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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.
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.
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.