How Temu parent PDD dethroned Alibaba to become China's most valuable e-commerce company

PDD's value-for-money positioning and growth of its Temu marketplace has helped the company lead China's e-commerce arena, analysts said, making it the country's most valuable company in the segment.

PDD Holdings reported stellar first-quarter results on Wednesday last week, sending its shares surging as much as 7.5%, and driving its market-cap past that of rival Alibaba Group. PDD shares have more than doubled in value — up 109% — in the past year, according to LSEG data.

PDD, which also owns Chinese discount shopping app Pinduoduo has a market-cap of about $208 billion, compared with Alibaba's $196 billion, according to LSEG data. JD.com is a distant third with a market-cap of $48 billion.

"We think Temu's profitability will improve faster than previously estimated due to its introduction of the half consignment model, under which logistics costs will be borne by merchants," Morningstar said in a note on Thursday.

"We also believe PDD's domestic platform will be able to defend its position given the strong consumer perception of its value-for-money positioning," Morningstar analyst Chelsey Tam said, adding that PDD comes up top in their preferences, while JD.com and Alibaba are in second and third spots respectively.

Goldman Sachs on Friday raised PDD's rating to "buy" from "neutral," noting the firm's continued growth momentum in advertising revenue in the first quarter as well as Temu's potential.

The upgrade comes "on the back of its adtech capabilities combined with China's cost-competitive suppliers/merchants /supply chains alongside favorable risk-reward, with the current market cap implying no valuation ascribed to Temu," Goldman Sachs analyst Ronald Keung said in the note.

The market has "now more than priced in" the