Vipshop Holdings Ltd. (VIPS) is a leading online discount
retailer for high-quality brand name products in China, utilizing
the online "flash sales" method where special pricing may only be
available for a few days.
Offering a wide selection of various famous branded
discount products including apparel for women, men and children,
fashion goods, cosmetics, home goods and other lifestyle products
through its website, the $9 billion company describes its unique
approach thus...
"As compared to conventional on-line marketplaces
or large-scale multi-category online retailers, Vipshop has
successfully created and proven there is a third e-commerce model
that can provide tremendous scale and profitability. By providing
special offers and deep discounts on branded products, the Company
has pioneered the online discount retail model in China and become
the expert and leader trusted by our customers and brand partners
alike."
Shift From Luxury Pays Off
In a Forbes article from last November, Heng Shao
described the company's transformation since launching in
2008...
Founders Eric Ya Shen and Arthur Xiaobo Hong
"quickly shifted weight to mass market brands of clothing,
cosmetics and accessories, as meager sales proved online luxury
shopping to be unattractive to Chinese consumers."
Their approach took some time to pay off even after
their March 2012 IPO. Shao notes that "The wind only shifted in
late 2012, after Premier Wen Jiabao’s visit to Vipshop’s Guangzhou
headquarters injected a dose of confidence." Revenues climbed to a
record $1.7 billion annually in 2013.
"Now a hybrid of time-limited in-season discount
and off-season overstock clearance, Vipshop sells $40 dollar
jackets alongside $1,000 designer handbags, typically within a time
window of four to six days (“flash” sale of luxury products,
however, can last as long as 12 days). In late 2010, DCM and
Sequoia Capital injected $20 million into the company. Not long
after, sales began picking up quickly, with nearly 90% coming from
non-tier-one cities where outlets are rare."
What Drove the Shares Up 13X?
Since November of 2012, VIPS has consistently been
a Zacks #3 Rank or better. To state that more accurately, in a way
that reflects the power of earnings estimate revisions (EER), VIPS
has been a Zacks #1 Rank Strong Buy or #2 Rank Buy more than half
the time since it was trading $12 over 15 months ago.
To understand why the stock keeps popping up as a
Zacks #1 Rank, you need only look at a recent quarterly report. On
March 3, Vipshop reported strong fourth quarter EPS results,
beating the Zacks consensus by 16% while revenues rose 117.3%
year/year to $651.0, also above expectations.
The company's gross margin increased to 24.5% from
22.9% in the prior year period. Non-GAAP operating margin increased
to 5.1% from 2.4% in the prior year period. Active customers jumped
119.5% YoY to 5.7 million. Total orders increased 102.4% to 17.7
million.
These numbers vaulted the stock from $130 to $180
that week. And here's a visual of the direction and magnitude of
EPS revisions that keep institutional investors buying these
shares...
![](http://static.zacks.com/images/zacks/blogs/1396476733_scaled_425.jpg)
Shares Worth $200?
After that report, Macquarie analysts reiterated
their Outperform rating and not only raised their EPS outlook, but
boosted their price target for the stock from $130 to $200.
Describing the Vipshop's premium platform for
discount retail, the analysts said the guidance for 1Q revenue
growth of 106-109% ($640-$650 million) YoY was 12% ahead of their
prior estimates and that strong top line growth was largely being
driven by substantial growth of active customers.
"With the recent acquisition of Lefeng, a leading
online cosmetics retailer, revenue growth and margin expansion
should continue. That said, 2014 is an investment year and we raise
our estimates of revenue and EPS modestly but recognize our
estimates may ultimately prove too conservative. Our $200 PT is
based on 50x FY15E non-GAAP EPS due to higher growth and earnings
visibility as a result of less competition."
Car Flashing
In a March 10 update, Macquarie analysts talked
about Vipshop's latest innovation: selling discount coupons to its
customers for buying cars at an offline dealer. "We believe this is
similar to Soufun's (SFUN) eCommerce business - VIPShop
recognizes the face value of the coupon (Rmb 5,000 in today's
event) as its revenue. Customers pay the Rmb5,000 upfront and can
enjoy a reduction of up to Rmb30,000 from the suggested retail
price when they go to designated dealers to buy the cars."
The move into automobile discount events seems like
a good one for the company and signals a management team with a
creative and aggressive marketing edge, especially in taking on the
resident online auto experts in China, Bitauto (BITA).
Unlike a normal flash sales event that can last for
2-6 days, the first auto sales flash sales event was designed to
last for two weeks. But all the discount coupons were sold out
within one hour.
Shoppers Are Social and Fickle
Vipshop will have to continue to be creative and
aggressive as more marketers compete for the Chinese consumer.
Again from Shao's November Forbes article...
"The 3.3 million followers on its Weibo page speak
to Vipshop’s popularity: still few compared to the more than 5
million fan base of Alibaba's Tmall or Dangdang (DANG), who
launched a clearance flash sale site this year, but easily
outshines its direct competitors Xiu.com, Jiapin.com, and FClub.cn,
none of which has more than half a million fans."
VIPS shares filled the early March gap like
clockwork and have since rallied back up to $160 this week. I'm
sure that I'm not the only investor looking for a good entry
soon.
Kevin Cook is a Senior Stock Strategist for
Zacks where he runs the Follow The Money portfolio.
BITAUTO HOLDNGS (BITA): Free Stock Analysis Report
E-COMMRC CH-ADR (DANG): Free Stock Analysis Report
SOUFUN HLDG-ADR (SFUN): Free Stock Analysis Report
VIPSHOP HOLDNGS (VIPS): Free Stock Analysis Report
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