Forget Alibaba Group Holding Ltd (NYSE:BABA) and Amazon.com, Inc. (NASDAQ:AMZN). If you’re interested in an online retail stock with excellent momentum and better growth prospects, take a look at Vipshop Holdings Ltd (NYSE:VIPS), an online discount retailer in China.
Why China? The country might come second to the U.S. when it comes to economic size, but China has the world’s largest retail market. And disposable income has been rising steadily in China.
That helps explain why Vipshop Holdings Ltd continues to report strong financial results. That, in turn, helps juice the company’s share price. Since the start of 2019, VIPS stock has soared 698%, and year-over-year, it’s up 180%.
Last year might be remembered for the coronavirus pandemic and global recession, but Vipshop stock still managed to rally 97% in 2020. That momentum has carried into 2021, with VIPS stock advancing 50% year-to-date.
Chart courtesy of StockCharts.com
VIPS Stock Overview
Vipshop Holdings operates “Vipshop,” China’s leading online discount retailer. On the company’s site, you can find more than 35,000 brands, including clothing, accessories, cosmetics, home furnishings, and other lifestyle products. (Source: “Investor Presentation: February 2021,” Vipshop Holdings Ltd, last accessed March 12, 2021.)
Because of its large product offering, Vipshop has a highly engaged, loyal customer base. In 2014, customers placed 118.0 million orders on the site. By 2020, that number had soared to 692.4 million, the vast majority by repeat customers.
Between 2014 and 2020, Vipshop Holdings Ltd saw its revenues grow by 340%. Even during the pandemic, Vipshop saw its active customers, orders, and revenues climb.
Vipshop might be the largest online discount retailer in China, but there’s plenty of room for growth. China’s brick-and-mortar discount retail infrastructure is extremely underdeveloped. In the U.S., there are 24 square feet of discount retail space per capita, whereas in China, there are only two square feet of discount retail space per capita.
On top of that, China’s retail market is highly fragmented. In the U.S., the top 20 retailers have captured roughly 25% of the market share, but in China, it’s just seven percent.
Moreover, there’s a lack of large brick-and-mortar discount retailers in China. China’s brick-and-mortar outlet-store segment is extremely fragmented. That means Chinese consumers mostly have to go online for branded discount products.
Strong Fourth-Quarter & Full-Year Results
In the fourth quarter ended December 31, 2020, Vipshop’s total revenues increased 22% year-over-year to $5.5 billion. Its gross merchandise value (GMV) increased 25% year-over-year. (Source: “Vipshop Reports Unaudited Fourth Quarter and Full Year 2020 Financial Results,” Vipshop Holdings Ltd, February 25, 2021.)
The company’s gross profit in the fourth quarter increased by 25% year-over-year, while its net income increased by 67.7% at $374.1 million. Its adjusted net income climbed 33.4% to $394.8 million.
The number of Vipshop’s active customers in the fourth quarter of 2020 increased by 37% year-over-year to 53.0 million, while the total number of orders placed in the quarter increased by 30% to 227.3 million.
Vipshop Holdings Ltd’s full-year revenue was up 9.5% year-over-year, at $15.6 billion, while its full-year GMV increased 11%. The company’s 2020 gross profit climbed 2.9% year-over-year to $3.3 billion. Its full-year net income jumped 47.1% to $905.3 million, and its adjusted net income popped by 25.0% to $960.7 million.
Vipshop’s total number of active customers for 2020 increased 22% year-over-year to 83.9 million. Its total orders also climbed 22% to 692.4 million.
For the first quarter of 2021, Vipshop expects its total net revenue to grow by 45% to 50% on a year-over-year basis.
The largest discount online retailer in China, Vipshop Holdings Ltd is a financially robust company that has a loyal customer base, strong revenue, and solid earnings growth.
That trend is expected to continue for the foreseeable future, which bodes exceptionally well for Vipshop stock.