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Dangdang (DANG) Is A More Healthy Business Today

|Includes:E-Commerce China Dangdang Inc. (DANG)

Dangdang (NYSE:DANG) is a much more healthy business today than a year ago when I wrote an article and predicted that Dangdang would gradually reduce loss and make a profit. Dangdang loss in Q4 2012 was 122 million RMB. Dangdang was able to cut the loss in a year and made a profit of 21.7 million in Q4 2013. The stock price rose from around $4.00 then to $19.05 in early Mar, the 52 weeks highest.

Here Are Some Highlights of Dangdang's Growth.

· Profit is Small, but Improvement is Big - Net income was 21.7 million RMB in Q4 2013. Considering net loss was 122 million RMB in Q4 2012, the net income gap was 143.7 million RMB between Q4 2013 and Q4 2012. If we look at Revenue growth from Dangdang Market Place between Q4 2013 and Q4 2012, that was 19 million RMB, we will see 86% of the improvement was achieved from Dangdang's own retail operation. This clearly indicates that Dangdang is more efficient in its own retail supply chain management than a year ago.

· Positive Cash Flow and Zero Bank loan - Dangdang had a positive cash flow of 273 million RBM in year 2013. Dangdang had 600 million RMB bank loan in Q4 2012, but had 0 in Q4 2013. This reflects the management was more optimistic about the operation and future of the business. The financial cost was significantly reduced when loan was reduced to 0 from 600 million RMB.

· Improved Supply Chain Management - Inventory turnover days was reduced from 97 days to 88 days. This is another indication that Dangdang is more efficient in supply chain management.

From above, we can draw a conclusion that Dangdang is a more healthy business today than a year ago. Behind these figures, we can give Dangdang's management credit that they did a good job to improve supply chain management and deliver the result under the pressure of loss and market competition.

Positive E-business Market Growth

According to forecast from www.iresearch.cn, China B2C E-commerce market will have a compound growth rate of 22% from 2013 to 2017. The market potential provides room for Dangdang to grow. Dangdang now with a better supply chain management will have opportunity to improve profitability and grow the size of the business.

Dangdang Will Focus on Apparel Business

According to recent talk from Dangdang's CEO Guoqing Li, Dangdang will focus on catalogues which have better profitability instead of selling everything that Dangdang may not make profit from them. Dangdang has chosen apparel as its core catalogue because of its higher profit margin and much larger market volume than books since last year.

Focus on what you are good at and focus on where there is good profitability. This is how some businesses became great businesses.

If Dangdang does implement this strategy as a major apparel e-retailer in China, it profitability will have chance to grow steadily. This will not happen in a quarter's time, but may happen in a year or two years' time.

Disclosure: I am long DANG.

Stocks: DANG