Despite facing turbulence from tariff policies, Temu has demonstrated remarkable resilience through successful business model transformation and robust operations.

UBS analysts Kenneth Fong and Sardonna Fong stated in their recent research report that amid trade tensions earlier this year, the market was once concerned about Temu's growth prospects. However, Temu has stabilized its position through a series of strategic adjustments.

This resilience primarily stems from Temu's rapid transition from a "fully managed" to "semi-managed" model in the US market. The report notes that the new model shifts more logistics and tax compliance responsibilities to merchants, effectively addressing tariff pressures. Meanwhile, Temu's aggressive expansion in non-US markets has also helped offset some of the impact.

Based on Temu's recovering growth momentum, UBS has raised PDD Holdings Inc's target price from $176 to $198 and reiterated its "Buy" rating. The firm believes the market has not fully absorbed Temu's long-term growth potential.

**Semi-Managed Model Mitigates Tariff Impact**

Facing a challenging external environment since 2025, Temu's core response strategy has been to decisively adjust its business model.

The report indicates that Temu quickly shifted its focus in the US market from "fully managed" to "semi-managed" mode. Under the semi-managed model, merchants handle logistics and warehousing themselves, while Temu retains responsibility for operations and pricing.

The key advantage of this approach is that it changes the basis for tariff calculations. Tariffs will be levied based on merchants' product costs rather than retail prices, effectively reducing the impact of tariffs on final selling prices from 54% to 13-18%. According to UBS estimates, by Q2 2025, Temu's US GMV composition had reversed from 70% fully managed in H2 2024 to 70% semi-managed.

Beyond model transformation, Temu has also implemented multiple measures to mitigate risks, including expanding overseas warehouses and developing new markets.

The report shows that by mid-2025, Temu operates 110 warehouses in the US and 10 in Europe, ensuring delivery efficiency by pre-stocking popular products. Additionally, while stabilizing the US market, Temu has accelerated expansion into non-US markets such as Europe and Latin America to diversify geopolitical risks.

**Long-term Value Derived from Supply Chain Efficiency**

UBS believes the market may have over-focused on geopolitical risks while overlooking the long-term value Temu creates through supply chain efficiency improvements.

The report emphasizes that Temu's low-price advantage doesn't merely rely on platform subsidies or temporary tax benefits, but is built on sustainable efficiency improvements, enabling it to maintain a 10-15% price discount compared to competitors.

This efficiency stems from its unique business model, which effectively captures and redistributes value from the following areas:

- **Logistics and Platform Efficiency**: By consolidating orders and centrally purchasing logistics services, Temu can fulfill orders at lower unit costs.

- **Product Procurement Efficiency**: The platform controls pricing power and traffic allocation, screening the lowest-cost merchants through internal bidding mechanisms while eliminating intermediary links.

- **Squeezing Intermediary Profits**: Temu's model compresses the profit margins of traditional trading companies and distributors, passing this value to consumers.

The report analyzes that Temu's semi-managed model could achieve high single-digit operating profit margins (as a percentage of GMV) by 2029, significantly higher than PDD Holdings Inc's domestic e-commerce business profit margin of approximately 3%.

**PDD Holdings Stock Price Doesn't Fully Reflect Temu's Potential**

Despite effective strategic adjustments, Temu will still face financial pressure in the short term.

Due to expansion into relatively lower-margin new markets, lower monetization rates under the semi-managed model, and marketing investments in new markets, UBS expects Temu's operating losses to expand from 32 billion yuan in 2024 to 50 billion yuan in 2025.

However, long-term prospects remain optimistic. As Temu gradually matures in various markets, accelerates monetization through advertising and other means, and improves operational efficiency, the report predicts Temu could achieve quarterly breakeven by the end of 2026.

UBS projects that by 2029, Temu's operating profit margin (as a percentage of GMV) will climb to 6%, higher than the market consensus of 4%. In terms of GMV, the firm forecasts Temu will reach $75 billion and $90 billion in 2025 and 2026, respectively.

UBS believes PDD Holdings Inc's current stock price doesn't fully reflect its intrinsic value, particularly Temu's growth potential. The report analyzes that excluding Temu, PDD Holdings Inc's core domestic business trades at only 9x 2026 expected P/E ratio, comparable to competitors Alibaba and JD.com's 8-11x multiples, but with faster growth in its domestic business.