Dangdang Q2 Earnings Preview: Balancing Growth And Profitability

| About: E-Commerce China (DANG)

Dangdang (NYSE:DANG) reports earnings on August 16th.

The Street expects:

  • Revenue: $186 million
  • EPS: $0.23 loss per share
  • Q3 revenue guide: $216 million

Heading into the earnings, investors can expect Dangdang to continue to expand its online marketplace so it can strike a balance between growth and profitability

In Q1, we saw some steady progress in Dangdang's online marketplace, which generated $20 million in revenue, +108% y/y and accounted for 2% of the total revenue. Online marketplace delivers a high margin because Dangdang charges a commission on the sale rather than takes on the inventories. The company is working with major brands such as GOME in electronics, Monbassa in apparel, Letao in shoes, Lafaso in cosmetics, and YesMyWine in wine.

2012 will likely be another year of investment for Dangdang as it focuses on scaling its online marketplace and expanding the product mix.

Recently, Dangdang announced that its media titles have reached 790,000 and that the children's book is the fastest growing segment. The company's own brand apparel is also gaining traction with 300 SKUs one month after the launch and management expects 2,000 by next year.

The continued investment in product mix might be starting to pay off for Dangdang. I note that Dangdang's web traffic almost doubled during the quarter, according to data from China Website Rankings.

Looking beyond this quarter, Dangdang's collaboration with Tencent (OTCPK:TCEHY) to exclusively operate QQ Shopping's book, maternal and children channels is a major positive and will contribute nicely to Dangdang's results for Q3.

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