Vipshop: Lying flat to survive, if you don't want to win, you won't lose either

On November 19th, Beijing time, before the US stock market opened, $Vipshops(VIPS.US) released its Q3 2024 financial report. In summary, both revenue and operating profit declined by about 10%, and the performance was undoubtedly poor, but the market had fully anticipated this. The detailed points are as follows:

1. This quarter, Vipshop's GMV reached 40.1 billion, a year-on-year decline of 6%, further weakening compared to the 0% growth in the previous quarter. Since the company had provided a weak guidance, it barely met the market expectation of 40.6 billion.

In terms of price and volume, the order volume of Vipshop declined by 9% year-on-year this quarter, widening from a 7% drop last quarter. The number of active users in the quarter also decreased by about 2.9 million year-on-year, a decline of about 7%. Under the weak consumption environment in Q3 (especially poor clothing consumption) and intense industry competition, the smaller Vipshop faces significant user loss pressure.

Additionally, the average order value, which partially offset the decline in users and order volume in previous quarters, saw its year-on-year growth rate drop to 4% this quarter. On one hand, the base for average order value had already increased in Q3 last year. Moreover, price subsidies, industry competition, and poor sales of high-priced winter clothing may have contributed to the narrowing growth rate of average order value.

2. Due to the further increasing return rate of categories such as clothing, the gap between revenue growth rate and GMV growth rate still exists this season. This quarter, revenue declined by 9.2% year-on-year (vs. GMV down 6%). This is at the lower end of the company's previous guidance range of -5% to -10%, but the market expectation was also about a 9% decline, which has fully absorbed the weak revenue performance. For Q4, the company also guided a revenue decline range of -10% to -5%, reflecting significant performance pressure, similar to this quarter. However, the market had also anticipated this, with the midpoint of the guidance being comparable to the expected value.

3. In terms of gross profit, due to the weak consumption environment and declining average order value, the market originally expected the gross margin to decline year-on-year, but it actually slightly increased by 0.4 percentage points to 24% year-on-year, partially offsetting the revenue shrinkage. The actual gross profit achieved was 5 billion, a year-on-year decline of about 8%, with the decline slightly smaller than that of revenue. Compared to expectations, it was about 5% higher (230 million).

4. Unlike the significant year-on-year increase in marketing expenses for major platforms like JD and Alibaba this quarter, Vipshop's operating expenses mostly still declined year-on-year this quarter. This quarter, the overall expenditure on four operating expenses was 3.8 billion, a year-on-year decline of 6%. Among them, marketing expenses were 620 million, a year-on-year decrease of 8%. In the face of leading platforms increasing subsidies to attract users, Vipshop did not choose to confront directly, accepting to some extent the loss of wavering users and focusing more on core users such as SVIP. In other expenses, only R&D expenses increased year-on-year (4%) , likely due to the company's investment in AI shopping guides, fitting functions, etc. However, due to a 9% year-on-year decline in revenue, the combined operating expense ratio of the four items still passively increased from -17.6% to -18.2%.

The significant decline in operating leverage due to revenue shrinkage, although gross margin slightly improved, the company also tried to control expenses to shrink year-on-year. The company's operating profit for this quarter reached 1.33 billion, still down 13% year-on-year, which is a larger decline than revenue. However, sell-side expectations for profits are more pessimistic, with the consensus median expectation only at 1.17 billion. Actual performance was slightly better than expected.

Dolphin Investment Research View:

From the perspective of Vipshop's performance this quarter, it is undoubtedly relatively poor. Under the dual impact of macro and industry competition, user loss has led to a decline in transaction volume, which in turn has transmitted to a 10% decline in both revenue and profit, even controlling expenses is not enough to offset it. Moreover, the guidance for continued revenue decline in the next quarter reflects similar performance pressure in Q4.

Fortunately, the company had previously warned about the pressure on performance, and the market has already fully anticipated and digested this. Actual performance generally met expectations across various indicators. Correspondingly, Vipshop's current price is almost the same as the level before the rebound at the end of September, sitting at a relatively low point since 2023. The current stock price corresponds to a valuation of about 7x PE for 2024 profits, which has largely reflected the company's weak fundamentals.

In other words, the market has anticipated Vipshop's poor performance and is to some extent no longer paying much attention.

Perhaps more crucial is the direct shareholder return, with Vipshop's buyback amount this quarter at $275 million, slightly higher than the buyback amount of the previous quarter. If Q4 continues to maintain a buyback strength of $200 million or more (high probability), the annual buyback would yield at least a 9% return rate for the current company market value, placing it among the top tier of Chinese concept assets.

Sufficiently low valuation & expectations + sufficiently generous buybacks provide considerable bottom support for Vipshop's stock price, making the probability of a significant decline in the short term low. However, looking upward, under the current performance trend, opportunities are also limited.

The following are the detailed financial report:

1. User loss, decline in order volume, small platforms are heavily impacted

This quarter, Vipshop's GMV reached 40.1 billion, a year-on-year decline of 6%, further weakening compared to the 0 growth of the previous quarter. Since the company has given a relatively weak guidance, compared to the market expectation of 40.6 billion, it barely qualifies as an in-line performance.

