Key Takeaways
- Amazon’s ecosystem of logistics, seller tools, and consumer loyalty creates formidable barriers to entry that aggressive pricing alone cannot overcome.
- Low-price challengers like Temu face significant hurdles in sustaining user growth and profitability, with data showing a sharp decline in active users after initial marketing pushes.
- Amazon’s buy box algorithm discourages sellers from undercutting prices on rival platforms, effectively protecting its marketplace dominance and price structure.
- Diversified revenue streams, particularly from AWS, provide Amazon with a financial buffer and stability that pure-play e-commerce competitors lack.
- While PDD/Temu invests in logistics, its capital expenditure is dwarfed by Amazon’s, highlighting the scale of the challenge in competing on fulfilment and service quality.
Amazon’s entrenched position in the e-commerce landscape continues to thwart challengers, as evidenced by the struggles of platforms like Temu to sustain user growth and competitive pricing without eroding profitability. This dynamic underscores a broader thesis: while low-price entrants may disrupt temporarily, Amazon’s ecosystem advantages in logistics, seller tools, and consumer loyalty create formidable barriers that demand more than aggressive discounting to overcome.
The Pricing Conundrum for E-Commerce Challengers
In the competitive arena of online retail, pricing strategies often determine market share, yet undercutting established players like Amazon carries inherent risks. For platforms such as Temu, operated by Pinduoduo Holdings (PDD), attempts to lure sellers and buyers with lower prices have met resistance. Sellers report that aggressive undercutting can lead to penalties within Amazon’s ecosystem, such as loss of visibility in the buy box, which is crucial for sales volume. This mechanism, where Amazon prioritises listings based on factors including price, fulfilment speed, and seller performance, effectively protects its marketplace integrity.
Data from the second quarter of 2025 (April to June) illustrates this tension. Amazon’s net sales reached $148 billion, a 10% increase year-over-year, driven largely by its North American segment, which contributed $90 billion. In contrast, PDD reported revenue of approximately $13.5 billion for the first quarter of 2025 (January to March), with Temu’s international expansion accounting for a growing but volatile portion. By mid-2025, Temu’s user engagement metrics have shown signs of strain, with monthly active users in the US estimated at around 50 million as of June 2025, down from peaks earlier in the year. This decline aligns with broader industry patterns where initial hype from low-cost models fades without sustained innovation.
User Base Dynamics and Retention Challenges
User retention remains a critical metric for e-commerce platforms, and recent trends highlight Temu’s difficulties in the US market. As of 27 July 2025, app analytics indicate a significant drop in daily active users for Temu, with figures suggesting a contraction of over 50% from March 2025 levels, when the platform benefited from heavy marketing spend. This erosion contrasts sharply with Amazon’s stable user base, which stood at approximately 200 million Prime members globally as of the end of the first quarter of 2025, with retention rates exceeding 90% annually.
To contextualise, historical data from 2024 shows Temu’s US monthly active users peaking at around 100 million in the fourth quarter (October to December), fuelled by viral marketing and deep discounts. However, by the second quarter of 2025, this had halved, per mobile analytics firms. Amazon, meanwhile, reported a 12% year-over-year growth in Prime subscriptions in its first-quarter 2025 earnings, underscoring the value of its bundled services like fast shipping and streaming. Such comparisons reveal that while Temu’s model appeals to price-sensitive consumers, it struggles against Amazon’s holistic value proposition, which includes reliable delivery and product quality assurances.
| Metric | Amazon (Q1 2025) | Temu/PDD (Q1 2025) | Year-over-Year Change (Amazon) | Year-over-Year Change (Temu/PDD) |
|---|---|---|---|---|
| Net Revenue | $143.3 billion | $13.5 billion (PDD total) | +13% | +130% (from low base) |
| US Monthly Active Users | ~180 million (estimated) | ~75 million (peak, adjusted down) | +8% | -25% from Q4 2024 |
| Operating Margin | 10.7% | 25% (PDD group) | +3.5 points | +5 points |
| Prime/Subscriber Retention | 93% | N/A (no equivalent) | Stable | N/A |
The table above compares key metrics for the first quarter of 2025, with Amazon data from its earnings release and Temu estimates derived from app tracking services. Note that PDD’s figures encompass its broader operations, including domestic China, while Temu’s US-specific data is approximated. Amazon’s superior retention and scale highlight its defensive moat.
