It's apparently good to be called the Amazon.com
E-Commerce China Dangdang
The company's dangdang.com website had 6 million active customers last year, and this year is drawing an average of 1.2 million unique visitors a day. It stocks 590,000 different book titles, and it's gradually expanding into new product categories. Yes, this seems a lot like the Amazon.com playbook circa the late 1990s -- and unfortunately that comparison bleeds over into Dangdang's financials.
After posting losses in 2007 and 2008, Dangdang earned a profit of $2.5 million on $217.9 million in net revenue. Through the first nine months of 2010, net revenue has climbed 56% to $234.8 million, with net income clocking in at a mere $2.4 million.
Did you catch those pathetic net margins? Just 1% of Dangdang's revenue is making it all of the way down to the bottom line. That's pathetic.
Investors that are spoiled by China's dot-com sprinters Baidu
Dot-com history buffs will point out that Amazon's margins were horrendous when it was at this point in its life cycle. Even now, Amazon's net margins of roughly 4% are nothing to write home about. However, the best Chinese companies are the ones sporting healthier margins than their stateside rivals at any point in their timeline.
Dangdang bears watching because it is already the category killer in Web-based books. It will face competition as it broadens its offerings, including from Amazon itself after its 2004 acquisition of Joyo. However, one can also hope that margins will also expand as Dangdang grows and Chinese media items begin having the same digital transformation that we've been seeing domestically in recent years.
Don't chase Dangdang at this point. It still has a lot to prove. It would also be a mistake to dismiss it entirely.
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Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin online stocks for a long time. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.