Temu's daily US users cut in half following end of ‘de minimis' loophole

Temu's daily US user base declined by 58% in May following the end of the 'de minimis' loophole, which previously allowed tariff-free shipments of low-value goods from China. This change, coupled with existing US-China trade tariffs, has forced Temu to raise prices and shift its fulfillment strategy, impacting customer engagement and sales growth more significantly than competitor Shein. While PDD executives acknowledged tariff pressures, they reiterated a commitment to stable prices and a shift towards local fulfillment, with growth now focused on less affluent non-US markets.

Analysis

PDD Holdings’ e-commerce platform Temu experienced a significant contraction in its US operations, with daily active users plummeting by 58% in May, according to Sensor Tower. This decline directly followed the White House's May 2nd termination of the 'de minimis' loophole, which had previously allowed tariff-free importation of low-value packages from China, a mechanism heavily utilized by Temu and competitor Shein. The elimination of this provision, compounded by pre-existing US-China trade tariffs, has compelled both platforms to increase prices; however, Bain & Company data indicates Temu has struggled more than Shein, failing to increase per-customer spending year-over-year and suffering a sharper drop in sales and customer growth rates. Consequently, Temu has reduced its US advertising expenditure and is transitioning its order fulfillment strategy. PDD's first-quarter earnings already fell short of growth estimates, with executives attributing significant pressure to tariffs. The revised fulfillment model requires merchants to ship to Temu-partnered US warehouses and manage initial tariff and customs procedures, while Temu continues to handle final delivery logistics, pricing, and online operations. Morgan Stanley analyst Simeon Gutman noted a significant drop in Temu's engagement post-exemption, projecting a continued weakening of its competitive threat if the current tariff environment persists. Conversely, HSBC analysts report that Temu's growth in non-US markets is accelerating, with non-US users constituting 90% of its 405 million global monthly active users in the second quarter, driven by rapid uptake in less affluent markets.

Key Decisions for Investors

• Investors should recognize the substantial headwinds PDD faces in the US market for Temu, evidenced by the 58% drop in daily users and increased tariff pressures, potentially warranting a re-evaluation of US-centric growth expectations for the platform.
• Monitor an PDD's strategic pivot towards non-US markets and the operational efficacy of its new US fulfillment model, as success in these areas will be critical to offsetting domestic challenges and could present new, albeit different, growth trajectories.
• Given the strongly negative sentiment surrounding PDD's US operations and the uncertain tariff landscape, consider the heightened risk profile and closely track PDD's upcoming earnings reports for tangible results from its strategic adjustments and further impacts of trade policies.