Why Vipshop Shares Fell

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Vipshop Holdings (NYSE: VIPS  ) were going for a discount today, falling as much as 16% after the Chinese online discount retailer responded to recent allegations of fraud.

So what: Short sellers have lined up against the booming Chinese stock, which after today's drop is still worth six times its value last summer. They have accused it of manipulating user traffic data, saying it conflicts with numbers from Alexa, an Internet information provider. Vipshop management responded, "Many Chinese Internet users do not have Alexa plug-ins on their computer. Therefore, Alexa's user traffic data cited in the allegations underestimate Vipshop.com's actual user traffic, which has grown rapidly."

Now what: This is certainly far from the first time a Chinese company has been accused of fraud, and while it may be too early to say if there's any legitimacy to the shorts' claims, their argument seems weak. This is a retailer, after all, so there would likely be stronger indicators of fictional financials such as shipping patterns, order records, or simply on-site customer reviews. Revenues have been skyrocketing at the company, growing by triple digits, though profits have been minimal as Vipshop follows a business model similar to Amazon.com's. Investors may be wondering if the bottom line will catch up. One thing's for sure: This is a stock you'll want to keep your eye on. Get updates emailed to you by adding Vipshop to your Watchlist here.


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