Vipshop: Getting Ready For A Decisive Year

WestEnd511 profile picture
WestEnd511
2.16K Followers

Summary

  • VIPS finished 2014 on a strong note with 4Q14 numbers ahead of consensus.
  • Mobile growth remains on track; could potentially hit another milestone this year.
  • Prefer VIPS on near-term momentum. Like BABA for long-term growth.

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.

Implications

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

This article was written by

WestEnd511 profile picture
2.16K Followers
Global equities focus. Actionable ideas. westend5eleven@gmail.com

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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