There's still room for improvement at E-Commerce China Dangdang (NYSE: DANG ) .
The Chinese e-tailer posted quarterly results yesterday that missed Wall Street expectations. Net revenue climbed 50% to $142.5 million, but a modest profit a year earlier was reversed into a net loss of $0.15 a share. Analysts were targeting a deficit of just $0.07 a share on $143.5 million in revenue.
This is the second quarter in a row that Dangdang came up short, and the shares show it.
Dangdang went public at $16 this past December, trading as high as $36.40 a month later. CEO Guoqing Li publicly criticized lead underwriter Morgan Stanley (NYSE: MS ) at the time for mispricing the deal, and he was right about the money that was left on the table given the initial pop. However, now that Dangdang is trading in the single digits, maybe Li should be grateful.
Dangdang's curse was being tagged as "the Amazon.com (Nasdaq: AMZN ) of China" when it went public, hyping investor demand. In reality, the only thing that Dangdang and Amazon have in common is that both companies were selling mostly books in their early years and spotting crummy margins doing so. These days, China's 360buy is a more accurate comparison to Amazon.
The average order at Dangdang is for just a little more than $13, and that's actually been growing as Dangdang adds more general merchandise. However, books still make up most of its orders and most of its available items.
There were 5.5 million active Dangdang customers -- up 36% over the past year -- and total orders climbed 32% to 10.8 million.
The problem with China is that the burden of trust is on the e-tailer. Yesterday's earnings release details a cash-on delivery network in 130 cities where customers pay upon receiving their merchandise. Can you imagine Amazon shipping stuff out it hadn't billed for yet?
The demand for instant gratification on bulky items is forcing fulfillment costs higher, at a time when the emphasis away from books is also eating at margins. Dangdang's gross margin of 14% this past quarter is a far cry from the 25% it was scoring a year earlier.
There's still time for Dangdang to get it right, but for now it joins the growing list of Chinese IPOs over the past 12 months that are now trading for far less than their initial price tags. Social networking site Renren (NYSE: RENN ) , content integrator Phoenix New Media (NYSE: FENG ) , and car info hub Bitauto (NYSE: BITA ) are now stuck with Dangdang in the single digits.
One could even call this a sale on Dangdang, but if it has to subsidize part of the hit of same-day delivery, it's probably not a bargain worth buying right now.
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