Which Chinese Internet Retail Stock Is a Better Investment?
China’s e-commerce market has emerged rapidly over the past five years, becoming the largest in the world as consumers increasingly shift from offline to online shopping. Especially, Chinese online retail sales amounted to 13,088.4 billion yuan in 2021an increase of 14.1% over the previous year.
Additionally, online retail sales in China are expected to surpass US$3.6 trillion by 2025, Statistical reports. Market growth is expected to be realized by increasing internet and smartphone penetration, growing consumer confidence in online shopping, and emergence of e-commerce platforms.
With this in mind, I will analyze and compare two Chinese internet retail stocks, Vipshop Holdings Limited (VIP) and Alibaba Group Holding Limited (BABA), to find out which one is currently a better investment.
Founded in 2008, Vipshop serves as an online discount retailer for various brands in China, operating in the Vip.com, Shan Shan Outlets and Others segments. BABA is one of the largest e-commerce companies in the world that operates in various segments including basic commerce, cloud computing, digital media and entertainment, and innovation initiatives. It also has well-known marketplaces such as Tmall, Taobao, AliExpress, Alimama and others.
Year-to-date (YTD), VIPS stock has risen more than 14%, outperforming rival Alibaba, which slumped 1.75% over
March 22, Alibaba has announced that it has increased its share buyback program to $25 billion.aimed at supporting its share price, which has fallen more than 50% since the ruling Communist Party has tightened control over tech industries by launching regulatory crackdowns. The company has already paid $9.2 billion in the previously announced takeover. This move is asign of confidence in the continued growth of the company“, said Alibaba.
Recent quarterly performance and analyst estimates
Vipshop’s revenue for its fiscal fourth quarter ended December 31, 2021 decreased 1.5% year-over-year to $5.4 billion, missing the Wall Street consensus of $170 million. Additionally, its gross merchandise value (GMV) in the fourth quarter was RMB 57.0 billion, up from RMB 59.3 billion in the year-ago quarter.
The number of active customers also deteriorated, posting a 7.16% year-on-year decline to 49.2 million. Its non-GAAP net profit was RMB 1.8 billion, down 30.77% from the prior year period. As a result, VIPS’ non-GAAP EPS was $0.41, missing analysts’ expectations of $0.01.
Wall Street analysts expect Vipshop’s earnings to fall 17.43% year-on-year in Q1 2022 to $0.31 per share. Additionally, analysts expect its FQ1 revenue to decline 4.86% to $4.20 billion.
On February 24, Alibaba released a Third Quarter Fiscal 2022 Earnings Report. In the third quarter, the company’s total revenue increased 9.7% year-on-year to RMB 242.58 billion, mainly driven by revenue growth in the online commerce segment. China. However, BABA failed to meet Wall Street estimates, missing RMB 3.21 billion.
BABA’s non-GAAP net profit fell 25% year-on-year to RMB 44.62 billion in the third quarter. Alibaba reported non-GAAP EPS of RMB 16.87, beating analyst consensus of RMB 0.82. Annual active consumers in the Alibaba ecosystem worldwide totaled 1.28 billion for the twelve months ended December 31, 2021, representing a quarterly net increase of 43 million.
A consensus EPS estimate of $1.41 for the fourth fiscal quarter of 2022 represents a decrease of 12.03% year-on-year. However, its revenue for the current quarter is expected to increase 11.93% year-over-year to $32.51 billion.
Options Market Sentiment Comparison
Let’s take a look at the options chain for May 20, 2022 for both VIP and BABA define the sentiment of the options market by comparing the call/put ratio. In the case of VIPS, the ratio of open calls to open puts at the strike price of $10.00 is 0.55x, indicating bearish sentiment in the options market. As for BABA, the ratio of open calls to open puts at the strike price of $120.00 stands at 2.32x, showing strong bullish market sentiment.
Options Bets Bulls placed on BABA stock
The options, which expire June 16, 2023, saw increased call buying on Tuesday. Open interest for $250 calls increased by 7,486 contracts to a total of approximately 7,500 open contracts (source: barchart.com). A buyer of these calls would need the stock to reach $253.50 on the expiration date, a gain of approximately 117% from the current price of BABA stock.
I believe BABA is a better investment than VIPS at current levels. The company’s buyback program should support its share price. Also, BABA’s financials look more attractive, with relatively better user and revenue growth numbers. Finally, BABA has superior sentiment in the options market, supported by bullish bets from option traders.
VIPS shares were trading at $9.58 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, VIPS has gained 14.05%, compared to a -2.73% rise in the benchmark S&P 500 over the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as a financial analyst and financial journalist. Previously, he was a contributing editor to Seeking Alpha, Talks Market and Market Realist. Continued…