Alibaba Group Holding Ltd (BABA) and Vipshop Holdings Ltd. (VIPS) are two of China’s top companies in the e-commerce space. BABA operates mainly through three core businesses — Alibaba, Taobao and Tmall, while VIPS is known for its flash sales model, and operates primarily through four segments — Vip.com, Shan Shan outlets, Internet finance and others.
Although the e-commerce trend began gaining pace even before the COVID-19 pandemic, the speed of the trend has been accelerated thanks to the “new normal” lifestyle ushered in worldwide by the pandemic. Because this change in consumer behavior is not expected to recede in the post-pandemic world, BABA and VIPS should continue thriving.
While BABA has returned 333.5% over the past five years, VIPS has gained 194%. However, in terms of past six-month performance, VIPS is a clear winner with 51.8% returns versus BABA’s 7.9%.
But which of these two stocks is a better pick now? Let’s find out.
BABA has been facing scrutiny from Chinese regulatory authorities regarding its alleged monopolistic practices. This led to the suspension of the IPO of the Ant Group, in which BABA has a 33% stake. The company’s uneasy relationship with Beijing continues to cast a shadow over the company’s outlook.
Last month, BABA announced plans to launch Tmall Hong Kong, a new local Business-to-consumer (B2C) platform that is committed to supporting merchants and brands that serve local consumers through e-commerce. Tmall also announced a new suite of solutions at the 2021 Tmall Global New Seller Virtual Summit (which took place from January 19 to 21) to help global brands capture growing consumption opportunities in China.
BABA’s Tmall partnered with Gucci in December, in which Gucci joined Tmall Luxury Pavilion with two digital flagship stores that feature all its product categories in fashion and beauty. Also in December, the company’s cloud computing segment, Alibaba Cloud, revamped its hybrid cloud strategy to focus on bringing compatibility, security, compliance, scalability and reliability with its newly upgraded product offerings and its Hybrid Cloud Partner Program.
There is some speculation in the market that VIPS has mandated three investment banks to administer a follow-on listing of shares on the Hong Kong exchange in the second half of 2021. Last December, Moody’s Corporation (MCO) affirmed VIPS’ Baa1 issuer rating, which indicates a stable outlook.
Recent Financial Results
BABA’s revenue has surged 36.9% year-over-year to $33.88 billion for the quarter ended December 31, 2020. Its net income has increased 51.8% year-over-year to $12.17 billion and its non-GAAP earnings per ADS increased roughly 21% year-over-year to $3.38 over the same period. BABA’s annual active consumers on its China retail marketplaces increased by 22 million to 779 million during the 12- month period ended December 31, 2020.
VIPS’ total revenue increased 18.2% year-over-year to $3.41 billion for the third quarter ended September 30, 2020. Its gross merchandise value (GMV) increased 21% year-over-year. The number of its active customers increased 36.6% year-over-year to 43.4 million, and its total orders increased 35.4% year-over-year to 172.8 million. Its gross profit increased 15.3% year-over-year to $718.9 million, and its net income increased 42.1% year-over-year to $183.28 million.
Past and Expected Financial Performance
BABA’s revenue and EPS have grown at a CAGR of 41.6% and 31%, respectively, over the past three years. Also, its EBITDA has grown at a CAGR of 19.7% over the same period.
Analysts expect BABA’s revenue to increase 71.9% for the quarter ending March 31, 2021 and 51.3% in 2021. Its EPS is expected to grow 50.4% for the quarter ending March 31, 2021 and 16.4% in 2021. Moreover, its EPS is expected to grow at a rate of 3.5% per annum over the next five years.
In comparison, VIPS’ revenue and EPS grew at a CAGR of 12.1% and 29.2%, respectively, over the past three years, and the company’s EBITDA grew at a CAGR of 19% over the same period.
The market expects VIPS’ revenue to increase 48.1% for the quarter ending March 31, 2021 and 17.8% in 2021. Its EPS is expected to grow 61.9% for the quarter ending March 31, 2021 and 23.5% in 2021. Moreover, its EPS is expected to grow at a rate of 3% per annum over the next five years.
BABA’s trailing-12-month revenue is 7.02 times VIPS’ $14.05 billion. Moreover, BABA is more profitable with a gross profit margin of 43.3% versus VIPS’ 21.4%.
However, VIPS’ ROE and ROA of 20.6% and 7.8, respectively, compare favorably with BABA’s 15.7% and 4.5%, respectively.
In terms of trailing-12-month p/s, BABA is currently trading at 7.31x, which is much more expensive than VIPS, which is currently trading at 1.61x. Also, BABA is more expensive both in terms of trailing-12-month ev/s (7.07x versus 1.52x) and trailing-12-month EV/EBITDA (29.71x versus 21.59x).
In terms of trailing-12-month price/cash flow also, BABA’s 22.54x is 74.9% higher than VIPS’ 12.89x.
So, VIPS is more affordable.
Both BABA and VIPS have an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system.
Both BABA and VIPS have a C grade for Value, consistent with their higher-than-industry trailing-12-month p/s ratio. Even in terms of Momentum, they have C grades, in sync with their modest returns over the past few months.
Beyond what I have stated above, our POWR Ratings system has also rated both BABA and VIPS for Growth, Stability, Sentiment and Quality. Get all of BABA’s ratings here. Also, Click here to see the additional POWR Ratings for VIPS.
Of 85 stocks in the C-rated China industry, VIPS is ranked #18 and BABA is ranked #31.
While both BABA and VIPS can be considered good long-term investments based on their market dominance and positive outlook for the e-commerce space, this is perhaps not the right time to get involved in any of these two stocks given their bleak near-term prospects.
Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of Buy or Strong Buy. Click Here to learn about two top-rated stocks in the China industry.
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VIPS shares were unchanged in after-hours trading Thursday. Year-to-date, VIPS has gained 19.67%, versus a 4.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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