Welcome back to The Split! If you missed last week’s post on ByteDance’s new app, Lemon8, read it here.

Short one today: Temu now appears to have more US users than Shein. I’ll dive into what that means, plus touch on new products from Spotify, OpenAI, and Valve (Counter-Strike 2 is coming!).

Our thoughts also go out to the team at SVB. We wish them the best as they work to navigate the current situation.

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Temu Passes Shein in US Users

Data from Comscore and eMarketer shows that four months after launch, Pinduoduo’s Temu now has more monthly unique US visitors than Shein. If I’m interpreting it correctly, this data is as of December 2nd, which may mean Temu had 44.5 million uniques within just the first two days of December (which doesn’t feel right, but who knows - eMarketer’s is notorious for bad data).

Beyond just traffic, Temu is also seeing significant spend retention. According to data from ConsumerEdge, Temu sees significantly higher repeat purchases than competitors. What this tells us is that if a customer spends $100 on their first purchase, they then spend $60 within the next 30 days, $50 within the following 30 days, and $70 and ~$96 in each of the two following months. h/t Olivia Moore for initially sharing this!

Temu does sell very low ticket items. According to 36kr in October, AOV (Average Order Value) was $25 (compared to Shein’s $75 in Q2 ‘22). This would imply subsequent orders of $15, $12.50, $17.50, and $24 - which would mean net contribution margins to Temu / Pinduoduo’s bottom line are likely low considering fulfillment and logistics costs. This is also on an aggregate basis, not per order (some customers may never re-order which would bring the average down!). I saw data saying average Temu AOVs were closer to $35 in November (can’t find it now), which implies that repurchase rates on a per user basis are probably around 30% and its making progress on margins.

Long time readers of The Split will be familiar with Temu as I’ve been writing about it since before it launched in September (more here, here, and here). To recap, it’s the US product of Chinese-based Pinduoduo, which was founded in 2015 and quickly grew to become China’s largest ecommerce platform by number of customers by targeting low income consumers. It cut out middlemen by going directly to suppliers, increasing their margins by tapping into excess capacity and reducing prices for consumers.

Most of Pinduoduo’s revenue comes from suppliers using its in-app advertising products, and Temu appears to be leveraging those same suppliers (and likely a similar business model here in the US). PDD’s app is also very gamified, giving discounts and free products for consistent daily check-in’s and usage. One way to think about the product is Shein mixed with Wish, with elements of Candy Crush sprinkled on top.

Pinduoduo is using a similar playbook as ByteDance with TikTok: brute force ads blanketed across the internet. And it can afford to do so, as it had roughly $14 billion in net cash on its balance sheet at the end of Q3. PDD reports Q4 earnings on March 14th (next week). With Temu spending months at the top of the app store and already doing over $2.4 billion in annualized GMV while Shein’s sales are declining, I’m sure we’ll get at least some commentary on Temu’s progress.

🚀 Product Launches

Counter-Strike 2 is Coming Soon: The new title for one of the world’s top esports franchises will be the first new one since 2014. Its rumored to have a completely revamped game engine and improved matchmaking system.

Spotify Launches Redesign: I shared my in-depth thoughts two weeks ago, but this essentially switches Spotify’s main discovery channel from Playlists to the feed. It gives an opportunity to expand margins by shifting usage away from just music streaming, creates new forms of ad inventory and in-app growth channels for content creators, and opens the surface area for Spotify to experiment with more content formats and features.

TikTok Launches SoundOn: In related news, TikTok recently launched its all-in-one platform for music creators. It gives distribution on all major streaming services, takes zero cut of royalties, and is integrated with TikTok’s advertising tools. This is likely a step in its music streaming product (called Resso overseas) inevitable launch in the US.

Pinterest Launches “Spotlight Ads” on Its Search Page: I don’t think this product in itself is groundbreaking, but it does show Pinterest is willing to try new formats. I’d expect to see them run more experiments at the intersection of short-form video, live streaming, and commerce.

OpenAI Launches ChatGPT API: The official launch comes with a 10x price drop, no more upfront app review, and better speech-to-text capabilities. ChatGPT 4 is also set to launch next week, which promises to be much better than the current product.

HubSpot Rolls out AI Tools: It’s embedding generative AI across essentially all its products. Sending emails and creating blog posts just got 10x easier - which I hope don’t destroy our collective inboxes with spam.

GoDaddy Wants Websites to Become Payment Accounts: This would effectively turn a traditional domain into something like a Venmo / CashApp username or a .eth domain for the crypto aficionado’s.

🔗 Links and Charts

ChatGPT’s retention is holding up well considering its scale and that it’s probably not going to be OpenAI’s biggest business soon.

Pre-Seed + Seed Investment Dollar Volume Down 85%: This is at least according to Carta’s internal data. They do expect this to inch higher as more rounds are submitted into the system over the next few weeks. Anecdotally, the current early stage fundraising environment consists of either raising $5m at a $27m pre-money valuation from a hedge fund's family office that will forget your name in a week, or raising $142k at $3m from eight people you met in a Twitter group chat four years ago.