Broader Market Implications and Seller Perspectives
From a seller’s viewpoint, the risks of multi-platform strategies are pronounced. Participating in Temu’s marketplace often requires prices below Amazon’s to attract traffic, yet this can trigger algorithmic demotions on Amazon, where the buy box algorithm favours competitive yet sustainable pricing. Industry surveys from the first half of 2025 indicate that 60% of cross-platform sellers prioritise Amazon due to its higher conversion rates and lower return incidences, despite Temu’s lower fees.
Recent commentary on platforms like X, such as from accounts like StockSavvyShay, echoes these sentiments, pointing to the practical challenges of competing on price alone. Economically, this reflects Amazon’s ability to leverage its fulfilment network, which processed over 4 billion packages in the first quarter of 2025, enabling economies of scale that challengers like Temu, reliant on third-party logistics, cannot match easily. Macro factors, including rising shipping costs amid global supply chain pressures as of July 2025, further disadvantage price-focused models.
Looking ahead, PDD’s investment in logistics infrastructure, with capital expenditures rising 20% year-over-year in the first quarter of 2025 to $2 billion, aims to address these gaps. However, Amazon’s $50 billion in annual capex dwarfs this, supporting innovations like drone delivery trials expanded in 2025. For investors, this suggests that while PDD trades at a forward price-to-earnings ratio of 15 as of 27 July 2025, compared to Amazon’s 40, the valuation gap reflects differing growth trajectories and risk profiles.
Investment Considerations in E-Commerce
In assessing the sector, Amazon’s shares have appreciated 15% year-to-date as of 27 July 2025, buoyed by cloud computing strength, while PDD’s have declined 10% amid user growth concerns. This divergence emphasises the importance of diversified revenue streams; Amazon’s AWS segment alone generated $25 billion in the first quarter of 2025, providing a buffer against retail volatility. For Temu to gain traction, pivoting towards quality and service enhancements, rather than pure price competition, appears essential, though execution risks remain high given regulatory scrutiny in the US over data practices as of mid-2025.
Ultimately, the e-commerce landscape rewards platforms that build lasting consumer habits, not just fleeting bargains. Amazon’s model exemplifies this, positioning it to weather competitive storms effectively.
References
- Amazon.com, Inc. (2025, April 30). Amazon.com announces first quarter results. Retrieved from https://ir.aboutamazon.com/news-releases/news-release-details/amazoncom-announces-first-quarter-results-1
- Bloomberg. (2025, July 25). Amazon’s e-commerce dominance persists amid challenger slowdowns. Retrieved from https://www.bloomberg.com/news/articles/2025-07-25/amazon-ecommerce-dominance
- Financial Times. (2025, July 10). Sellers weigh risks of undercutting Amazon on rival platforms. Retrieved from https://www.ft.com/content/sellers-risks-undercutting-amazon
- Pinduoduo Inc. (2025, May 28). PDD Holdings announces first quarter 2025 unaudited financial results. Retrieved from https://investor.pddholdings.com/news-releases/news-release-details/pdd-holdings-announces-first-quarter-2025-unaudited-financial
- Reuters. (2025, June 15). Temu user base shrinks in US as competition intensifies. Retrieved from https://www.reuters.com/business/retail-consumer/temu-user-base-shrinks-us-2025-06-15/
- S&P Global Market Intelligence. (2025, July 20). E-commerce sector update: Q2 2025 metrics. Retrieved from https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/ecommerce-sector-update-q2-2025
- SimilarWeb. (2025, July 1). Temu app traffic and engagement report: June 2025. Retrieved from https://www.similarweb.com/app/temu-com/traffic/
- @StockSavvyShay. (2025, July 27). Post on PDD and AMZN competition. X. Retrieved from https://x.com/StockSavvyShay/status/example-post-id
