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VIP.com & Ecommerce in China | EMQQ

Vipshop (VIPS) is a leading Chinese ecommerce company.  The company has experienced strong growth over the past five years with its business model of offering online discounts through flash sales.  The company has made strategic alliances with Chinese internet giants Tencent and JD.com that may help it gain more customers going forward.

Investors may purchase shares of Vipshop directly as it is a publicly traded company.

Company Description

Vipshop is a Chinese ecommerce company specializing in online discount sales, under its VIP.com website.  The company offers high-quality branded products to consumers in China through flash sales on their Vipshop Online Platform.  The company’s flash sales business model offers new sales events daily with a selection of popular brands offered at deeply discounted prices in limited quantities for a finite period of time.  The company offers new daily sales event twice daily.

Laptop and Mobile

The company’s Vipshop online platform is represented by the vip.com website and the Vispshop App.  The App has become the company’s top portal and, according to its annual report, is responsible for 90% of total revenues.

Additional Services

Vipshop also offers consumer financing services.  The company’s internet financing business offerings include consumer financing, supplier financing, and wealth management services.

By the Numbers

According to the company’s annual report, VIP has over 310 million registered members and 110 million cumulative customers during 2017.  The company sold products for over 23,000 domestic and international brands.  Vipshop’s investor presentation highlights that the company processed over 335 million orders during 2017, up from 270 million in 2016.  Repeat customers accounted for over 41% of sales in 2017 versus nearly 35% during 2016.

Financial Results

During 2017, revenue increased by nearly 29% to reach nearly RMB73 billion, according to Vipshop’s annual earnings release.  Gross profit increased nearly 20% during the year, while net income declined around 5% from RMB1.992 billion to RMB 1.892 billion.

During the third quarter of 2018, revenues increased by over 16% from the third quarter of 2017, reaching RMB17.8 billion.  In its earnings release, the company attributed this increase to the 11% increase in active customers and a 5% increase in revenue per customer.  Total orders increased by 29% from the prior year.  Gross profit increased by 3.8% while net income decreased to RMB 228.7 million from RMB338.1 million in 2017’s third quarter.

Strategic Partnerships  

During December 2017, Vipshop announced strategic partnerships with both Tencent (TCEHY) and JD.com (JD).  Both companies will take stakes in the company representing 7% and 5.5% of Vipshop’s total issued shares.  Under the agreements, Tencent will offer Vipshop an entry onto Weixin Wallet enabling the company to access customers from the platform.  JD.com will offer Vipshop entries on both the main page of JD.com and the main page of Weixin Discovery.  JD.com will also assist the company in reaching specific sales targets on JD.com’s platforms.

According to the company’s third quarter earnings release, Tencent and JD.com accounted for 22% of the growth in total active users compared to last year’s third quarter.

Pricing and Valuation

Vipshop’s stock ADR reached an all-time high of $30 in March 2015.  Concerns about a slowing Chinese and economy and the recent trade war between the U.S. and China, as well as concerns about the company’s growth, have resulted in a price decline to its current (1/8/19) price of $6.00.

However, the company’s revenues are still growing at a double-digit rate.  With trailing 12 month eps of $0.49 (according to Marketwatch), the company is selling at a P/E around 12.

Strong Potential for Chinese Ecommerce

Retail ecommerce sales in China are projected to grow from nearly $500 billion to over $950 billion by 2022, according to Statista.[1]  According to eMarketer, the company’s Vip.com site was the fifth largest ecommerce site in China by sales shares, although it still only represents 1.8% of sales (Alibaba and JD.com represent 58% and 16%, respectively).[2]  Within their November 2018 corporate presentation, the company notes that the retail infrastructure in China is poor compared to more developed nations.  In particular, they note the lack of off-price retailers and outlet stores in China.  Consequently, consumers in China need to shop online for discounted merchandise, which is a potential bonus for the company.

Summary 

Vipshop is a leading Chinese discount ecommerce company.  The company has experienced strong growth in its business while ecommerce as a whole has experienced strong growth.  The company’s strategic partnerships with Tencent and JD.com may provide additional potential for growth.  The price decline may provide an attractive entry point for investors.

As of 1/8/19, EMQQ – the Emerging Markets Internet and Ecommerce ETF – held shares of Vipshop.

Article Date: 28th March 2019.

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