唯品会

Vipshop's second-quarter revenue fell 4% year on year, while EBIT margin contracted 40 basis points due to higher return-driven fulfillment costs, marketing expenses, and technology expenses. Vipshop guided third-quarter revenue to decline 0%-5% and full-year revenue to decline slightly.

Why it matters: The results are disappointing as it appears that Vipshop is unable to stop the slide in revenue. We think this implies that Vipshop's platform is losing market share due to inadequate differentiation of products, prices, and services. Technology investment is going to further hurt margins. Vipshop is stemming the loss in customer base by offering free returns, but higher returns coupled with declining operation leverage are hurting profitability. On top of an average 3% decline in revenue over the next five years, we see operating margin falling to 5% in 2030 from 6.3% in 2026. While a pick-up in consumption may help, it won't mask Vipshop's longer-term slide in relevance to shoppers. As a result, we lower our earnings estimate by an average 27% in 2026-30.

The bottom line: Following our earnings revision, we cut our fair value estimate for no-moat Vipshop by 31% to USD 16 per share. We think it is fairly valued, with our valuation pricing at 11 times 2026 price/earnings. We think Vipshop's share price may find support from its plan to return 75% of 2025 non-GAAP net income to shareholders. The company is in a net cash position.

Key stats: Operating metrics of Vipshop have worsened in this quarter as the first quarter benefited from a late Chinese New Year. Total active customers fell 3%, versus a 1% growth in the first quarter. Total orders fell 6% compared with 3% growth in the prior quarter. Gross merchandise value fell 2%, dropping from 9% in the first quarter.

Our fair value estimate is $16 per ADS, implying a 2026 P/E ratio of 11 times and free cash flow yield of 5%. Our weighted average cost of capital is 9.5%.

We project a decline of 2% for gross merchandise value and 1% for revenue over the next five years as competition in e-commerce is intense. We expect a decrease in the take rate during 2025-29 as Vipshop sees higher returns alongside the growth of SVIP members, who can return parcels for free. We forecast a negative 7% non-GAAP net profit compound annual growth rate due to operating deleverage.

We think discount vertical e-commerce player Vipshop has merchandising expertise and a good relationship with brand partners. However, these are not strong enough to protect it from potential competition for the next 10 years, in our view. There are three traditional search-based e-commerce giants (Alibaba Group, JD.com, and PDD Holdings) and three traffic-generating short video and social network e-commerce channels (Douyin, Kuaishou, and Weixin Video Accounts) in China, which have larger user bases and stronger financial resources. As such, we think Vipshop will face increasing online competition in the next decade. In addition, compared with its moaty US offline peers T.J. Maxx and Ross Stores, which have large offline networks, it would take substantially more capital and time for competitors to replicate compared with an online platform. Furthermore, the negative cash conversion cycle at Vipshop also lowers the barriers to entry and attracts competitors into this business. Vipshop generated returns on invested capital well over the 10.1% weighted average cost of capital during 2016-24. However, the threat of future competition still leads us to assign a no-moat rating.

Vipshop’s relationship with brands helps it secure lower prices than other channels for a larger volume of stock-keeping units, but we think this advantage will be difficult to maintain in the next 10 years. For the same SKUs, Vipshop aims to offer selling prices that are 5%-20% lower than those of other channels. These products, together with other exclusive products over a limited time, generate 90% of Vipshop’s gross merchandise volume. While Vipshop is currently the only large-scale off-price vertical online channel in China for apparel, footwear, hats, and accessories, we estimate it had only a mid-single-digit share of retail clothing sales in China in 2024. This implies that brands may not view Vipshop as an indispensable partner in China to clear inventory. We have seen brands, or their distributors, operating outlet stores on the e-commerce platforms of Alibaba and PDD or in offline stores and outlets. In addition, considering the dominant position of the e-commerce giants in China, we think it is feasible for them to ask for favorable pricing from brands should they decide to start a business similar to Vipshop.

Maintaining lower prices than other internet platforms is difficult for a much smaller firm like Vipshop, where companies with substantially more resources, like wide-moat Alibaba, wide-moat JD.com, and narrow-moat PDD, all focus on delivering value-for-money items online. Platforms such as Alibaba, JD.com, PDD, and Douyin each have a CNY 10 billion subsidy program, which covers many distinct categories. These larger online platforms can subsidize products to achieve the lowest prices to drive traffic. If Vipshop cannot negotiate the lowest prices with brands, it will have to either sell at higher prices than its peers and risk damaging its brand image as the best online discount player or take the SKUs off its platform and lose sales.

The relationships with brands are managed by Vipshop’s global merchandising team of approximately 1,100 associates who have intricate knowledge of global fashion trends. However, if big players want to enter this market by adopting Vipshop’s first-party business model, they should have the resources to hire or replicate Vipshop’s merchandising team. For instance, we have seen Douyin hiring many staff from Alibaba to build its e-commerce businesses.

Vipshop successfully increases its user and third-party merchant base and becomes a one-stop e-commerce platform selling all categories to all online shopping customers while maintaining or increasing profitability.

Vipshop builds a large offline discount presence that complements its online presence, making it the largest and first go-to clearance channel for brands.

Vipshop can cut fulfillment expenses as a percentage of revenue by increasing scale.

Vipshop fails to rein in ballooning fulfillment expenses as a percentage of revenue, which puts pressure on its margin.

Vipshop’s GMV and revenue growth underperform the growth of the apparel market due to subdued growth in user base and Super VIP members.

Potential negative public relation incidents could arise, such as the sale of counterfeit products and poor customer service, driving brand partners to work with other clearance channels.