Dangdang Q4 Earnings Preview: Continued Investment Amid Increasing Competition

| About: E-Commerce China (DANG)

Dangdang (NYSE:DANG) reports 4Q11 results on February 23rd. The Street expects the company to record a loss of $0.16 per share on $184.5 million in revenue.

In Q3, Dangdang recorded:

  • Total revenue: $142.5 million, +50% y/y
  • General merchandise revenue: $40 million, +162% y/y
  • Media revenue: $100.3 million, +27% y/y
  • Total active customers: 5.5 million, +36% y/y
  • Net loss: $11.5 million or net loss of $0.15 per share

For the upcoming quarter, investors can expect Dangdang to continue to expand its general merchandise sales, invest in e-book platforms and improve customer experience.

As of last quarter, Dangdang's total warehouse capacity reached 260,000 square meters as the company ramped up on expanding product mix and improving customer shopping experience. Same day delivery was expanded to 17 cities and next day delivery services were expanded to 100 cities. During the quarter, Dangdang will likely to further expand its product mix and delivery services with the completion of fulfillment centers in Fuzhou and Jinan at the end of Q4. I expect the total warehouse capacity to increase by 100,000 square meters to 360,000 square meters total, same day delivery services to increase to 20 cities, and next day delivery services to increase to 120 cities.

Last December Dangdang launched its e-book platform with 50,000 e-books that are priced at 10 - 30% of their original hard-copy version. The e-books are compatible with multiple mobile devices such as smartphones, tablets and e-readers and were well received. I note that over 10,000 e-book downloads were recorded three hours after the launch of the platform.

However, in my December 28th note titled "Dangdang E-book: Minimal Impact On 2012 Revenue", I pointed out that investors should not be overly exuberant on due to the platform's 1) early development stage, 2) fierce competition and 3) rampant piracy in China.

Competition is heating up as 360Buy is expected to launch its own e-book platform this week. The platform will feature over 80,000 e-books from 200 different publishers and could negatively impact Dangdang due to 360Buy's track record of pricing books to earn no gross margin to compete against Dangdang and attract customers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.