from the factories. Product quality is usually a bit worse as well. Secondly, they use a logistics system called consumer to manufacturer.

PDD analyzes the spending patterns of its hundreds of millions of users. This data is passed on to the manufacturers who can use this to decide what products to make and what quantities. The manufacturers typically produce products in small batches to minimize excess inventory. This allows the manufacturers to produce products reactively to better match consumer demand.

The lower amounts of excess inventory allow for cheaper prices. One final way that PDD keeps its cost low is by implementing extreme work ethic expectations for their employees. Former employees claim that they were expected to work in excess of 300 hours a month or more than 10 hours per day, including weekends, although it's unclear if this is specific to PDD or if this is just how things work in China The Chinese Tech industry at large has long been criticized for its 996 work culture. Employees are expected to show up for work at 9am and leave at 9pm for 6 days a week.

Either way, PDD achieved an extremely impressive fee in just a few years. They were able to gain a 13 share of the massive Chinese e-commerce market and achieve a 90 billion dollar market cap. Now, they're trying to recreate the success in the US with Timu, but will the same growth. Playbook work in the U.S Foreign September of 2022 primarily focused on the United States Canada Australia and the United Kingdom.

They decided to go all in with the launch, Spending hundreds of millions of dollars advertising. they've sponsored hundreds if not thousands of social media influencers in Payday reported 14 million dollars for a 30-second Super Bowl ad. This marketing campaign has allowed them to grow like a weed, becoming the single most downloaded app in the US this past March and reaching 50 million cumulative app installs by May and the growth has been accelerating in recent months. According to the research providers similar web, the number of page visits to Timu's website more than tripled from 68 million in March to 217 million in May.

It is the sixth most popular e-commerce platform in the US. with that ranking also increasing every month. Given their extensive use of social media marketing as well as a gamified app interface, it's unsurprising that mostly attracts younger Shoppers with the majority of users being under the age of 44. PDD leverages its existing network of Manufacturers Within in China to Source Products for Timu.

Just like how PDD undercut Alibaba and Jd.com on price, Tmu's plan is to undercut the likes of Amazon and Walmart in the Us. As we can see, Timu is substantially cheaper than similar products on U.S e-commerce sites like Amazon. Tumu's products are manufactured in China and other low-cost countries, which is cheaper than making them in the US, but this doesn't explain their price. Advantage Many of the products you would buy from Amazon are also imported from China.

Even if you shop at a brick and mortar retailer like Walmart, most of the manufactured products come from China. So how can Timu be cheaper? Let's say you're a Chinese Factory and you want to sell your products to foreign markets. You can list your products on a business to business e-commerce site like Alibaba Alibaba. Orders generally have a minimum order size and you can get discounts if you buy in bulk.

For example, these Bluetooth speakers cost 11 each if you buy two units, but the price drops to eight dollars each if you order at least fifty thousand. A third-party Amazon seller will buy the bulk shipment from the Chinese Factory and will be shipped to the US by sea. The lead time of the factory plus the shipping time will add up to a couple of months, at least when the shipment arrives in the U.S it will be sent to an Amazon warehouse until such time as an End customer buys it when an end user orders it on Amazon it will be shipped from the Amazon warehouse to their house. Because there are so many middlemen involved, the prices increase substantially.

Alibaba and Amazon both take platform fees and the third party Amazon seller has to make a profit. So for an item that the factory produces for five dollars, it might cost thirty dollars by the time it gets to the end user. So why can't the factories sell their products directly to the End customer? they could? In 2010, Alibaba launched a platform called AliExpress which allows Us consumers to buy products directly from Chinese manufacturers. And just like Timu, their prices are extremely cheap.

The problem is Ali Express ships by sea Freight So it'll take you about a month for the product to arrive at your house. All the express never really caught on because the shipping times were too long. Timu is doing the same thing that Ollie Express did, but instead of using Sea Freight they're giving free shipping on all orders using air freight. Airplanes are significantly faster than cargo ships, so you can have your teamu package arrive at your door in one to two weeks to test out whether or not Tmu is legit.

