Vipshop: It's Going To Be Challenging For A While (Rating Downgrade)

seekingalpha11-24

Vipshop stock has dropped nearly 20% since December 2023 due to deteriorating business fundamentals and weak management guidance for Q3 and Q4 2024.Q3 2024 results showed a 9.6% revenue decline and a ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nVipshop: It's Going To Be Challenging For A While (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-24 23:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739926-vipshop-stock-challenging-environment-downgrade-to-hold><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Vipshop stock has dropped nearly 20% since December 2023 due to deteriorating business fundamentals and weak management guidance for Q3 and Q4 2024.Q3 2024 results showed a 9.6% revenue decline and a ...</p>\n\n<a href=\"https://seekingalpha.com/article/4739926-vipshop-stock-challenging-environment-downgrade-to-hold\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"VIPS","symbol_name":"唯品会","start_time":0,"source_url":"https://seekingalpha.com/article/4739926-vipshop-stock-challenging-environment-downgrade-to-hold","article_id":"2486879224","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1368766698/image_1368766698.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2486879224","pubTimestamp":1732461938,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Vipshop stock has dropped nearly 20% since December 2023 due to deteriorating business fundamentals and weak management guidance for Q3 and Q4 2024.Q3 2024 results showed a 9.6% revenue decline and a ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"VIPS":"唯品会"},"translate_title":"唯品会：要挑战一段时间（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VIPS":0.9},"content_text":"Vipshop stock has dropped nearly 20% since December 2023 due to deteriorating business fundamentals and weak management guidance for Q3 and Q4 2024.Q3 2024 results showed a 9.6% revenue decline and a 27.8% drop in non-GAAP net income, with active customers down 6.4% year-over-year.Despite expanding gross margins and loyal Super VIP members, VIPS faces fierce competition and a challenging economic environment in China.Given the limited upside and management's cautious outlook for 2025, I am downgrading VIPS to \"hold\" with a revised fair value estimate.   Robert Way  I published my initiation coverage for Vipshop (NYSE:VIPS) in December 2023. The stock has been down almost 20% since then, vastly underperforming the market. The drop in the stock price is due to VIPS’ deteriorating business fundamentals from Q1 of 2024, coupled with management’s weak guidance for Q3 of 2024. On November 19, VIPS reported Q3 2024 earnings before the bell. VIPS’ results were consistent with management’s previous guidance, as revenue declined almost 9%. However, management is guiding another disappointing quarter and a challenging 2025. Given the pessimistic guidance and the deteriorating fundamentals, I have revised my fair value estimate for VIPS downwards. With the stock price currently near my updated fair value estimate, I am downgrading my recommendation for VIPS to \"hold\".  VIPS Q3 results summary and analysis  According to VIPS’ Q3 results earnings press release, highlights of the quarter include:   Total net revenues declined 9.6% year-over-year.   GMV for the third quarter of 2024 declined 5.6% year-over-year.   Non-GAAP net income was down 27.8% year-over-year.    The number of active customers for the third quarter of 2024 was 39.6 million, down 6.4% year-over-year.   Total orders for the third quarter of 2024 were 163.9 million, down about 8.9% year-over-year from 179.9 million in Q3 of 2023.   In summary, VIPS' third-quarter performance is consistent with the guidance previously provided by management and my own expectations given the weak macroeconomic conditions in China throughout Q3, coupled with the escalating price war in the e-commerce market. Moreover, VIPS faced a high base against Q3 of 2023 in the apparel category, which is the most important category for the company's merchandising strategy. On the positive side, VIPS’ gross margin continued to expand, reaching 24% for the quarter, which is a 0.4% improvement from Q3 of 2023. This is due to higher contributions from active Super VIP Members. For the third quarter of 2024, VIPS’ Super VIP members increased 11% year-over-year and accounted for 49% of VIPS’ GMV. This shows the resilience of VIPS’ business model, which I covered in my initial write-up. I want to emphasize that compared to Taobao and T-Mall’s 3P (Third-Party Seller) model, VIP Shop operates on the 1P(First Party Seller) model, which gives VIPS greater control over pricing and allows it to offer flexible additional discounts. In addition, VIPS can offer its brand partners prime display spaces on its mobile application at a much lower cost in order to cultivate long-term partnerships. It remains the favored e-commerce platform for brands to liquidate off-season and oversized inventories. This strategic platform positioning leads to more competitive pricing for VIP Shop, particularly in the apparel and cosmetics categories, when compared to Taobao and JD.com. Despite the loyalty of Super VIP members, VIP Shop is not immune to the dwindling economy in China and the fierce competition within the e-commerce space. This is evident from the pessimistic guidance provided by VIPS’ management. For the fourth quarter of 2024, management now expects a revenue decrease ranging from 5-10%. When asked about the weak Q4 guidance by Citigroup analyst Alicia Yap during the Q3 earnings call, VIPS’ Chairman and CEO Eric Shen cited weather as an additional factor. He explained that VIPS had \"a very high base, especially in last Q4, which had actually extended periods of cold waves, which benefited our business unexpectedly.\" Regarding 2025, VIPS seemed very cautious. Management is only committed to trying their \"best to get back to GMV growth.\" This lack of confidence is concerning. However, management assured analysts that profitability margins would not be a concern. In terms of capital allocation, VIPS has been very consistent in returning cash to shareholders through a mix of dividends and share buybacks. VIPS has almost finished the previous $1 billion share repurchase program and announced another $1 billion share repurchase program for the next two years. For 2025, management assured investors that they plan to distribute “no less than 75% of our full-year non-GAAP net income attributable to Vipshop shareholders through discretionary share repurchase and the dividend distributions”. Financial projections and valuation I have revised my financial projections for 2024 and 2025 to account for the weak Q4 2024 guidance. I am now forecasting a revenue decline of 5% in 2025. Author's estimate In terms of valuation, I’ve made a major change to my model for VIPS, which is to remove the net cash position from the valuation. It seems to me that the market doesn’t value VIPS’ excess cash balance at all. I am now applying an 8 times P/E multiple on VIPS’ 2025 earnings, which is a discount of almost 2/3 of the sector median.   Author's estimate Based on my financial projections and valuation estimate, VIPS is fairly valued. Risk discussion I’ve covered VIPS’ risks in my previous articles. After Q3’s results, I want to emphasize one risk, which is the risk of intensified competition, especially between VIPS and Pinduoduo. Compared to Pinduoduo, VIP Shop's pricing is still higher across most product categories. This is because VIP Shop works with brands, while Pinduoduo primarily works with brand distributors. As distributors care more about their own interests than brands, they may offer lower prices in order to increase volume. Furthermore, Pinduoduo provides additional subsidies to both sellers and consumers in order to have the lowest price across all e-commerce platforms. I am concerned that Pinduoduo will take more shares from VIPS in the future. Conclusion  VIPS’ Q3 2024 results were very weak, as expected. However, management's lack of confidence is a clear signal that VIPS will face a challenging Q4 and 2025. In addition, VIPS will also face intensified competition from Pinduoduo. It’s hard for me to see VIPS get back to growth unless China’s macro improves dramatically. At the current price, VIPS has a limited upside from my 2025 fair value estimate. 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