"Turnover of Salted Fish"? Will the spring of Vipshop come?

On February 23rd, before the US stock market opened, Vipshop released its Q4 2022 financial report. The key points are as follows:

1. Vipshop's quarterly active users were 47.7 million, a decrease of only 1.5 million compared to the same period last year, which is the smallest decline in year-on-year comparison in 2022. The situation of user loss is gradually improving. At the same time, the activity and order frequency are also increasing. The order volume of this quarter has turned from a decline to growth by 1%. However, due to the return of users and the decrease in purchasing power of domestic residents, the unit price of transactions decreased by 5% year-on-year, and the final GMV also fell by 5%, which is basically in line with the market expectations.

2. The total revenue for the quarter was CNY 31.8 billion, a decrease of 8%, which is within the range of the company's guidance of a 5%-10% decline and the market's expectations. Among the revenue types, Vipshop's self-operated product revenue decreased by 7% year-on-year, and the year-on-year decline in service revenue for third-party sellers has narrowed to 1%. It can be seen that the growth rate of 3P business this quarter is still better than that of 1P business, which is the reason why the company's revenue decline is higher than that of GMV. However, due to the increase in the proportion of high-gross-margin 3P business, Vipshop's gross margin has increased by 2pct year-on-year. Although revenue has declined, the gross profit has increased by 3% year-on-year.

3. With the lifting of epidemic prevention measures in the fourth quarter, the logistics situation has improved (but it still had some impact during the peak period of employee infections). The delivery fee rate this quarter has significantly decreased by 0.7pct compared to the previous quarter. In addition, the management fees and research and development expenses of the back-end continued to shrink by 5%-8% year-on-year. The marketing investment also decreased by 18% year-on-year. The company's three operating expenses are still falling due to inertia, but the control has relaxed to some extent.

4. Looking ahead to the first quarter of this year, the company expects revenue to increase by 0%-5% year-on-year, and the trend of revenue growth continues to improve, which is better than the market's expectation of a 1.6% decline in revenue. Specifically, it depends on the further explanation of revenue segmentation by management in the conference call. However, it is also worth noting that with the repair of performance growth expectations, the company's cost spending in 2023 may rebound, causing an increase.

Dolphin Analyst's view:

Overall, Vipshop's performance in the three key Topline indicators of user loss reduction, GMV growth and revenue in this quarter is basically in line with expectations, showing a trend of stabilization and recovery, with the next quarter expected to continue to recover.

At the same time, with the epidemic finally fading away, the situation of logistics difficulties and delivery obstacles should also be significantly relieved. Therefore, the previously continuously rising delivery costs have obviously improved, while R&D, marketing and management expenses are still falling under the overall environment of controlling costs, and the final result of the company's cost reduction and efficiency improvement has finally been manifested in this quarter. After looking towards the performance of the company, while the recovery of optional consumption such as clothing and beauty products, it is highly likely that the performance of the company will continue to recover after hitting the bottom in 2023. However, from the perspective of the company's own cost control and the recent launch of new businesses/activities by JD, Meituan, and Douyin, it is feared that the industry will once again curl up after the growth expectation recovers. The situation where companies substantially increase their profit margins this year may not be sustainable.

From a valuation perspective, the company currently has a net cash of about RMB 20 billion, and the total market value of the company has returned to about RMB 60 billion. That is, after deducting the net cash, based on Dolphin Analyst's previous forecast, the P/E multiple of the company based on 2023 net profit has returned to about 15x. Therefore, consistent with the trend of the company's performance recovery, Vipshop is currently no longer the "cigarette butt stock" of absolute valuation low point and still needs to pay attention to the strength of its actual rebound in performance after 2023.

Dolphin Analyst will share the conference call summary with Dolphin's user group through the Longbridge App. Interested users are welcome to add WeChat ID "dolphinR123" to join the Dolphin research group to get the conference call summary as soon as possible.

The following are detailed financial report:

1. Improvement in platform activity, but residents' purchasing power is still damaged

By the fourth quarter, Vipshop's quarterly active users were 47.7 million, a decrease of only 1.5 million compared to the same period last year. In contrast, the user gap in the previous quarter was as high as 2.9 million, and the user gap compared to last year has been continuously narrowed this quarter, which is basically consistent with the market expectation.

With the gradual return of users and the improvement of residents' consumption willingness after the relaxation of epidemic prevention and control, the company's order volume this quarter increased by 1% to 220 million compared with the same period last year, significantly higher than the market expectation of 204 million orders. The reason for the unexpected increase in order volume is that the user ordering frequency continues to increase, and it has increased by 4% year-on-year to 4.6 times in the fourth quarter.

