Please ensure Javascript is enabled for purposes of website accessibility

Baozun's Investments in Growth Keep Paying Off

By Jason Hall – May 30, 2019 at 5:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese e-commerce platform provider continues to win new retail partners and deliver big growth.

Baozun (BZUN 0.64%) reported first-quarter 2019 results on May 29, once again showing its efforts to invest in building a bigger, stronger offering to be the right move. Total net revenue increased 40% and operating income surged 61% on higher operating margin, even with operating expenses climbing 39% in the quarter.

Baozun's results may have come in a little lighter than the big growth it reported to close 2018, but its results continue to be stellar across the board. Let's take a closer look at Baozun's earnings report for the key items investors should know.

Young Asian women using smartphones in a shopping mall

Baozun is helping brands and sellers connect their physical retail and e-commerce platforms. Image source: Getty Images.

Increased expenses a big reason why revenue and profits surged

(Note: Baozun collects and reports revenue in Chinese yuan, and also provides dollar-adjusted results for some metrics. The results below are based on yuan unless otherwise noted.)

While earlier in its existence Baozun invested more resources in providing end-to-end e-commerce solutions to merchants, including product distribution, more recently management has focused on developing software tools and the technology behind its platform. By investing in the platform and associated tools, the company has been able to win a number of new and large brands and retail partners which don't necessarily need Baozun to fulfill orders.

And that's paying off for the company on the top and bottom lines. In the first quarter, total net revenue was 1.29 billion yuan (about $192 million), up 39.7% from last year. Product sales revenue was up 34.3%, while services revenue was up 45.1% to 669 million yuan, or 52% of revenue. CFO Robin Lu credited "new brand partners" with delivering incremental contribution to the company's results.

Winning those new clients is coming at a cost: Baozun's operating expenses increased 39% to 1.24 billion yuan. The biggest contributors to the increase were sales and marketing expense, which increased 41% to 311 million yuan, and technology and content expense, which increased 75% to 87.9 million yuan.

Despite the big increase in operating expenses, more of Baozun's revenue reached the bottom line. The company reported operating income of 45.8 million yuan, up 61.2%, and operating margin of 3.6%, up from 3.1% year over year. On an adjusted (non-GAAP) basis, operating income was 64.7 million yuan, up 42% from last year, while adjusted operating margin of 5% was the same as last year's first quarter.

The benefits showed even more on the bottom line. Baozun reported that net income surged 128% to 34 million yuan, or $0.09 per American depositary share (what American investors buy on a U.S. stock exchange).

Looking forward

Baozun offered guidance for second-quarter revenue that's relatively similar to what it just reported: total net revenue up between 34% and 38%, with services revenue expected to increase "by over 40%" from last year.

All told, the company's strategy to prioritize its platform, and to attract brands as well as merchants, is really paying off; the company said it was partnered with over 200 brands in eight product categories at the end of the quarter.

It's coming at a cost as operating expenses will continue to climb. But China's middle class remains one of the most attractive markets for global brands to want to tap into, and those investments appear to be paying off with big growth on the top and bottom lines.

With that middle class set to grow even bigger in the years to come, Baozun's role as the connector of global brands and local merchants to Chinese consumers seems likely to grow as well.

Jason Hall owns shares of Baozun. The Motley Fool owns shares of and recommends Baozun. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Baozun Stock Quote
Baozun
BZUN
$6.29 (0.64%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.