Vipshop Gains Customers, But Stock Slides on Lower-Than-Expected Revenue

Shares of Vipshop Holdings Ltd. on the Nasdaq had been up about 34 percent year-to-date, but that impressive run ended on Thursday after the company announced its lackluster fourth quarter and full-year 2018 earnings results. The company still managed to beat Wall Street earnings estimates by $0.01 per share at $0.19. That slight beat was not nearly enough to placate investors who fear China’s slowing economy will drag the e-commerce sector.

Revenue and profit growth showed signs of a significant slowdown for the company, a trend that didn’t match up with Vipshop’s economic growth projections. Fourth-quarter results were particularly important for the e-tailer as they included sales from November’s all-important Singles’ Day as well as Christmas and the company’s own anniversary sale on December 8th. Vipshop’s number of customers making purchases on the platform during Singles’ Day increased 23 percent year-on-year.

Revenue came in at the low end of guidance: 8.1 percent year-on-year in the fourth quarter to $3.8 billion (RMB 26.1 billion), which was below analysts’ estimates. Full-year revenue increased 15.9 percent to $12.3 billion (RMB 84.5 billion).

The company’s growth rate in Q4 last year was significantly slower than in Q3, which saw revenue increase by 16.4 percent versus the same period in 2017. In contrast, China’s e-tail giant Alibaba saw its revenue grow 41 percent year-on-year in the final quarter of 2018, although that success was boosted by the company’s wider range of products, including a rapidly expanding cloud business. Vipshop continues to rely almost entirely on e-commerce sales, though its internet finance business is showing modest gains.

Vipshop guided for first-quarter 2019 revenue to increase 0-5 percent year-on-year.

Despite these lower-than-expected results, Vipshop CEO Eric Shen remained upbeat by focusing on how the platform won a 13 percent year-on-year increase in active users (with 23 percent of those users coming from partners Tencent and JD.com). Meanwhile, there was another silver lining: The company also saw a 28 percent quarter-on-quarter increase in Super VIP Paid Memberships, bringing that total to 3.2 million customers.  And though revenue wasn’t as high as expected, the total number of orders on the platform grew an impressive 35 percent year-on-year during the quarter.

And finally, Vipshop’s operating margin increased 0.1 percentage point to 3.9 percent despite a 1.1 percentage point decline in gross margin — a positive takeaway from the earnings report.

Two days prior to the company’s earnings release, Bank of America downgraded the stock to neutral from buy, and the stock is trading down over 13 percent from the opening bell to $6.32 as of 12 p.m.

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