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Vipshop's Beat And Raise Story Could Be Ending, Says JPMorgan


JPMorgan said Vipshop Holdings Ltd – ADR (NYSE: VIPS)'s beat-and-raise equity story is likely to come to an end, resulting in more volatile stock performance and will be more driven by short-term operating results.

"From a financial perspective, we see limited room for margin expansion given the user growth strategy and a clear pattern of sales and marketing cost (including promotional cost booked in cost of revenues) outgrew operating leverage in the past few quarters," analyst Alex Yao wrote in a note.

Yao, who assumed coverage of the stock with a Neutral rating and $16 price target, expects the operating leverage continued to be largely offset by the increasing marketing spend due to sales and promotional efforts. The analyst expects the non-GAAP NM to remain stable at 5.0 percent/5.1 percent/5.2 percent in 2016/17/18.

Yao noted that Vipshop is focusing on user and top-line growth, which would result in reinvesting of operating leverage back to promotional activities and increasing sales & marketing expenses.

On the other hand, ROI of such investment might be different to Vipshop's current user base as an increasing portion of its new users are young people (born after 1990) with lower spending power and retention rates.

"Upside risk to such strategy is that the young generation of new users becomes more loyal and increase their spending on Vipshop over time. Downside risk is that such new users might migrate to higher-end online apparel shopping platforms (i.e. Tmall, JD POP) as they grow their disposable income," Yao added.

At time of writing, ADRs of Vipshop fell 2.48 percent to $14.35.

Latest Ratings for VIPS

Nov 2019DowngradesBuyOutperform
Nov 2019Initiates Coverage OnOutperform
Nov 2019MaintainsOverweight

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Posted-In: Alex Yao JPMorganAnalyst Color Price Target Initiation Analyst Ratings


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