In terms of price and volume driving factors, this quarter, Vipshop's order volume decreased by 9% year-on-year, widening from a 7% decline in the previous quarter. The number of active users this quarter also decreased by approximately 2.9 million year-on-year, a decline of about 7%. Under the weak consumption environment in the third quarter (especially poor clothing consumption) and intense industry competition, the smaller-scale Vipshop faces significant user attrition pressure. The slightly higher decline in order volume compared to user loss indicates that the order frequency per user has also slightly decreased by 2% year-on-year.

For the past few quarters, the increase in average order value that has been offsetting the decline in users and order volume has dropped to 4% this quarter. On one hand, the base for average order value had already increased in Q3 of last year, and the base effect has faded. Additionally, price subsidies, industry competition, and poor sales of high-priced winter clothing may have contributed to the narrowing of the increase in average order value.

II. the gross profit margin has not declined, which is the only consolation.

Due to the negative growth of GMV and the current trend of increasing return rates in categories such as clothing across the industry, the gap between revenue growth and GMV growth still exists this quarter. Revenue this quarter decreased by 9.2% year-on-year (vs. GMV decline of 6%). This is quite weak, at the lower end of the company's previous guidance of -5% to -10%, but it is consistent with market expectations, as the market has fully digested the weak revenue performance.

In terms of gross profit, due to the weak consumption environment and the decline in average order value, the market originally expected the gross profit margin to decline year-on-year, but in fact, it slightly increased by 0.4 percentage points to 24%. This somewhat offset the revenue shrinkage, with actual gross profit at 5 billion, a year-on-year decline of about 8%, which is a slightly smaller decline than revenue. Compared to expectations, it is about 5% higher (230 million).

III. despite efforts to control costs, profit decline is still difficult to prevent.

On the growth side, Vipshop's performance in GMV, revenue, and gross profit is not optimistic, so cost control is basically the last line of defense for maintaining profit growth. Unlike major platforms like JD and Alibaba, which have seen significant year-on-year increases in marketing expenses this quarter, Vipshop's operating expenses this quarter have mostly decreased year-on-year. This season, the overall expenditure on four operating expenses was 3.8 billion, a year-on-year decrease of 6%. Among them, marketing expenses amounted to 620 million, a year-on-year decrease of 8%. In the face of leading platforms increasing subsidies to attract users, Vipshop did not choose to confront them directly, accepting to some extent the loss of wavering users, and focused more on core users such as SVIP users.

In other expenses, management and fulfillment expenditures also experienced negative year-on-year growth, only research and development expenses increased by 4% year-on-year, still due to the company's investment in AI shopping guides, fitting functions, and other features.

However, despite this, the overall year-on-year decline of 6% in the four operating expenses is still less than the 9% year-on-year shrinkage in revenue, indicating that the operating expense ratio is still passively increasing, from -17.6% to -18.2%.

Ultimately, due to the significant decline in operating leverage caused by revenue shrinkage, although the gross profit margin slightly improved, the company also tried to control the year-on-year contraction of expenses. The company's operating profit for this season reached 1.33 billion, still down 13% year-on-year, which is a larger decline than revenue. However, the sell-side expectations for profit are more pessimistic, with the consensus median expectation being only 1.17 billion. The actual performance looks slightly better.

Dolphin Investment Research's past research on [Vipshop]:

August 21, 2024 conference call《 Vipshop: Will profits decline in the second half of the year?》**

August 21, 2024 earnings report commentary《 Vipshop: Under the same roof, will only the weak become weaker?》**

May 23, 2024 conference call《 Vipshop: Maintain caution in the short term, focus on shareholder returns》**

May 23, 2024 earnings report commentary《 Vipshop: Guidance "thunder"? No fear, there’s buyback to save the day》

February 29, 2024 Conference Call: Vipshop: Not Seeking High Growth, But Will Gradually Increase Dividends》

February 29, 2024 Financial Report Commentary: Cold Weather, Expensive Clothes, Vipshop Lives Up to "Small and Beautiful"》

November 14, 2023 Financial Report Commentary: Vipshop: Don't Be Misled by Thunder, Digging Deep Reveals Gold》

November 15, 2023 Conference Call: Vipshop Minutes: Double-Digit Growth on Double Eleven, Net Profit Margin Space Higher Than Gross Profit Margin》

August 18, 2023 Conference Call: Vipshop: Return Rate Will Remain High》

August 18, 2023 Financial Report Commentary: Vipshop: Intensifying Competition Among Giants, Has the Sweet Period of "Small and Beautiful" Passed?》

May 24, 2023 Conference Call: Vipshop: Cautiously Optimistic About Recovery in the Second Half of the Year, New Customer Acquisition Investment Will Increase》

May 23, 2023 Financial Report Commentary: Vipshop: Small and Beautiful, Better Than Big and "Declining"?》

February 24, 2023 Conference Call: Vipshop: Not Participating in the Competition, Focusing on Being Small and Beautiful》

February 23, 2023 Financial Report Commentary: “Turning Over a New Leaf”?, Will Spring Come for Vipshop?》

Risk Disclosure and Disclaimer of this Article: Dolphin Investment Research Disclaimer and General Disclosure