Baozun (NASDAQ: BZUN), a Chinese e-commerce stock, has been struggling for some time now. In addition to the broader challenges of the Chinese market, the growth of the company almost came to a standstill.
In this episode of “Beat and Raise” registered on December 1, Fool contributors Jeremy Bowman and Brian Withers review Baozun’s third quarter and discuss what was missing.
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Brian Withers: You’re gonna kick us off, Jeremy with Baozun. I always say Baozun. Am I saying it right?
Jérémy Bowman: I don’t actually know. I think I say Baozun.
Withers: It might be. [laughs] Well, how did they do it?
Archer: Yeah, I’ll take it off. Baozun is [laughs] a Chinese e-commerce company. Just let me have my screen share. They are not so much direct sellers they call themselves a partner for brands so if you are a multinational company like Nike Where Starbucks, I think Microsoft, some of them, and you want to do business in China. Then they help you with marketing, distribution, IT, navigating the ins and outs of Chinese regulations. It is their bread and butter. Their report was not very good, they missed both the results and the results here, you can see their revenue only increased 3.8% to $ 294.7 million which was lower than estimates of $ 303.9 million. They also reported, pretty ugly, an adjusted loss of $ 0.19 per share. Sorry, that should be consensus and profit.
This was mainly an impairment of accounts receivable, which concerned a distribution partner. It’s a unique thing, if you back that up they were in equilibrium, but it’s still pretty weak. This business has always been profitable. This is actually their first adjusted loss of the quarter, so not that great. Their outlook, they didn’t give an outlook, so that’s it, considering it was down seven percent yesterday on the report. Their winnings came out yesterday morning. He actually bounced back today. I couldn’t really find a reason other than Citibank the analyst lowered his price target but reiterated a buy note, which could have helped, but no news led him.
Some highlights, I think most of the time the results were pretty weak, but some positives maybe. Their GMV, gross merchandise volume, is split between non-distribution, which they handled for their brand partners, and they also have their own direct sales that they are moving away from. The service side was, GMV, was still pretty strong, 53 percent. They announced a new $ 50 million share repurchase program to try to take advantage of the fact that the stock has fallen significantly. Cainiao, who is Ali BabaThe logistics division of has taken a 30% stake in Baotong. Baotong is the logistics division of Baozun. Alibaba is already an investor in Baozun and they have a pretty close relationship, so that only makes that stronger. I thought that was a positive sign: two new partner showcases are open, which means JD, and Alibaba, Tmall. Some of the Chinese e-commerce marketplaces grew quite sharply, from 461 to 736.
Some of the concerns here, I think the sluggish revenue growth that a company has blamed on macroeconomic headwinds and a weak consumer environment, some more difficult regulations. You’ve also seen some of it with Alibaba, but their revenue is still around 20%, so I think I would definitely be more concerned that Baozun is barely growing at this point, the depreciation was around $ 12 million. As I said, this was the first adjusted quarterly loss. Maybe it was a one-off thing, but you don’t hear too much about it, which might indicate weakness with some of their clients or maybe the company’s accounting is a bit off-beat.
Their turnover has been helped by acquisitions. They acquired, I believe, Full Jet and then eFashion, two luxury clothing companies in the last year. But even with that, their growth is still quite slow and they blame that for some of their poor results. You look at the chart here, it hasn’t been a good year for Baozun, down 60% since the start of the year and even steeper since their peak in February. The stock struggled. It is a much smaller company than some of the big Alibaba and Tencents and those of today. I don’t think they’ve faced so many headwinds directly, but they still face some of those issues, but yes, but I would be worried if I were a shareholder right now.
Withers: Granted, I was a shareholder in the past as I reduced my Chinese holdings, Baozun was one of those I chose to let go and he struggled a bit as he transitioned from his first party business to this light asset business, which I thought was a very good move for them. I’m not sure if it hasn’t been so appealing to the brand partners, and they’ve also tried to improve their game when their existing customers are running marketing campaigns and things like that. It seems like if you can’t be successful in the world’s largest ecommerce marketplace with ecommerce services, I am not doing it now.
Archer: There are definitely some enforcement issues there too, and then I think maybe on a larger scale some of their clients might be a little nervous with some of the regulations and the like.
Withers: It doesn’t appear that they mentioned supply chain issues as part of the issues they faced during the quarter.
Archer: Yeah, I didn’t see that happen. I don’t think it’s a direct supply chain issue.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Brian withers owns JD.com. Jeremy bowman owns Alibaba Group Holding Ltd., JD.com, Nike and Starbucks. The Motley Fool owns and recommends Baozun, JD.com, Microsoft, Nike, Starbucks, and Tencent Holdings. The Motley Fool recommends the following options: $ 115 short calls in January 2022 on Starbucks. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.