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3 Reasons Vipshop Holdings Stock Isn't Crashing This Time

By Rick Munarriz – Nov 15, 2018 at 9:30AM

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A mixed third quarter is good enough for investors hungry for a financial update that wasn't horrible.

Earnings season has been a dangerous time to own a piece of Vipshop Holdings (VIPS -2.77%). The stock has taken better than 20% hits in back-to-back quarters heading into Wednesday afternoon's third-quarter release, making it so easy to brace for the worst earlier this week.

Thankfully for the brave investors holding the stock despite its bearish momentum, Vipshop's latest financial update isn't triggering a third consecutive meltdown. The stock initially moved higher on the news. Let's go over the reasons why Vipshop isn't losing ground for a change. 

Vipshop homepage offering Forever 21 apparel deals.

Image source: Vipshop Holdings.

1. It's a beat for a change

Revenue rose 16.4% to $2.6 billion for the third quarter. It's the Chinese online discounter's ninth consecutive period of decelerating top-line growth, but it's near the high end of the 13% to 18% growth that it was targeting back in August -- and also comfortably above the $2.53 billion that analysts were modeling

It was a bigger beat on the bottom line. Adjusted earnings declined 10.5% to hit $0.11 a share, but that also blew through the $0.09 a share that Wall Street pros were forecasting. Investors hadn't seen a beat on the bottom line in some time. Vipshop fell short of analyst earnings expectations in the first and second quarters of this year, landing near the low end of its revenue range last time out. 

2. Most trends remain positive

Vipshop's platform that offers flash sales for deeply discounted brand-name apparel remains magnetic. It closed out the third quarter with 26.5 million active customers, 11% above where it was a year earlier. The number of orders surged 29% to 95.7 million. Seeing the number of transactions outpace revenue growth would lead one to conclude that the average order size is shrinking -- and that's right -- but since the typical customer is also leaning on Vipshop more it all works out to an 5% increase in average spending per customer for the period. 

The trends aren't as appetizing on the bottom line where Vipshop's on its sixth straight quarter of shrinking profitability. However, Vipshop's ramping up the promotional activity to keep sales moving in this competitive climate. It's more important to remain relevant and growing than to be cranking out chunky profits until the inevitable shakeout happens. 

3. Weak guidance is offset by the cascading stock

Vipshop is bracing investors for what should be its tenth consecutive quarter of decelerating revenue growth. Its outlook calls for just an 8% to 13% increase on the top line, and analysts are perched just above that. However, the stock has also plummeted 72% since hitting a near-term peak in February. After a pair of horrendous quarters, it managed to land a few silver linings in a mixed third quarter.

Vipshop stock fell to a four-year low after its thorny second quarter, a sobering reminder that a deal it struck with two of China's e-tailing behemoths earlier in this year wasn't going to be an overnight cure to its slowing growth. The stock had already clawed its way 24% higher since bottoming out two weeks ago. Wednesday's third quarter was far from perfect, but it was more than enough when the pessimism was overdone. 

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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