One of last year's biggest winners was also one of last week's top gainers. Shares of China's Baozun (BZUN +0.18%) rose 34.2% for the week after posting better-than- expected bottom-line results and guidance calling for continuing strength in services revenue. Baozun stock has soared 52% so far this year, following last year's 162% surge. The stock has skyrocketed nearly sixfold since the start of 2016.
The company that many call the "Shopify (SHOP 1.61%) of China" because it provides e-commerce solutions to get traditional merchants -- and in Baozun's case, also major global brands -- online is rolling, but so is Shopify. Both stocks more than doubled last year, and they continue to beat the market in 2018.
Image source: Baozun. http://www.baozun.com/images/about-us.jpg
Riding the e-commerce wave
Last week's quarterly report wasn't perfect. Adjusted earnings may have more than doubled to $0.43 a share -- well ahead of the $0.31 that analysts were targeting -- but Baozun fell short of expectations on the top line. Total revenue rose 23% to $240.6 million. Wall Street pros were holding out for $245 million on the top line. Revenue was evenly split between $120.3 million in product sales and the other half in services revenue, but we basically saw a 56% spike in services revenue overcome flattish results in product sales. The transition of a leading electronics brand partner shifting from the distribution model to consignment weighed down product sales revenue.
Baozun's popularity continues to grow at a heady clip. Gross merchandise volume soared 76% during the quarter compared to the prior year's fourth quarter. The number of Baozun brand partners has grown from 133 to 152 over the past year, and it's good to see gross merchandise volume growing a lot faster than that.
Guidance calls for total growth decelerating to 7% to 11% for the current quarter, but the company once again sees services revenue increasing by more than 50%. Analysts expect revenue to accelerate as 2018 plays out and the surge in services revenue becomes more of a difference maker.
Shopify and Baozun aren't the same. Baozun leans largely on dozens of major global brands that want to grab a bigger piece of China's booming e-commerce market. Shopify's platform now hosts more than 600,000 different mostly small merchants. Its total revenue is also growing a lot faster than that of Baozun, but the edge goes to the latter when it comes to valuation. Baozun may not seem cheap at 41 times this year's projected earnings and 26 times next year's target, but it's a far cry from Shopify's triple-digit multiples as the stateside darling starts to come into its own on the bottom line. Baozun also commands the much lower price-to-revenue multiple. However, most investors would agree that the risks are greater when buying into China's dot-com speedsters.
Investors don't have to choose. They can buy both stocks. The huge run-up in both stocks may give some investors pause. CLSA downgraded Baozun slightly -- from buy to the less bullish outperform -- following the report. Momentum still continues to shine kindly on both stocks. It's hard to bet against them when the winners keep on winning.
