JPMorgan Downgrades Vipshop Amid 'Stubborn' Obstacles

Vipshop Holdings Ltd – ADR VIPS reported its 1Q results, with the top line beating the estimates, but coming in marginally below consensus.

JPMorgan’s Vivian Hao downgraded the rating on the company from Overweight to Neutral, while lowering the price target from $15 to $11.

1Q Results & 2Q Guidance

Vipshop reported its top line for 1Q at RMB 12.2 billion, 2 percent ahead of the estimate, but 1 percent below consensus.

The non-GAAP operating margin of 6.3 percent beat the estimate, but was in line with the consensus expectations.

The bottom line was 23 percent ahead of the estimates, but fell short of the consensus by 4 percent.

Related Link: Credit Suisse Downgrades Vipshop, OPMs Likely Peaked At Historical High In Q4

Hao believes that the 2Q revenue guidance was soft, with the midpoint 2 percent below consensus, especially given that Vipshop has a major promotional event scheduled for 2Q.

“We expect the stock to continue to de-rate albeit with a stable performance due to: 1) a lack of confidence from the market in growth re-acceleration; and 2) effortless growth stage is likely over, while promotion-backed growth is unsustainable and margin dilutive,” Hao mentioned.

Growth Story Ending?

Hao believes that market is disappointed with the flat active user growth, marginally soft non-GAAP operating margin and the mid-point of the 2Q revenue guidance.

“We believe the increasing marketing spend as well as intensified competition in online apparel sales in China should largely offset the operating leverage from the scale benefit,” Hao stated.

The analyst expects the non-GAAP operating margin to decline in FY16 and FY17.