Vipshop (NYSE:VIPS) reported Q4 earnings with EPS of $0.12 and revenue of $1.36b (+109% y/y) that beat consensus by $0.03 and $130m, respectively. For the full year, the company achieved revenue of $3.77b (+122% y/y) on the back of +150% increase in active customers and a +118% y/y increase in total orders, which indicates that the platform is gaining network effect. Additionally, gross margin increased 40bps y/y on increased scale and stronger bargaining power. More importantly, mobile penetration has reached a critical mass for VIPS to leverage on. Unlike Alibaba (BABA) that relies on advertising and faces the near-term ad pressure on mobile devices, VIPS relies mostly on mobile commerce transactions, making it a key beneficiary of the trend towards higher mobile adoption. I reiterate my positive view on VIPS on the back of the result. While BABA remains my favorite among the ecommerce players, VIPS is the near-term favorite due to its mobile penetration and unique business model that allows the company to benefit from rising mobile commerce.
Mobile penetration rising
VIPS handily beat Q4 on the back of strong mobile take-up as it has been aggressively encouraging its users to migrate from PC to mobile. This contrasts many of the ecommerce players such as BABA that have been facing near-term mobile challenges given their ad-driven business model. VIPS's 4Q14 mobile GMV now accounts for 66% of total compared with 57% in the prior quarter, and ahead of the company's prior guidance of 50%. In my view, VIPS's flash-sale format stimulates impulse buying on mobile devices given its limited discount window. More encouragingly, average mobile spend is similar to that of PC but at a 7-8% higher frequency, which will likely lead to higher conversion rate in the long run.
Tough comps going forward; rising user base supports mobile GMV
Per data from iResearch, Q4 traffic showed a slight deceleration as y/y comp gets tougher with active customers growing at +114% y/y vs. +138% in the prior quarter. While VIPS continues to see solid momentum in customer acquisition (+2.7m), it is important to note that customer growth profile will trend downward as the base gets larger heading into Q1. Nonetheless, given the larger customer base, investors can expect positive momentum behind mobile GMV.
Focusing on earnings visibility
Scale worked to VIPS's favor this quarter with improvement in gross margin and fulfillment ratio driven by solid sales volume in what is normally a strong quarter. However, earnings visibility remains weak given the uncertainty surrounding the margin profile. Specifically, big promotion drove higher volume, which resulted in better utilization of shipping and fulfillment. As such, I need additional evidence to be convinced that scale has indeed hit an inflection point.
Remain overweight on VIPS. The stock remains one of the more attractive ecommerce plays with exposure to mobile and a leader in flash sales.
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