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Baozun Is Slowing Down, and That's Okay

By Rick Munarriz - May 17, 2018 at 10:38AM

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The "Shopify of China" moves higher after posting a blowout quarter, even if it means another period of decelerating revenue growth.

Growth is slowing at Baozun (BZUN 0.91%), but the Chinese provider of e-commerce solutions is still finding ways to impress the market. Baozon reported its first-quarter results on Thursday morning, managing to post a better-than-expected financial report despite clocking in with its weakest top-line growth since 2014. 

Revenue rose 14.5% to $146.9 million, well ahead of the 10% increase that analysts were targeting. Baozun itself was forecasting just 7% to 11% growth for the quarter back in March. Baozun also scored a beat on the bottom line despite adjusted earnings growing even slower than revenue. Reported net income rose 40.8%, but that was the handiwork of a sharp reduction in stock-based compensation expenses. Profits rose just 10.7% on an adjusted basis to $5.1 million, or $0.09 a share. Wall Street pros were bracing for adjusted earnings of $0.08 a share. 

Baozun logo done up with the brands it represents.

Image source: Baozun.   

Brand on the run

Baozun's business is shifting away from product sales. The seemingly ho-hum top-line growth of less than 15% is actually the result of a better than 50% increase in services revenue more than offsetting a nearly 8% slide in product sales revenue. The transition of a leading electronics brand partner shifting from the distribution model to consignment has been weighing down product sales revenue lately.

Growth is generally slowing at Baozun, though we're not talking about consistent deceleration. Like a first-time driver, the past few quarters have seen Baozun take its foot on and off the pedal. The last five quarters have featured an odd pattern of decelerating, accelerating, decelerating, accelerating, and now decelerating top-line growth, respectively. 

The market doesn't seem to mind. The stock soared 162% in 2017. The stock has risen 43% so far this year through Wednesday's close, and that's before it opened higher on Thursday following its quarterly beat on both ends of the income statement. 

Baozun has been a market darling even when it only gets half the job done. The stock soared following its previous quarter, even though revenue growth came in a bit light. Investors are simply warming up to Baozun's strong market position as it helps global brands gain a respectable foothold in China's booming e-commerce economy. 

Baozun client base consists of just 156 brand partners, up nicely from the 136 it was servicing a year earlier and a modest uptick from the 152 it had when the quarter began. It seems to be doing right by its Rolodex of juggernaut brands, as its e-commerce platform helped deliver a 66% spike in gross merchandise volume for its partners. Shifting its model away from distribution to non-distribution may weigh on top-line growth, but the gains are pretty strong where it matters the most. 

Investors spoiled by some of China's dot-com speedsters may not appreciate the crockpot approach to Baozun's slow-heat simmering, but the scintillating stock chart proves that slow and steady is one way to win the race. The stock's strong open on Thursday translates into an investment that has quadrupled since the beginning of last year -- and that's hot stuff.

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