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Why E Commerce China Dangdang Inc (ADR) Stock Sank Today

By Steve Symington - May 28, 2015 at 10:33AM

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Is E Commerce China Dangdang's drop meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of E Commerce China Dangdang Inc (ADR) (DANG) were down 12.5% as of 11:30 a.m. Thursday after the company announced a surprise quarterly loss and disappointing guidance.

So what: Quarterly net revenue climbed 27.7% year over year to $357.7 million, which resulted in an adjusted net loss of $9.3 million, or $0.12 per diluted American depositary share (ADS). Analysts, on average, were expecting net income of $0.04 per ADS on slightly lower revenue of $355.8 million.

In addition, Dangdang expects current-quarter revenue to grow 30% year over year to RMB 2.3 billion, or $371 million based on current exchange rates. Wall Street was hoping for second-quarter revenue of $378.6 million.

Now what: To be fair, note that  shares of Dangdang climbed more than 12% in the four days preceding this report, so today's drop does little more than give back those short-term gains. What's more, Dangdang Executive Chairwoman Ms. Peggy Yu Yu explained the company's net loss was "primarily the result of marketing and technology initiatives and expenditures related to e-books, mobile and content that we believe set the stage for future healthy development of our business."

And mobile orders showed particular strength, reaching a company-record 41% of total orders, thanks to growth in active users and higher conversion rates. Yu Yu also insisted, "We are confident our current expenditures will yield positive returns to Dangdang and our shareholders in the future."

That's fair enough. While I can't blame the market for bidding shares down today given the surprise loss, it's hard to argue when an otherwise healthy company decides to forsake bottom-line profits in the near term with its long-term health in mind. In the end, that's why I think today's pullback could be a great opportunity for patient investors to consider picking up shares of E Commerce China Dangdang stock.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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