One of the market's hottest stocks between 2012 and 2014 is reeling these days. Shares of Vipshop Holdings (NYSE:VIPS) plummeted 20.3% last week, buckling after the company's poorly received quarterly results. A pair of analysts would go on to downgrade the stock, with a third Wall Street pro lowering his price target on the once red-hot shares.

The Chinese online discounter of brand-name apparel turned heads a few years ago, after its stock more than doubled for three consecutive years through 2014. The stock has gone on to shed more than half of its value since peaking in early 2015, with concerns that the partnership it brokered with (NASDAQ:JD) and Tencent Holdings (OTC:TCEHY) earlier this year won't lead to the needle-moving incremental growth that Wall Street was expecting.

Vipshop homepage.

Image source: Vipshop Holdings.

Window shopping

Vipshop's report didn't seem rough at first glance. Revenue rose 24.6% to $3.2 billion in the first quarter, ahead of the $3.08 billion that Wall Street was expecting. Profitability is where the bad news starts, as adjusted earnings slipped 9% to $116 million or $0.17 a share, just shy of analyst profit targets. Vipshop's profitability is going the wrong way as it invests in promotional activity, a sign of the times in what has become a more competitive climate.

The good news is that the promotional activity is getting its shoppers to spend more. Average revenue per active user rose 25%. Unfortunately, revenue per shopper matching its overall top-line growth means that year-over-year customer growth is essentially flat. 

Investors were excited earlier this year when Vipshop brokered a partnership with Chinese dot-com darlings and Tencent. Vipshop would go on to launch its JD flagship store in March, with its entry in Tencent's WeChat wallet a month later. Vipshop offered up some encouraging color on the partnership during last week's earnings call. The JD flagship store attracted 0.5 million visitors in its first two months. Vipshop and WeChat ran some red-dot promotions to drum up traffic for the mini-program. The partnerships also helped attract younger and more male shoppers than it has in the past with its historical female apparel concentration.  

The market wasn't expecting any of the fruits of the partnership with JD and Tencent to pay off in the first quarter, but that makes Vipshop's outlook calling for just 17% to 22% in top-line growth for the current quarter that much more disheartening. It is shaping up to be the eighth consecutive quarter of decelerating revenue growth.

The partnership is in the crosshairs of Wall Street pros. The first four analysts questions asked during last week's call were all about and Tencent. A few of the firms following the stock didn't like what they heard.

Vipshop was downgraded by analysts at CLSA and KeyBanc. Hans Chung at KeyBanc is concerned about the uncertainties surrounding the incremental contributions that Tencent and will bring to Vipshop's table. Chung also sees the margin pressure continuing given the cutthroat competition and the hike in marketing spend to spark customer growth. Fawne Jiang lowered stuck to her bullish rating on the stock, but slashed here price target from $24 to $19 as a result of the soft guidance and concerns about the slow ramp-up process with the and Tencent partnership.    

The silver lining here is that Vipshop did mention during its call that its guidance for revenue growth slowing to 17% to 22% in the second quarter had very little factored in from Tencent and Vipshop continues to work with both partners to adjust operations and back-end integrations. A slow start doesn't mean that the partnerships will be non-factors in the future, but it does suggest that Vipshop will have to prove its way out of the recent sell-off. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.