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Why Uxin Stock Fell 18% Last Month

By Jeremy Bowman – Updated Apr 8, 2019 at 5:01PM

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Shares of the Chinese e-commerce company headed lower after reporting fourth-quarter earnings.

What happened

Shares of Uxin (UXIN 13.38%) were slipping last month after the Chinese online used-car dealer turned in fourth-quarter earnings and offered a disappointing outlook for the first quarter. Meanwhile, the company also coped with ongoing concerns about the Chinese economy and worries about trade tensions with the U.S. As a result, the stock finished March down 18%, according to data from S&P Global Market Intelligence

As the chart below shows, the normally volatile stock continued to trade up and down, but fell sharply when the earnings report came out in the middle of the month.

UXIN Chart

UXIN data by YCharts.

So what 

Uxin shares dropped 18% on March 14 as the earnings report came out, but the headline numbers in the quarter were solid. Revenue increased 61.6% to $165.6 million, which was well ahead of estimates at $153.9 million, as the company benefited from the launch of its new mall on the Alibaba (BABA 6.61%) Taobao marketplace

Two Asian men talking by a car

Image source: Getty Images.

Uxin has been in the process of shifting its business away from its 2B segment, which is focused on auctions to dealers, and onto its 2C business, focused on end consumers. As a result, revenue from its 2C business more than doubled in the quarter, but its 2B segment actually saw a decline.

Gross margin in the period increased 400 basis points to 68.9% as the 2C business is more profitable, and the company held its sales and marketing spending flat, which helped narrow its adjusted net loss from $71.2 million a year ago to $35.3 million, or to $0.04 per share from $0.08 in the quarter a year ago. That beat expectations of a loss of $0.14 per share.

CEO Kun Dai said: "We experienced an exponential growth in cross-regional transactions, with transaction volume exceeding 10,000 used cars in December alone, and over 22,000 in the fourth quarter. This reflects the revolutionary impact of our business model on China’s used-car supply chain, as well as growing appreciation of Uxin’s brand and services."

Now what 

Despite the quarter, Uxin's guidance was underwhelming as the company sees revenue for the current quarter at 900 million to 950 million yuan ($133.9 million to $141.4 million), which represents just 42% revenue growth at its midpoint. That figure also represents a sequential decline from the fourth quarter, though management explained that guidance was more modest due to the shift in the Lunar New Year, and it sees its growth rate accelerating over the rest of the year.

Nonetheless, investors seem wary of the loss-making company, especially at a time when China's economy is slowing. Until Uxin proves otherwise, the stock may struggle to recover.

Jeremy Bowman owns shares of Uxin Ltd. The Motley Fool recommends Uxin Ltd. The Motley Fool has a disclosure policy.

Stocks Mentioned

Alibaba Group Stock Quote
Alibaba Group
BABA
$94.17 (6.61%) $5.84
Uxin Ltd Stock Quote
Uxin Ltd
UXIN
$3.39 (13.38%) $0.40

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