Are You Waiting for Alibaba? These Companies May Be What Your Portfolio Needs

If you're one of the many investors who are eagerly waiting for the Alibaba IPO, you may want to consider other high-growth e-commerce companies in emerging markets. E-Commerce China Dangdang, MercadoLibre, and Vipshop may not be as popular as Alibaba, but that does not mean they have any less potential for growth in the years ahead.

Jul 7, 2014 at 1:30PM

Many investors are eagerly waiting for the coming Alibaba IPO, which is quite reasonable considering the tremendous growth potential offered by the e-commerce business in emerging markets. However, Alibaba is not the only way to invest in that exciting sector; companies such as E-Commerce China Dangdang (NYSE:DANG), MercadoLibre (NASDAQ:MELI), and Vipshop (NYSE:VIPS) may not be as big and famous as Alibaba, but they do provide considerable upside potential.

E-Commerce China Dangdang
E-Commerce China Dangdang started as an online books retailer, but it has successfully expanded into other product categories over time, mainly apparel, maternity, and home products, among others. The company is reporting healthy sales growth, and profit margins are moving in the right direction. Investors are applauding this performance, as Dangdang stock has risen by more than 85% over the last 12 months.

Dang Image

Source: E-Commerce China Dangdang.

Total sales during the first quarter of 2014 increased 30.1% to $279.2 million. Media product revenue increased 33.3% to $185.3 million, general merchandise sales grew 25.5% to $83.1 million, and other revenue -- which includes sales from third-party merchants -- grew 16% to $10.9 million.

Gross merchandise value was $190.8 million during the quarter, a big annual increase of 103%. Dangdang gained 2.8 million new active customers in the period, for a total of 8.6 million active customers.

E-Commerce China Dangdang has only recently begun to operate profitably, but the trend is encouraging. Gross profit margin was 18.2% of sales in the last quarter, versus 17.2% in the first quarter of 2013. The company delivered a small net gain of $0.3 million in the quarter, versus a net loss in the same quarter during the prior year.

Peggy Yu Yu, executive chairwoman of E-Commerce China Dangdang, provided a positive assessment of the company's performance: "Dangdang continued its path to profitability in the first quarter of 2014. We began the year on a positive note, achieving strong top-line year-over-year growth, the highest gross margin since the second quarter of 2011 and a second consecutive quarter of profitability."

MercadoLibre
MercadoLibre is the e-commerce leader in Latin America. Currency devaluation and economic volatility in countries such as Venezuela and Argentina is creating uncertainty for investors in MercadoLibre lately. But the company offers exceptional room for growth considering that e-commerce currently accounts for only 3% of all retail transactions occurring in Latin America, and MercadoLibre has the first-mover advantage in that region.

Meli Image

Source: MercadoLibre.

In spite of currency headwinds over the last several months, MercadoLibre continues delivering impressive financial performance for shareholders. Sales in U.S. dollars grew by 12.3% to $115.4 million in the first quarter of 2014, while revenue in local currencies increased by a remarkable 49.9% versus the first quarter of 2013.

Approximately 21.7 million items were sold on MercadoLibre during the quarter, a year-over-year increase of 20%. Payment transactions via its MercadoPago platform increased 36% versus the prior year, to 9.2 million.

The company gained 4.3 million registered users during the quarter, an accelerated growth rate versus the 4.2 million users it gained in the same period last year. MercadoLibre ended the quarter with a total base of 103.7 million users, a 21.1% increase from 85.7 million in the first quarter of 2013.

MercadoLibre operates a remarkably profitable business: Gross profit margin was 72.7% of sales during the last quarter, while operating margin came in at 29.5% of revenue.

Vipshop
Vipshop offers flash sales of high-quality and popular branded products in China at big discounts versus traditional retail prices. The discount retail channel in China is not as developed as in the U.S.; many brands rely on third-party platforms to build their online presence, and the market is highly fragmented. These factors provide big structural advantages for Vipshop, and the company knows how to translate its opportunities into big profits for investors.

Vips Image

Source: Vipshop.

Sales during the first quarter in 2014 increased by an explosive 125.9% to $701.9 million. Vipshop reported a huge increase of 165.1% in the number of active customers, from 2.8 million in the first quarter of 2013 to 7.4 million. The number of total orders in the quarter increased by 129.3%, to 20.2 million from 8.8 million.

Vipshop has consistently delivered improving profit margins over the last few years, and the company's latest earnings report was no exception. Gross margin increased to 24.9% in the first quarter of 2014 from 23.4% in the prior-year period.

Vipshop Margin

Source: Vipshop.

As the company continues gaining negotiating power with suppliers and spreading its fixed costs into rapidly growing sales, investors have valid reasons to expect sustained earnings growth from Vipshop in the years ahead.

Foolish takeaway
E-commerce is a high-growth industry, and economies in emerging markets are particularly dynamic. E-Commerce China Dangdang, MercadoLibre, and Vipshop may not be as popular as Alibaba, but that does not mean they have less potential for growth in the years ahead.

Leaked: The amazing potential of this coming device could make you rich
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we buy goods, but potentially how we interact with the companies we love on a daily basis. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multibagger returns, you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends and owns shares of MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers