Dolphin Research
2024.02.28 13:25

Vipshop: Exquisite in the Chill of Winter

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Before the U.S. stock market opened on February 28th Beijing time, Vipshops released its 2023 fourth-quarter earnings report. In summary, the performance this time exceeded expectations across the board, with key indicators such as GMV, revenue, and profit showing impressive results. Here are the detailed highlights:

1. Increase in average order value boosts strong GMV growth: Vipshops' GMV growth is quite remarkable, reaching 66.4 billion yuan, with a year-on-year growth rate of 22%, far exceeding the market's expectations of around 62 billion and a growth rate of about 14%. It is also significantly higher than the 7.3% growth in the overall online retail market in China in the fourth quarter. On one hand, Vipshops' advantageous categories such as clothing and cosmetics had a low base in the fourth quarter of last year; on the other hand, the cold wave in some regions during this year's Spring Festival promoted the sales of winter clothing, which was also a positive factor.

Breaking down the price and volume, the company's order volume in the fourth quarter increased by 7%, with an average order value of 283 yuan, a 14% increase compared to last year. It can be seen that the main driver of GMV growth this quarter was the increase in price. The popularity of high-priced winter clothing such as down jackets in cold weather has been mentioned as a reason. In addition, the fact that the overall active users only increased by 2%, while SVIP increased by 13%, also indicates that the increase in the proportion of high-spending loyal users may be one of the reasons.

2. Revenue and gross profit growth are also impressive: From a revenue perspective, this quarter reached 34.7 billion yuan, a 9% year-on-year increase, although there is a significant gap compared to the GMV growth rate, it still exceeded the expected 5%. The main reason for the gap is that the high return rate (over 30%, partly due to the better return policy for SVIP). However, due to the increase in average order value, the company's gross profit this quarter was 8.2 billion, a 19% year-on-year increase, with not much gap compared to the GMV growth rate. The gross profit margin was 23.7%, a 2 percentage point increase year-on-year, showing a decent performance.

3. Operating expense ratio also declined, jointly promoting profit growth: Not only did the gross profit margin improve significantly, on the expense side, apart from the situation of orders placed but not delivered in the same period last year, which led to an increase of about 0.5 percentage points in the fulfillment cost ratio compared to the same period last year, it was the only significant expense increase this quarter. The marketing expense ratio decreased significantly by 20% year-on-year to 2.4%, with actual spending of 840 million significantly lower than the market's expected 1.1 billion. The research and development expense ratio also decreased by 0.7 percentage points year-on-year, showing a significant decline under the scale effect of revenue.

Taking everything into account, the gross margin contributed to a 2 percentage point increase in profit margin, with actual gross profit exceeding expectations by 500 million, while the combined reduction in marketing and research and development expense ratios by 1.2 percentage points resulted in a 2.7 percentage point year-on-year increase in operating profit margin, with actual operating profit of 3.67 billion, significantly higher than the expected 900 million. It is evident that cost control and gross profit improvement have made equally significant contributions to profit growth.4. Looking ahead to the first quarter of 2024, the company expects revenue to be between 27.5 billion to 28.9 billion, with a year-on-year growth between 0% to 5%, aligning with the market's expectation of 28.5 billion within the guidance range. It signifies a slow but steady growth.

Furthermore, in terms of shareholder returns, the company repurchased $34 million worth of shares in the fourth quarter. With the stock price not significantly undervalued, the buyback intensity was not high. However, the company also announced a dividend of $0.43 per ADR, equivalent to a 2.3% dividend yield (based on pre-market price). Overall, although not as aggressive as the previous year's $1 billion buyback, it is still an acceptable shareholder return given the substantial improvement in performance and stock price.

Dolphin Research's View:

While the known benefit of the cold wave before the Chinese New Year is favorable for winter clothing sales, Vipshops' actual performance for this quarter has exceeded expectations comprehensively. Especially with noticeable growth recovery, expenses did not expand but continued to contract (from the perspective of revenue share), leading to a significant increase in profits. This performance is commendable and rare in the highly competitive e-commerce industry, showcasing the company's characteristics of being "small yet excellent" and "quietly making a fortune."

