When Chinese e-commerce services provider Baozun Inc. (ADR) (NASDAQ:BZUN) reported its second-quarter results, the market's initial reaction wasn't positive, sending its stock price down more than 12% in the days immediately before and after the release.

But since bottoming out on Aug. 15, shares have rebounded, a not-surprising recovery considering Baozun's earnings were actually quite good. Let's take a closer look at what it reported and what management says to expect going forward. 

Computer keyboard with Chinese flag in place of enter key.

Image source: Getty Images.

Profits and revenue up, but so are expenses (as expected)

(Note: Baozun collects and reports revenue in Chinese yuan, or RMB, and also provides U.S. dollar adjusted results. The results below are based on its native RMB). 

Baozun is often compared to Shopify, which makes sense as it also provides easy tools for merchants to build and run e-commerce websites and to integrate with China's most popular online retail sites. 

In the second quarter those partnerships started paying off with big growth. Revenue increased 31%, operating income was up 55%, and non-GAAP net income was up 34%. GAAP net income per share increased 22% from last year. 

Total operating expenses increase as well, up 29% to RMB 1.1 billion, as the company continues to invest heavily in marketing and technology to support its growth and sees product cost and fulfillment expenses rise with increased sales. But this heavy spending is part and parcel of Baozun's growth plans, as the company must continue to invest heavily into its business during this critical phase of its growth. 

Balance sheet improving

Even as Baozun continues to spend heavily to develop its technology and infrastructure to support future growth, its balance sheet continues to be a source of strength.

It ended the second quarter with RMB 895.2 million in cash (including restricted cash) and short-term investments and RMB 173.7 million in debt. Its cash position has increased in both the first and second quarters of 2018, while total debt has stayed about the same. 

Looking ahead

Baozun continues to grow by expanding the number of customers using its tools and services to sell online and by expanding its reach across China's biggest online retail platforms. And its strategy of investing in its scale and improving its offerings is going to continue. CEO Vincent Qiu summed it up in the earnings release:

We delivered another outstanding quarter in which we generated strong growth from our existing online stores and enhanced efficiency by deploying new and innovative tools. Our ability to rapidly adapt to changing market environment and develop new technology remains the key to our success. ... We will continue to invest in building our long-term technological competitive advantage to further reinforce our market leading position in China's brand e-commerce market.

The company expects revenue between RMB 1.09 billion and RMB 1.12 billion in the third quarter, which works out to between 13% and 25% growth from last year's quarter. In the second half of the year, management expects to see services revenue jump an incredible 50% from last year and for more than RMB 20 billion in gross merchandise volume to be sold through its platforms. 

All things considered, Baozun continues to execute incredibly well, and its management team has positioned the company in an enviable position as China's go-to provider for sellers of every size and as a partner to China's biggest e-commerce platforms.

With China's middle class still growing at a fast rate and set to become the world's dominant consumer economy in the years to come, Baozun could see a lot more quarters like this in its future.