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Summary

  • Vipshop Holdings reported Q4 revenue and earnings that easily beat analyst estimates.
  • The latest note offering strengthened the company’s balance sheet and points to a potential major acquisition.
  • Insiders are cashing out after the stock ran up more than 20x in less than two years.
  • Vipshop started to outperform Zulily as I expected but there is still plenty of upside for Vipshop, as it is still trading at a significant discount to Zulily.

Vipshop (NYSE:VIPS) reported Q4 revenue and earnings that blew past analyst estimates, and Q1 2014 guidance that was also above expectations. Vipshop has also announced a $400 million note offering and intends to use part of the proceeds to repay the existing debt and the rest for general corporate purposes. However, I believe that there may be a major acquisition coming soon, since the company already had a substantial cash position prior to the note offering. On the other hand, insiders are cashing out along with the note offering, but it is to be expected after the stock rose more than 20x its IPO price. I wrote about Vipshop two weeks ago, and argued that it is significantly undervalued when compared to Zulily (NASDAQ:ZU), and Vipshop went up more than 40% since, but is still deeply undervalued, and there is still plenty of upside left.

Q4 highlights

Vipshop's Q4 revenue rose 117.3% to $651 million, on a 119.5% increase in the number of active customers. Analysts were expecting $560 million. Earnings per share increased 206% to $0.49, while analysts were expecting $0.41. Gross margin expanded 160 basis points to 24.5%.

The company guided Q1 2014 revenue between $640 million and $650 million, while the Street consensus at the time was $554.5 million. The strong showing of the Q4 report already had a profound effect on 2014 and 2015 expectations. The expectations should continue to rise going forward, given the conservative management guidance in prior reports.

Note offering strengthens the balance sheet and points to a potential major acquisition

Vipshop recently announced a note offering of up to $482.5 million, which the company intends to use to repay the existing debt and for general corporate purposes. The company already had more than $700 million in cash and equivalents at the end of 2013, and has spent almost $200 million on two acquisitions I discussed about in my latest article on Vipshop. The note offering puts the company's cash balance north of $1 billion, and it might use the funds for a major acquisition. While the acquisition target is yet to be determined (if there is a potential candidate at all), it certainly might strengthen the company's product offering, and help diversify its revenue stream and strengthen its competitive position.

Insiders are cashing out

Vipshop also announced a stock offering, where selling shareholders will unload up to 1.3 million shares at a price of $143.74. While I do not like to see insiders selling their shares, it is a natural course of action since the stock advanced more than 20x from its IPO price just two years ago. I do not consider this a major red flag, and all the other recent developments point to strong growth and to a higher probability for a higher share price in the future.

Vipshop started to outperform Zulily

I noted in my previous article on Vipshop and Zulily that Vipshop is significantly undervalued when compared to Zulily, and Vipshop started to outperform in the last two weeks after the company reported its Q4 earnings report. Although Vipshop has advanced more than 40% since I wrote the article and Zulily is 10% higher, Vipshop is still trading at a significant discount to Zulily and should continue to outperform in the next couple of weeks/months.

Source: Yahoo! Finance

Conclusion

Recent developments are very positive for the long-term prospects of Vipshop Holdings. The company has more than $1 billion in cash to fund a potential major acquisition, and its growth expectations have been raised significantly recently. Vipshop is still trading at a significant discount to Zulily and should outperform in the next couple of weeks/months.

Source: Vipshop: Recent Developments Strengthen The Long Case