INTERNET: Dangdang Fears Unfounded As Profit Jumps
Bottom line: Dangdang’s growth is likely to slow rapidly over the next 2 years as it gets marginalized by larger rivals, putting pressure on its owners to sell the company before it sinks back into the red.
Investors were breathing a big sigh of relief after reading the latest quarterly results from Dangdang (NYSE: DANG), as an ongoing turnaround at the former e-commerce leader boosted both its top and bottom lines. The news erased concerns that sparked a sell-off just a couple of weeks earlier, after the company unexpectedly announced a last-minute delay in the release of earnings report for unspecified scheduling reasons.
While the Dangdang fears were ultimately unfounded, the same hasn’t been true for former online video high-flyer Youku Tudou (NYSE: YOKU). In that instance, Youku Tudou played a similar scheduling trick for the release of its earnings report around the same time, and ultimately served up gloomy results. It also disclosed it was being probed by the US securities regulator for aggressive accounting that may have been illegal. (previous post)
A look at the companies’ stocks summarizes their divergent stories that both began with ominous signals. Dangdang’s shares surged 14 percent in the latest trading session on Wall Street after it released its results, reversing a similar decline sparked by concerns about what its latest quarterly report might show. Youku Tudou hasn’t been so lucky, and its shares have lost about 20 percent of their value and are trading at all-time lows since investors first grew worried about its situation in mid March.
All that said, let’s take a closer look at Dangdang’s latest results that do look relatively encouraging. I’ll be the first to admit that I’m not too keen on this company, which was an early e-commerce leader in China but has rapidly lost ground to more aggressive rivals Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD) in the last 5 years. The company’s overly aggressive diversification strategy and insistence on a model where it sold all merchandise directly to buyers were 2 of the reasons for its lackluster performance.
Dangdang’s missteps pushed it deeper and deeper into the red at one point, with the company reporting 8 consecutive quarterly losses in 2012 and 2013. But it finally returned to the black at the end of 2013, thanks in part to an overhaul that saw it shutter money losing product lines and move aggressively into operation of a third-party online shopping platform similar to Alibaba’s popular Tmall.
That approach seems to be working, as Dangdang’s profit in last year’s fourth quarter rose 51 percent to $5.3 million. (company announcement) The big surge was led by an even bigger 61 percent gain in the gross merchandise value (GMV) of goods traded over its third-party marketplace platform, which reached $362 million. Still, it’s worth noting that figure was still just a fraction of JD.com’s similar open marketplace, whose GMV more than tripled to about $6 billion in last year’s fourth quarter.
Dangdang’s outlook for the first quarter didn’t look too exciting, with GMV growth for its marketplace platform expected to slow to 49 percent. Likewise, overall revenue growth was expected to remain flat at about 28 percent. The sharp rebound in Dangdang’s stock appears to show relief from investors, many of whom were probably expecting bad news after the company’s earlier delay. While this latest report doesn’t look bad, it also doesn’t look that exciting either.
I’ve been saying for a while now that Dangdang really doesn’t have the resources to survive as a stand-alone company over the long-term, and should consider selling itself to a larger rival like Alibaba, JD or even Amazon (Nasdaq: AMZN). But its fiercely proud and independent CEO Li Guoqing is unlikely to do that, or at least not until the next crisis occurs and the company is beyond repair. For that reason, I really don’t hold out too much hope for Dangdang over the longer term, and expect it will ultimately sink back into the red as it gradually gets marginalized by its bigger, better run rivals.
Related posts:
