INTERNET: Vipshop Attack Continues, Jiayuan Gets New Suitor
Bottom line: Effects of the short-seller attack on Vipshop are likely to die down soon and the stock should stabilize, while Jiayuan is likely to get bought out for a figure close to its latest stock price following receipt of a new bid.
New developments are occurring in 2 stories involving less-followed Chinese Internet companies, led by a fresh assault in an ongoing short-seller attack that is eroding shares of discount e-commerce site Vipshop (NYSE: VIPS). Meantime, shares of online matchmaking site Jiayuan (Nasdaq: DATE) have soared, after it announced it has received new buy-out bids for the company. That development would come nearly 2 months after Jiayuan received an initial buy-out offer that some complained vastly undervalued the company.
Both of these stories are as much about opportunists looking to make some money from gyrations in company stocks as they are about the actual companies. The Vipshop short-seller attack was destined to happen sooner or later, following a remarkable run-up that has seen the company’s share skyrocket nearly 40-fold from their IPO price just 3 years ago. Meantime, Jiayuan shares had largely stagnated over that same period, even as its business grew, attracting the attention of an opportunistic buyer who was hoping to get a bargain with its initial offer in April.
VIPSHOP in China
We’ll begin with Vipshop, which first started coming under attack in mid-May by a short seller who claimed the company had overstated some of the figures behind its explosive growth story. (previous post) Mithra Forensic Research’s claims stemmed from what it said were large discrepancies between figures that Vipshop reported to investors and data it supplied to China’s commerce regulator. Vipshop said there was nothing wrong with data in its quarterly reports, and invited investors to do their own research.
Now Mithra has issued yet another report saying it has found additional information that continues to show that Vipshop misled investors. (Chinese article) The report briefly sparked another sell-off that saw Vipshop shares tumble more than 6 percent in the latest trading session on Friday, though they bounced back and ended down a more modest 1.6 percent.
The stock has fallen nearly 20 percent from its highs in late April, wiping out about $3 billion in market value. Still, I would say this downward movement looks like a strong dose of reality that has brought a much-needed correction in the company’s share price. It’s also worth pointing out that even after the correction, Vipshop still trades at a relatively rich price-to-earnings ratio of 45 based on estimates for this year. I expect this short selling attack should end soon without much more damage, though Vipshop will remain vulnerable if it shows any weakness in its upcoming quarterly earnings reports.
Next there’s Jiayuan, whose shares shot up nearly 25 percent after the company said it had received one or more additional offers, following an initial buyout proposal from Vast Profit Holdings in April. (company announcement) There’s no additional information, though the company’s latest stock price of $9.28 is quite a bit higher — 72 percent to be precise — than Vast Profit’s earlier offer of $5.37 per American Depositary Share (ADS).
I should provide some disclosure here and say I don’t normally follow Jiayuan and only saw this latest announcement after being directed to it by Heng Ren Investments, which is a Jiayuan shareholder and objected to the previous offer as vastly undervalued. (previous post) At that time Heng Ren had said that based on its own research Jiayuan was worth $11.74 per ADS.
Coincidentally, the big jump in its stock price means that Jiayuan now has a price-to-earnings ratio of about 45 based on this year’s estimates, roughly the same as Vipshop’s. That kind of a ratio looks a bit rich, though such premiums aren’t uncommon for this kind of buy-out offer. It does seem a bit unusual that Jiayuan didn’t give a price for this latest offer, though we can probably expect that the market somehow managed to get a figure that is close to the company’s latest closing price.
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