Please ensure Javascript is enabled for purposes of website accessibility

Can Vipshop Stock Keep Going After Last Week's 45% Pop?

By Rick Munarriz - Dec 24, 2017 at 10:39AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tencent and invest in Vipshop in a deal that's about more than just the raised money.

One of last week's biggest winners was Vipshop Holdings (VIPS 2.93%), soaring 44.7% after Tencent Holdings (TCEHY -0.24%) and (JD 2.69%) announced that they would be making sizable investments in the online discounter of brand-name apparel. Tencent is paying $604 million for a 7% stake in Vipshop, and is investing $259 million to grow its stake from 2.5% to 5.5%. Tencent and are paying a big premium for their stakes, as even Vipshop's 45% surge is still short of the $13.08 per American depositary share price that they're shelling out for their investments.

Vipshop isn't smarting for money, armed with nearly $600 million in cash. This deal is more about validation and getting two of China's dot-com darlings in its corner. Tencent is an internet giant with a knack for taking stakes in rising companies. is China's largest online retailer by revenue. 

A Vipshop bricks-and-mortar store.

Image source: Vipshop Holdings.

Dealing for cards you play later

Vipshop isn't just lining up big-name investors. Tencent will add Vipshop to its Weixin Wallet interface, probably sending incremental traffic its way. will place Vipshop on its landing page as well as its Weixin Discovery shopping entry. 

The problem Vipshop faced was that it was falling out of favor with investors. The stock was trading sharply lower before last week's pop put its year-to-date return in positive territory, a sharp contrast to Tencent and, which have soared 116% and 67%, respectively, in 2017. 

This former market darling that had seen its shares more than double for three consecutive years through 2014. It would routinely blow through Wall Street forecasts, but it fell short of analyst profit targets in the second quarter and merely met expectations last time out. Vipshop's 28% top-line growth was at the high end of its earlier range, but weak guidance calling for decelerating growth during the current quarter ended with slashed price targets from a pair of analysts. 

The business cooperation deals with Tencent and should help accelerate growth levels. Healthy placement on the popular platforms should help boost its exposure. Vipshop's active customer count should rise above its current 60.5 million shoppers over the past 12 months. Vipshop's flash sales have been magnetic to fashion-savvy deal-seekers in China, and landing Tencent as a new investor and with its larger position will only help its appeal.

It took Vipshop four months to get its stock back into the double digits, and the strong partnerships should help keep it that way.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vipshop Holdings Limited Stock Quote
Vipshop Holdings Limited
$10.18 (2.93%) $0.29
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$45.28 (-0.24%) $0.11, Inc. Stock Quote, Inc.
$65.95 (2.69%) $1.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.