Vipshop is the third largest online retailer in China and the biggest flash sales site in the world. It pioneered flash sales model in China. The website offers new sales events twice daily with a selection of popular branded products at deeply discounted prices in limited quantities during limited time periods (3-5 days in general). The major product categories include apparel, accessories, footwear, sportswear, cosmetics, home goods, products for children and babies. Its current market cap is $7 billion. The company is positioned to focus on mid-level brands for mass population. In 3Q 2015, Vipshop had over 8,000 brand partners and 14.6 million active users; on average, its customers made 3.1 purchases and spent RMB …show more content…
The company missed 3Q 2015 revenue guidance by 5%. It was their first miss of guidance since their IPO. Although its growth rate is to slow down from historical levels of triple digits and 4Q 2015 revenue would be around 45% yoy according to the guidance, the current valuation is very cheap even with conservative growth rate assumptions. My 12m target price is $16.50. Besides, the company could be a good mid to long term hold to get exposure to strong execution capabilities in China's fast growing online retailing …show more content…
It has been expanding to more product categories. Geographical expansion with higher penetration and shorter delivery time in some cities will help attract more customers. Vipshop’s cross-border business is also growing, although the competition in this subsector is quite fierce.
Valuations
Trading at around 20x f12m P/E, valuation is low compared to its own historical and international comps. A DCF valuation with assumptions of 12% WACC, 40%, 35%, 30%, 25% and 20% revenue growth in 2016-2020, 3% terminal growth afterwards and capex from the management guidance is around $16-18.
Potential Catalyst
Vipshop is going to release its 4Q15 results in late Feb or early Mar. If the results beat or even just meet their guidance, the market will be more comfortable with the growth assumptions. Besides, overall improvement of market sentiment for Chinese companies from the current depressed level will help. There is also chance of acquisition by Tencent, Baidu or Alibaba down the road.