Online retailer E-Commerce China Dangdang
The drop in customers no doubt also led it to seeing total order growth fall (20% vs. 33% last year) as well as slowing growth in media revenues and general merchandise. At the same time, expenses rose, accounting for nearly 87% of revenues compared to almost 86% in the year-ago period. Slowing growth, rising costs, and widening losses are big red flags. Needless to say, Dangdang's stock is down 30% year over year.
E-Commerce China Dangdang snapshot
|Market Cap||$406 million|
|Revenues, TTM||$699 million|
|1-Yr. Stock Return||(30%)|
|Return on Investment||(36.2%)|
|Est. 5-Yr. EPS Growth||53.3%|
|Dividend & Yield||NA / NA|
A dang shame
In the past I worried precisely about these growth issues at the e-commerce site. It was growing at exactly all the wrong points -- expenses -- and falling where it mattered. I also suspected it got off to a big jump in the markets because like every other me-too operation out there, investors were blowing it up as the Chinese Amazon.com
Admittedly, I was swayed earlier this year by the analysis of my colleague Jeremy Phillips who suggested that unlike Renren
Laws of gravity
The fact is, China's economy is grinding to a halt. Even Beijing realizes that, which was part of the reason behind its announcement of a massive 1 trillion renminbi stimulus package. Yet as the Fool's Justin Loiseau correctly points out, don't think the Chinese consumer is going to benefit from this. It's a cash transfer to the coal miners and steelworkers as the spending plan is aimed at infrastructure. There may be some trickle-down benefits, but it won't be anywhere near enough to move the needle for companies like Dangdang.
The skid is showing up in the valuation of Internet stocks from large players like Baidu.com
Value is what you get
While Dangdang forecasts 40% growth in revenues next year, the consensus analyst view is $1.1 billion in revenues, or a 38% growth rate. Once again, however, even Dangdang's estimate would be below the 42% increase projected for this year. And that may just be because its marketplace is a fairly limited collection of books and media items, not the sprawling supermarkets of its rivals. In one such as Amazon, it enjoys average revenue per user north of $540; Dangdang realizes just $34 per user.
The challenge for investors is whether they are willing to suffer through the near-term margin contraction in hopes that it will become a sticky site down the road, one that can regain the growth trajectory it once new. Intuitively you'd think the size of China's marketplace would permit that to happen, but as consumers are finding out there, the country was only able to ignore the laws of economics so far. Now the tab is coming due, but you can tell me in the comments section below if you think E-Commerce China Dangdang will be able to sell itself to the market once more.
A sky-high opportunity
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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Amazon.com, Baidu.com, and Facebook. Motley Fool newsletter services have recommended buying shares of Amazon.com, Baidu.com, Sohu.com, Facebook, and NetEase. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.