Company Reports

No-moat Vipshop’s second-quarter revenue tracked significantly below our full-year estimate while non-GAAP net profit was slightly below. Its share price fell 18% after the earnings release due to the disappointing revenue growth and weak quarter-to-date momentum. We cut our 2024-26 gross merchandise volume estimates by 15%-31% to reflect declining GMV in both its stronghold apparel segment and the less-competitive standardized goods category, the anemic consumption outlook in China, and continuous price competition. We also cut 2024-26 total revenue by 11%-38% to account for lower take rates amid higher returns, while non-GAAP net profit estimates fall by 2%-26% as we expect higher inventory write-downs and operating deleverage, partly offset by better cost control. Consequently, we slashed our fair value estimate by 44% to USD 11.70 per ADS. The shares are now fairly valued, in our view. We forecast non-GAAP net income to decline by a 13% compound annual growth rate in the next five years.

Vipshop operates an online discount brand retail platform in China that adopts the flash sales model. Vipshop conducts daily sales events using a curated selection of authentic branded products at deep discounts in limited quantities for a limited time. Each customer can only buy limited pieces of the same item. It leverages its data insights and merchandising expertise to select the right products and provides personalized recommendations to customers.

We initiate on Vipshop with a fair value estimate of USD 20.80 per ADS, implying 2024 P/E of 6.8 times and free cash flow yield of 3.4%. We assign Vipshop a no moat rating as intensifying competition could erode its returns on invested capital in the coming decade. However, we think the shares are cheap currently. Thirty-seven percent of our Vipshop equity valuation comes from cash and cash equivalents.

Vipshop operates an online discount brand retail platform in China that adopts the flash sales model. Vipshop conducts daily sales events using a curated selection of authentic branded products at deep discounts in limited quantities for a limited time. Each customer can only buy limited pieces of the same item. It leverages its data insights and merchandising expertise to select the right products and provides personalized recommendations to customers.