Dangdang Results: Investors Losing Patience 当当网业绩：投资者失去耐心
A sharp dip in Dangdang (NYSE: DANG) shares after it announced its latest results shows investors may be losing patience with this company that arrived early to China’s e-commerce space, only to be overtaken by more aggressive rivals in the last 2 years. Dangdang’s stock tumbled 4.8 percent after the announcement of its latest results, which showed the company’s losses were stabilizing as it took cost-cutting moves and competition eased a bit in China’s ultra-competitive e-commerce market.
But I suspect that investors may be getting most impatient with Dangdang’s lack of direction, as the company takes few if any steps to differentiate itself from much larger and better funded general merchandise rivals including Alibaba and Jingdong Mall, as well as foreign giants Amazon (Nasdaq: AMZN) and Walmart (NYSE: WMT). That kind of differentiation will be key to Dangdang’s future survival, as it’s already quite clear the space for general merchandise e-commerce firms is too crowded and smaller names like Dangdang won’t be able to compete with the bigger rivals.
Before we look further at the big picture, let’s do a quick review of Dangdang’s results, which actually weren’t so bad but did reflect a broader business slowdown. (results announcement) The company’s revenue rose 31 percent in the fourth quarter, a decline from the 44 percent rise for all of 2012. It predicted a further slowdown in the first quarter, with its core general merchandise revenue forecast to rise just 20 percent for the period.
On a more positive note, the company’s net loss showed more signs of stabilizing after ballooning over the last 2 years due to stiff competition. Dangdang’s latest quarterly net loss of 122 million yuan was down slightly from a 130 million yuan loss a year earlier. But the latest figure was up from a 100 million yuan loss in last year’s third quarter.
Those numbers initial sparked an uptick in Dangdang shares when trading began in New York; but the stock gradually gave back those gains to finish solidly downward as investors focused on the bigger picture. That picture has Dangdang stubbornly refusing to abandon its position as a general merchandise seller to focus on a more targeted niche markets.
The company said in its report that its long term target is to become “an integrated shopping mall targeting the mid to mid-to-high-end customers”, which doesn’t sound much different from its much bigger rivals. What’s more, the company boasted of the rapid growth of its marketplace strategy, which has Dangdang opening up its platform to allow third-party retailers to sell merchandise on its site. Again, this strategy is hardly new and has been successfully implemented by much bigger names, most notably Alibaba which uses such an approach on its popular TMall.
I’m actually a bit perplexed at why Dangdang doesn’t try a more niche-oriented approach, as such a strategy has worked very well for Vipshop (NYSE: VIPS), which focuses on online discount retailing. Since going public last year, Vipshop’s shares have surged and now trade at 4 times their IPO price. That surge helped Vipshop overtake Dangdang last year to become China’s biggest publicly traded e-commerce firm. At current prices, Vipshop is now worth about $1.3 billion, or about 4 times Dangdang’s rapidly shrinking value.
Dangdang’s slowly improving situation means it may be able to further cut its losses in the quarters ahead, and perhaps even report a return to small profits by the beginning of next year. But unless it changes its strategy soon to become a more niche-oriented player, it runs the very real risk of being marginalized and either falling back into the loss column or perhaps eventually being purchased by a larger rival.
Bottom line: Dangdang’s refusal to abandon its general merchandising strategy could eventually lead to the company’s failure or acquisition by a bigger, better-run rival.
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