I Ordered a few products for myself on June 17th. I Ordered a pair of shorts, a jacket, a pair of shoes, and a mechanical watch. All of these together cost 65 dollars including free shipping. I Didn't even choose the cheapest products, but they were still much cheaper than the equivalent products on.

Amazon Sure enough, just one week later, the products arrived. Overall, I was impressed. The products looked the same as their pictures and the quality is as good as you could expect given the cheap prices. although there was a slight defect in the waistband of the shorts.

But overall it seems to be a legitimate platform where you can buy real stuff for extremely cheap prices. According to the tracking number, the package was shipped by Air Freight from China to a warehouse in New Jersey. It was then handed to a local delivery company which drove it the rest of of the way. According to Teamu employees interviewed by Wired, it costs the company 10 on average to ship each package, with the average order size currently sitting at 25.

They are certainly losing money for the overseas flight they use. an Indonesian logistics company called J T Express J T Express is planning to do an IPO soon and they are reportedly offering their shipping Services below cost to gain market share. Had it not been for J T. Eating some of the losses, Tmu's shipping costs would be more than ten dollars according to China Merchant Securities an investment bank that covers Pdd's stock.

Timu is burning cash at an annualized rate of 500 million to 1 billion dollars per year. This rate of cash burn is obviously not sustainable in the long run. Eventually, they'll have to place a minimum order size for free shipping and dial back on their marketing campaigns. The gamble they're making is that by losing huge amounts of money in the short term, that they will gain a massive user base who will continue shopping on Teemu even after they raise prices.

But will this bet pay off? Wish.com was launched in 2010 and in a lot of ways is very similar to Timu. They Source their products directly from Chinese Sellers and offer them to consumers in the US for very cheap prices. And just like Teamu, they grew by spending billions of dollars on a massive ad campaign. As they are preparing for their IPO in 2020, they increased their marketing budget to 1.7 billion dollars which allowed them to post strong Revenue growth of 33 percent.

The impressive growth allowed them to IPO at a premium valuation of 14 billion dollars. This is despite the fact that they were losing money over the next two years they spend their IPO proceeds to continue their marketing campaigns. By 2022, they'd almost run out of cash. They cut their sales and marketing budget by 77 for 1.1 billion dollars to 250 million dollars.

This caused their revenue to Fall by a catastrophic 73 down to 570 million dollars. While the stuff on Wish is incredibly cheap, it's mostly small trinkets or clothing of generally low quality. Most people realize they're just buying more junk that they don't need, so we're unlikely to make repeat purchases. If Wish wants to maintain its sales volume, they had to continue spending billions of dollars on Advertising to bring in new customers.

This is obviously unsustainable and the company's stock prices declined by 99. Since going public, they appear to be on the brink of bankruptcy at some point. Timu will also have to cut back on its advertising and either start charging for shipping or making a minimum order size. Once this happens, will all their users disappear? Timu has a couple advantages which make it more likely to succeed.

Firstly, they have the backing of PDD which has three billion dollars of cash on their balance sheet and their Chinese operations are profitable. If they so choose, they can afford to keep up the cash burn far longer than Wish.com Secondly, because PDD already has a massive network of manufacturers in China Timu's product selection is much better. and finally, with Teemu's rapidly increasing scale, they'll be able to negotiate better shipping rates. We're already seeing this now, with Jnt Express reportedly willing to take Timo's business at a loss.

It's still too early to tell whether Timu will ultimately be successful in the US market, but we do know that they're unbelievably low prices and free shipping are unsustainable, so we might as well enjoy it while we can. Alright guys, that wraps it up for this video. What do you think about Temu? Do you think it's just an advertising driven fad? or is it here to stay? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one.

Wall Street Millennial Signing out.