LightInTheBox Dims On Slowing Growth
E-commerce firm LightInTheBox (NYSE: LITB), the only major Chinese company to list in New York this year, is learning that Wall Street can be a volatile place, following the release of its maiden earnings report that showed slowing growth. Meantime, another much smaller Chinese micro-lender called China Commercial Credit (Nasdaq: CCCR) is making a similar discovery following a strong reception for its own microscopic New York IPO last week.
The high volatility for these 2 newly listed companies isn’t all that surprising, and comes as the only other 2 major Chinese companies to list in New York last year, Vipshop (NYSE: VIPS) and YY (Nasdaq: YY), also see major instability in their shares despite a strong overall growth trend. This kind of volatility is relatively common for such newly listed companies, as investors try to figure out their long-term growth prospects and short-term traders seize on the big price movements to try to earn some fast money.
LightInTheBox’s earnings are quite straightforward, as the company operates a relatively simple business model that uses e-commerce to sell Chinese goods to foreign markets. LightInTheBox swung to its first ever quarterly profit in the second quarter, earning a modest $600,000 versus a $1.4 million loss a year earlier. (company announcement) Unfortunately, that profit was below market forecasts, helping to spark a huge 39 percent plunge in the company’s stock in after-hours trade. LightInTheBox also forecast disappointing revenue growth of about 35 percent in the current quarter, a slowdown from the 53 percent revenue growth in the second quarter.
I expect the company’s stock will bounce back a bit in Tuesday trade in New York, as the 39 percent plunge seems a bit steep. But to put things in perspective, LightInTheBox shares were already up sharply in the 2 months since its June IPO. The company sold its American Depositary Shares (ADSs) at $9.50 apiece, and posted a relatively strong performance on its trading debut. (previous post) Its shares then embarked on a rally, more than doubling to a peak of about $22 on investor enthusiasm about the company’s prospects.
The 39 percent drop puts the shares now at $11.69, which is still above the IPO price but obviously represents a huge pullback. I would look for the shares to rally a bit in the next few weeks following this big sell-off, as more longer-term investors start to take a closer look at the company and decide whether they like its growth potential.
From LightInTheBox, let’s take a quick look at China Commercial Credit, which I profiled briefly back in June after it made its first IPO filing. (previous post) I said that despite its miniscule size, the company looked interesting because it was one of the first private Chinese lenders to seek a US listing, and that the offering could be followed by more similar companies as China seeks to liberalize the sector to include more privately funded players.
China Commercial Credit ultimately raised just $9 million from its offering last week, about half the amount it originally hoped for. But its stock has also rallied sharply in the week since its trading debut, spiking to as high as $18 from its original IPO price of $6.50. The shares have given back a lot of the gains since then, but still trade at around $9, or nearly 40 percent higher than their IPO price.
At the end of the day, I would probably only advise people to invest in China Commercial Credit if they want to hold the shares for the long-term, as the company is likely to see huge short-term swings due to its small size. But the company is already profitable, which is always a big plus; and if it’s managed well, China Commercial Credit could easily find itself well situated for strong growth as Beijing encourages more investment in the private banking sector.
Bottom line: LightInTheBox shares are likely to bounce back after a sharp sell-off on slowing growth, while China Commercial Credit looks like a good long-term investment.
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