On the contrary, the company's per capita consumption this quarter is still falling year on year, down 5%. However, it is expected that the per capita consumption will fall when users obviously return to higher frequencies of placing orders. In the end, despite the orders being basically the same year-on-year but with a slight decline in average order value, Vipshop's Q4 GMV (Gross Merchandise Volume) fell by 5% YoY to RMB 54.4 billion, which is completely in line with the market expectations of RMB 54 billion.

Overall, the number of users lost has gradually decreased, and the frequency of orders per user has steadily increased, reflecting a gradual increase in the company's platform activity and a return of traffic. However, the low average order value reflects a decrease in residents' purchasing power, and the final decline in GMV is gradually slowing down, with the possibility of a turnaround in 2023.

II. Continuous Improvement in Gross Margin

As GMV fell by 5% YoY, the total revenue for this quarter was RMB 31.8 billion, a YoY decline of 8%, falling within the company's guidance range of a decline of 5% to 10%, and completely in line with market expectations. By revenue type, Vipshop's self-operated product revenue fell by 7% YoY, while the YoY decline in service revenue to third-party sellers has narrowed to 1%. The growth rate of Vipshop's 3P business this quarter is still better than its 1P business.

Due to the increase in the proportion of high gross margin 3P business (or a reduction in user subsidies), Vipshop's gross margin rate for this quarter is still maintained at a relatively high level, with a YoY increase of 2 percentage points. Therefore, the company's gross profit increased by 3% YoY, which is 4% better than expected.

Looking forward to the first quarter of 2023, the company expects revenue to remain stable or rise by about 5% YoY, and income reversal to a continuous upward trend. Compared with the market's previous expectation of a YoY revenue decline of 1.6% for the next quarter, it is clear that the company's performance improvement is better than the market's original expectations, given the faster-than-expected domestic epidemic prevention and control measures and the decline in the number of confirmed cases.

III. With the decline of the epidemic's impact, the inertia of expenses decreased, and finally, the profit improved.

In the fourth quarter, as the lockdown was lifted, logistics disruptions eased (but still had some impact during the peak period of employee infection). Therefore, the fulfillment cost rate for this quarter only expanded by 0.4 percentage points YoY to 6.8%, which is a great improvement in expenses. As for the management and R&D costs of the back-office, the cost continued to decrease by 5% to 8% year-on-year this quarter, which is basically consistent with the decline in revenue. It can be seen that the company has relaxed its control over the back-office costs as performance growth expectations are recovering.

The most noteworthy marketing investment this season still decreased by 18% year-on-year. However, compared with the extent of a year-on-year decrease of 40% to 60% in the previous three quarters, it can be seen that the company's efforts to cut marketing expenses are also relaxing as it focuses on returning to revenue growth in the first quarter of 23. The company's investment in expenses may also hit bottom and rebound.

Overall, due to the increase in the proportion of the company's 3P revenue and the reduction of subsidies, the company's gross profit margin has significantly improved. At the same time, the company's expenditure inertia has decreased. The operating profit margin for this quarter increased significantly year-on-year from 2.5% to 7.9%, reaching a historical high of 25.1 billion yuan. The final operating profit margin in this quarter far exceeded the market expectation of 1.89 billion yuan. It can be said that VIPShop's cost-cutting and efficiency-increasing measures have finally achieved the expected results this quarter.

Dolphin Analyst's previous research:

2022/11/22 Telephone conference call "VIPShop: Fewer subsidies and investments, let's wait for user growth next year (telephone conference summary)"

2022/11/22 Financial report comment "An overhaul back to basics, is VIPShop just a 'buttstock'?"

2022/08/19 Telephone conference call "Increase investment and strive for user growth in 3Q, revenue growth in 4Q (VIPShop telephone conference summary)"

2022/08/19 Financial report comment "Give up! VIPShop's anti-cyclical story is devoid of skills"

2022/05/19 Telephone conference call "Can VIPShop Breakthrough Non-Apparel Categories to Redemption? (Telephone Conference Summary)"

The end. On May 19, 2022, financial report review "Vipshop's dim performance, dawn hard to find".

On February 23, 2022, financial report review "With deepening performance decline, is there any room for Vipshop's survival under the competition of giants?".

On November 18, 2021, financial report review "What is the latest situation of Vipshop? Ten charts explain everything".

On August 19, 2021, telephone meeting summary "Keeping a low profile, acknowledging weakness - Summary of Vipshop's meeting".

On August 18, 2021, financial report review "Vipshop that doesn't grow, is there any value left?".

Risk disclosure and statement for this article: Dolphin Investment Research disclaimer and general disclosure.