E-COMMERCE: Vipshop’s Autumn Growth Stumbles, Winter Ahead?

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Bottom line: Vipshop’s third-quarter revenue shortfall is the latest signal that China’s e-commmerce sales are set to slow after a period of rapid growth, and could pressure the company’s stock over the next few months.

Warm autumn chills Vipshop sales

Discount e-commerce superstar Vipshop (NYSE: VIPS) has suddenly lost some of its luster, after announcing a revenue shortfall that sparked a 27 percent plunge in its stock. The unusual revenue miss looks even more unusual in China’s broader booming e-commerce sector, where leaders Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD) are still basking in the glow of a  record-breaking Singles Day online shopping blitz last week. (previous post)

The bigger question that many will be asking this week is whether there’s any broader significance to Vipshop’s new announcement that it missed its previous third-quarter revenue forecast by 6 percent. (company announcement; Chinese article) Some others have warned of a similar slowdown, and I previously said the big Singles Day sales totals were at least partly manipulated by online merchants trying to meet tough targets set by online mall operators. (previous post)

All of that seems to indicate a broader slowdown could be coming, even as Vipshop tried to downplay its own revenue miss by blaming one-time factors. Vipshop said it will report third-quarter revenue of 8.6 billion yuan ($1.4 billion) to 8.7 billion yuan when it announces its results on Tuesday, up a very respectable 62 percent from a year earlier. When it announced its previous quarterly results in August, the company forecast it would post third-quarter revenue of 9.1 billion yuan to 9.3 billion yuan.

Vipshop disclosed the revenue shortfall just after global index compiler MSCI announced it would include Chinese stocks in some of its products for the first time ever, with Vipshop named as one of 14 US-traded companies to make the grade. (Chinese article) That news would normally help to boost a company’s shares, since fund managers who track the indexes would be expected to add Vipshop shares to their portfolios in the weeks ahead.

But as we’ve already noted, Vipshop shares lost more than a quarter of their value after its own more downbeat announcement, wiping out about $2.5 billion in market value. That fall actually marks an extension of a broader sell-off for Vipshop shares, which have lost more than half of their value from an all-time high reached back in April. But it’s also worth noting that even after the sell-off, Vipshop shares still trade at a lofty price-to-earnings (PE) ratio of nearly 40, about twice the level of Alibaba.

Long Honeymoon

Vipshop made its Wall Street debut 3 years ago during a period of very weak sentiment towards Chinese Internet stocks, but quickly became an investor darling due to its rapid growth in the niche for online bargain shopping. The stock was up by a factor of 46 times from its IPO price at its April high, and even after the sell-off it’s still ahead by a factor of 20. Of course that fact won’t console anyone who has bought the stock over the last 6 months.

We’ll close by returning to the issue of whether Vipshop’s shortfall portends a bigger slowdown for e-commerce or is just a one-time event. Vipshop itself is trying to make us believe it’s mostly a one-time thing, blaming warm fall weather in China that caused people to delay their purchases of winter clothing. Perhaps that’s partly true, as I do recall this fall being a bit warmer than usual here in Shanghai.

But the growing volume of caution coming from other e-commerce companies and now from Vipshop seem to hint at a looming and perhaps abrupt arrival of fall or even winter for the sector in the months ahead. Vipshop’s latest revenue growth of 62 percent in the third quarter represents a relatively big slowdown from the 78 percent rise in the previous quarter, and I suspect we could start to see similar scale slowdowns from other e-commerce companies after effects from the Singles Day jump start to fade.

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