FTX Says $8.9 Billion in Customer Funds Missing: This is the first time FTX has given a public number, and compares to $11.6 billion of outstanding balances in customer accounts the day of the company’s bankruptcy filing in November.

Podcast listening is at an all-time high: I shared a chart a few weeks ago showing that the total # of new podcasts created declined significantly in 2022 (I think it was 70%?). This chart indicates listener demand is still there, meaning listens are accruing to the top podcasts. You could argue this means podcasts are becoming a bigger part of pop culture and becoming shared cultural moments like can’t-miss TV.

According to a 5,000-home study by TVision, almost 25% of Connected TV users open YouTube app first.

Housing affordability plummeted in 2022. h/t Bucco Capital

US Multigenerational Living at Record (?) Highs: A 2021 study of 9,676 US adults shows financial, caregiving, and convenience are driving a quadrupling in multigenerational living over the past 60 years. Residents skew towards non-white, are less likely to be “poor” than those living in other living situations, and generally view their living situation positively. h/t Rex Woodbury for the share!

High Income Households Drive 20% of Consumer Spending: Not sure this will blow anyone’s mind. But effectively shows how top heavy the US economy is - 62% of consumption spending is driven by the top 40%. and I’m sure is even more pronounced in certain sectors. h/t Lines Down

99% of Mortgages are Below the Current Rate: h/t Lance Lambert.

Fascinating that revenue multiples expanded faster in 2020-2022 than during the Dot Com Bubble. h/t Paul Kedrosky

AWS Doesn’t Have Enough Capacity for AI Compute: According to Alex Health’s latest Command Line, he’s heard anecdotally that AWS lack of capacity has held back a lot of startups from launching new AI features.

Twitter Has A Shot at Positive Cash Flow in Q2: Elon’s comments at Morgan Stanley’s 2023 TMT Conference hint revenue and cloud spending are both down 40%, but workforce related costs are also down nearly 70% after layoffs.

How America Soaks the Affluent: In 2020, the top 1% of earners paid 42.3% of all US income taxes, a two-decade high. Here’s how that’s looked over time:

Here’s how 2020 effective tax rates looked by income threshold:

• Top 1% (above $550,000 in AGI per year): 26%

• Between $220,000 and $550,000: 17.5%

• Between $150,000 and $220,000: 13.1%

• Between $85,000 and $150,000: 9.5%

• Between $42,000 and $85,000: 6.5%

• Bottom 50% (below $42,000): 3.1%

Chinese Urges State Firms to Drop Big Four Auditors: The informal guidance suggests not renewing expiring contracts and instead switching to local firms, citing data security concerns. Feels like there may be more to it…

📚 Long Reads

How Y Combinator Started: TIL YC was initially called “Cambridge Seed”.

How to Benchmark Your Social App: Great post for consumer founders from my friend Bryan Kim at a16z.

How to Trick Investors & VCs: A tongue in cheek read on some of the nuances of GAAP accounting in software.

Unraveling Stock-Based Compensation Overhang: A good look at the history, benefits, and downsides of SBC. My two favorite lines: a) “SBC has grown faster than revenue on average for large cap SaaS companies in the S&P 500” and b) “95% of RSUs are sold on vest which defeats the purpose of giving employees skin in the game” [per a Bill Gurley tweet].

Peter Pan and Neverland VC Returns: I liked this high-level look at the venture market.

“Investors will realize they’re sitting on record funds they need to deploy and yet only really want to be involved with a select handful of companies. The means the competition to invest in top decile (or quartile or top 5%) companies will only increase and more dollars will be squarely pointed at this opportunity and away from the excessive number of lower tier businesses funded these past few years. This will keep those prices artificially elevated and mute returns since these ARE the power law companies and everybody knows it. The $290B of dry venture powder is great for companies and terrible for investors. This mismatch - between fund sizes raised reflecting peak multiples and a smaller pool of smaller outcomes - will almost certainly squeeze out returns.”

A Postmortem of China’s Largest Crypto Scam: The Chinese app “Mark” rug pulled a combined $25.9 billion across China in 2020. There’s speculation its what triggered Beijing to fully ban all crypto transactions in 2021.

🔊 Documentary Recommendation

Glitch: The Rise & Fall of HQ Trivia: If you played the live game show HQ Trivia, this was a great watch. Personally, I thought HQ was one of the most magical moments of the past few years, and it was interesting to see behind the scenes. I can’t figure out how to link to it on Hulu, but you can watch it there. It hits HBO Max on April 6th.

A fun fact from the documentary: (not sure exactly when, but) at one point game shows were 25% of all content on NBC.

💼 Career Services

If you’re considering a new startup job or looking to hire, Banana Talent Drop #13 will go live on Monday, March 13th.

The Banana Talent Collective now has 220+ candidates from places like Stripe, Snap, Uber, Twitch, GitHub, Twitter, Dropbox, and even Home Depot.

If you're starting to explore a new role and want to passively get in front of hiring managers at startups, or if you're hiring and want a feed of pre-vetted candidates, apply to the collective here.

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