Dangdang, I'm Not Impressed

Shares of E-Commerce China Dangdang (NYSE: DANG  ) opened higher after the company posted mixed quarterly results this morning. The market clearly approves of the growing online retailer's growth, but I can't be the only one walking away unimpressed.

The bullish takeaway is that margins continue to improve, and that Dangdang's net loss per ADS of $0.06 is a lot better than the $0.09 that Wall Street was targeting. This isn't really a surprise. Dangdang's been posting narrower deficits than what analysts have been expecting for more than a year now. However, getting closer to breaking even is still not breaking even at a time when apparel flash sales specialist Vipshop (NYSE: VIPS  ) and merchandise exporter LightInTheBox (NYSE: LITB  ) are having no problem turning a profit as China-based e-tailers.

Then we get to sales growth. Investors buying into China accept the geopolitical risks because they're getting some pretty high-octane growth spurts. Vipshop's revenue soared 146% in its latest quarter. LightInTheBox reports next week; its stock took a huge hit this summer when it guided investors to expect just 33% to 37% in top-line growth for the quarter. 

Why is the market excited about Dangdang's revenue climbing just 19% to $249.3 million? That's less than the $259.2 million that analysts were forecasting. There may have been a 21% increase in active customers during the period, but orders moved just 13% higher. Why is the typical customer ordering less? 

Media products revenue climbed 23%, and that's solid. Given its bookseller roots, media is a major part of the virtual storefront, accounting for more than two-thirds of Dangdang's sales. However, despite making a push to diversify into bigger-ticket products, the company saw general merchandise products sales climb just 6% over the past year.

Then we get to Dangdang's marketplace. Taking a page out of the Amazon.com playbook -- and not just because both e-tailers got their starts as booksellers -- Dangdang's been getting third-party merchants to sell through its online store. This is a smart strategy, and Dangdang is quick to brag about the 184% pop in gross merchandise value sold through this arrangement; Dangdang makes that point as one of the three bullet points ahead of its actual press release. But Dangdang's revenue out of all of those transactions wound up being less than 4% of its revenue for the period. It's definitely the way to go for Dangdang, but wake me up when marketplace revenue starts moving the needle.

Then we get to guidance, where the U.S. equivalent of its guidance translates into roughly $318 million in revenue for the fourth quarter. That's just shy of where the pros are parked, again.

Dangdang is certainly worthy of attention as it continues to improve margins, and its marketplace initiatives could pay off in a few years. However, with Vipshop and LightInTheBox already profitable and growing their revenue a lot faster, those may be the smarter choices for investors looking to cash in on China's booming online economy.

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  • Report this Comment On November 14, 2013, at 11:11 AM, Decoy0527 wrote:

    I am well ahead on this stock but I also think the e-retailing sector is too crowded and that Dangs best course of action for shareholders is to start looking for a buyer. Lots of value as is, but will take tons of additional money to invest in the company before meaningful profits emerge. Consolidate, consolidate, consolidate. The quicker the better.

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