Vancl Cuts More, IPO In Sight?

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 |  Includes: JD
by: Doug Young

Vancl sells delivery unit

Former online clothing high-flyer Vancl is making yet more cuts to its business, as it pursues its dream of finding sustainable profits and making an eventual public listing. Both goals could come sooner rather than later, especially since IPOs by Chinese web firms have suddenly become an investor favorite again on Wall Street, as reflected by new data on the second-quarter IPO market. Such an offering could be compelling if Vancl really has become profitable, since it's a clear leader in the highly competitive but still somewhat niche area of clothing e-commerce.

According to the latest reports, Vancl has just officially sold its in-house parcel delivery service, called Rufengda. (Chinese article) The unit, which Vancl CEO Chen Nian once called his company's most important asset, was purchased by another parcel delivery company backed by investment giant Citic Capital. Vancl founded Rufengda in 2008, and was one of the earliest e-commerce firms to realize the importance of providing quick and reliable delivery service for the success of its business.

No terms were given for the sale of the unit, but that's probably not so important anyhow. The important thing is that the sale eliminates one more distraction that Vancl probably didn't need as it tries to shore up its balance sheet and find a formula for long-term profitability.

Vancl's move contrasts with larger e-commerce firms like JD.com (Nasdaq: JD) and Wal-Mart's (NYSE: WMT) Yihaodian, which have gone in the other direction by setting up their own delivery arms in recent years to provide better service. Frankly speaking, Vancl is probably better off without a delivery unit as there are now quite a few major independent parcel delivery companies in China that can provide comprehensive national services at competitive rates.

Vancl hasn't talked too much about its top and bottom lines lately, but I suspect that the former has shrunk considerably as the company abandoned many unprofitable areas over the last year and focused on a smaller number of profitable product types. I also suspect the company is now profitable, or will quickly become profitable following the sale of Rufengda, and reports as early as late 2012 indicated it had already become profitable on an unspecified basis.

That raises the next point of when Vancl might make a new attempt at an IPO, which almost certainly would be in New York. Newly-published data shows that China-based companies raised a hefty $3.5 billion in New York IPOs in the second quarter, marking the biggest fund-raising binge by the group since 2007. The largest of those came from JD.com, which raised $1.8 billion in its offering in May.

Equally impressive have been the returns that the Chinese companies have offered for investors since their listings. According to the new data, Chinese companies on average have jumped 33 percent since their New York listings during the second quarter, compared to a more modest figure of 21 percent for US-based companies.

Vancl originally tried to list back in 2011, but had to pull the deal as investor sentiment tanked towards Chinese firms after a series of accounting scandals at several. The company needed cash to survive, and also profits to show it was worthy of receiving new investment. It got that new investment earlier this year in the form of $100 million in new funding, which included participation by the marketing-savvy Lei Jun, co-founder of smartphone sensation Xiaomi.

All of that brings us back to the original question of what we should expect from Vancl in the rest of this year. If the IPO climate remains positive, I would expect we could see the company make another attempt at an offering as soon as next month. If it can show that it's really found a formula for sustained profitability, the offering could even attract some strong investor interest and finally put Vancl on the global e-commerce map.

Bottom line: Vancl's sale of its parcel delivery unit, coupled with the recent strong climate for Chinese Internet IPOs, could presage a new attempt by the company to go public as soon as next month.

Disclosure: None.