From a valuation perspective, Vipshops achieved a net profit of 8.2 billion this year. Targeting a net profit of around 9 to 10 billion in 2024, the pre-market price corresponds to a PE ratio of 7x to 8x for 2024. Considering the net cash of over $3.6 billion on the balance sheet, Vipshops offers a good valuation cost-effectiveness and shareholder return.

However, compared to its e-commerce peers, a PE ratio of 7x to 8x is not significantly undervalued. Whether the company can continue to provide substantial buybacks or dividends will be a key focus for the market (this quarter's actions were not particularly generous).

Below are the detailed financial report:

1. High Average Order Value Drives Double-Digit GMV Growth

This quarter, Vipshops' GMV growth was quite impressive, reaching 66.4 billion, with a year-on-year growth rate of 22%, far exceeding the market's expectation of around 62 billion and a growth rate of approximately 14%. This growth also significantly outperformed the 7.3% growth in the overall online retail market in China in the fourth quarter. Dolphin Research believes that on one hand, due to the unique circumstances in the fourth quarter of last year, Vipshops' advantageous categories such as apparel and cosmetics had a lower base. On the other hand, the cold wave in some regions during the Chinese New Year period this year also boosted winter clothing sales.When we break down the price and volume, the company's order volume in the fourth quarter increased by 7%, slightly better than expected. However, the absolute growth rate is not as impressive, indicating that the high-speed growth of GMV this quarter is mainly driven by the increase in average order value.

Specifically, the average order value this quarter is 283 yuan, a significant increase of 14% compared to last year. Dolphin Research believes that the good sales of high-priced winter clothing such as down jackets due to the cold weather may be one of the main reasons.

In terms of user data, Vipshop's quarterly active users in the fourth quarter only increased by 2.1% year-on-year, with a net increase of about 1 million, which is the only major indicator in this quarter's financial report that fell short of expectations. However, SVIP users increased by 13%, combined with the significant increase in average order value, we can reasonably speculate that this quarter's strong growth of Vipshop was mainly driven by core users with high frequency and high consumption power.

Second, revenue and gross profit also exceeded expectations.

Due to better return and exchange services for SVIP users, and therefore a higher return rate ( the company indicated above 30% ), the actual total revenue for this quarter was 34.7 billion yuan, a year-on-year increase of 9%, resulting in a significant gap with the GMV growth of over 20%. However, the actual revenue still exceeded expectations by 5%.

Breaking it down, self-operated product sales revenue increased by 8%, while the growth rate of service revenue such as advertising reached 21%, still maintaining a decent growth.

In terms of gross profit, the company achieved a gross profit of 8.2 billion this quarter, a year-on-year increase of 19%, with a gross profit margin of 23.7%, an increase of 2 percentage points year-on-year, showing a significant improvement. Combining the above, Dolphin Research believes that the significantly increased average order value, the increased share of advertising revenue, and the possible reduction in discount rates have collectively promoted the increase in gross profit.

3. Operating Expense Ratio Continues to Decline, Making a Significant Contribution to Profits

From the perspective of expenses, due to a higher actual delivery volume this quarter (compared to the same period last year when there were cases of customers placing orders but unable to receive them), Vipshops' fulfillment expense ratio increased by about 0.5 percentage points to 7.3% compared to the same period last year, making it the only expense ratio that increased YoY this quarter.

As for the marketing expense ratio, it decreased significantly by 20% YoY to 2.4%, with actual spending of 840 million, significantly lower than the market's expectation of 1.1 billion. The research and development expense ratio also decreased by 0.7 percentage points YoY due to the scale effect of revenue, showing a significant decline.

The management expense ratio remained relatively stable at 1.4%, slightly increasing by 0.1 percentage points compared to the same period last year, which is reasonable given the significant increase in profits.

Overall, the gross profit margin increased by about 2 percentage points this quarter, with actual gross profit exceeding expectations by 500 million, while the combined marketing and research and development expense ratios decreased by 1.2 percentage points. Despite a slight increase in fulfillment expenses, the operating profit margin still increased by 2.7 percentage points, achieving an operating profit of 3.67 billion, approximately 900 million higher than expected. It is evident that the improvement in gross profit and the reduction in expenses have made a significant contribution to profit growth.

Taking into account non-operating income such as interest and investments, and excluding taxes, the company's net profit for this quarter is 3 billion.

Dolphin Research's Previous Studies on [Vipshops]:

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