Vipshop Continues Growing in the Shadow of Alibaba and JD.com

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Chinese e-commerce site Vipshop (NYSE: VIPS) is often overshadowed by market leaders Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD). Vipshop controlled just 1.8% of China's e-commerce market last year, according to eMarketer, putting it in a distant fifth place behind Alibaba, JD, Pinduoduo (NASDAQ: PDD), and Suning -- in that order.

Yet Vipshop is surprisingly resilient. The stock was cut in half last year over concerns about its slowing growth and tumbling margins. However, it rebounded about 40% this year as its growth stabilized, its margins improved, and it continued gaining new customers.

A young woman holding her credit card as she gazes at shopping bags.
A young woman holding her credit card as she gazes at shopping bags.

Image source: Getty Images.

Vipshop's recent first-quarter report indicates that turnaround is still on track. Its revenue rose 7% annually to 21.3 billion RMB ($3.2 billion), beating estimates by $220 million. Its adjusted net income grew 12% to 816 million RMB ($122 million), or $0.18 per American depositary share (ADS), which cleared expectations by $0.02. Let's see why Vipshop continues to grow as other e-commerce underdogs fizzle out.

Understanding Vipshop's business

Vipshop was one of the first flash-sale sites in China. Its first-mover advantage in that niche helped it remain relevant in the crowded e-commerce market even as larger marketplaces like Alibaba's Tmall launched similar flash-sale sites.

In late 2017, Vipshop received a shot in the arm when Tencent (NASDAQOTH: TCEHY) and its e-commerce partner JD co-invested $863 million in the company. That investment gave Tencent a 7% stake in the company and boosted JD's stake from 2.5% to 5.5%. Tencent subsequently raised it to 8.7%.

Vipshop launched shopping mini programs for Tencent's WeChat, the most popular messaging app in China, and bundled its Prime-like "Super VIP" plans with Tencent Video subscriptions. JD also integrated Vipshop's flash-sale marketplace into its own. By the fourth quarter of 2018, nearly a fourth of Vipshop's new customers were coming from Tencent and JD's platforms.

Tiny parcels in a little shopping cart on top of a laptop keyboard.
Tiny parcels in a little shopping cart on top of a laptop keyboard.

Image source: Getty Images.

The key numbers

During the first quarter, Vipshop's total number of active customers grew 14% annually to 29.7 million as its total orders increased 29% to 116.5 million. Over the past year, Tencent and JD's support clearly boosted Vipshop's growth in active customers as its total orders kept climbing:

Metric

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Active customers

2%

6%

11%

13%

14%

Total orders

25%

31%

29%

35%

29%

Year over year. Data source: Vipshop quarterly earnings.