Thursday, 23 March 2023

Why Baozun Stock Was Sinking Today

by Earn Media

Why Baozun Stock Was Sinking Today

What happened

Shares of Baozun (NASDAQ: BZUN) were falling today after the Chinese e-commerce services provider posted disappointing results in its fourth-quarter earnings report, missing estimates on the top and bottom lines.

As of 11:11 a.m. ET, the stock was down 5.4%.

Image source: Getty Images.

So what

Baozun has been struggling for years with its own challenges, and like other Chinese e-commerce companies, it has been tripped up by COVID-19 lockdowns in China recently.

In the fourth quarter, revenue fell 19.5% to $370.2 million, missing the average of two analyst estimates at $387.7 million. Service revenue, which now makes up the majority of the company’s business, fell 8.3% to $258.2 million.

Gross merchandise volume was down 1.7% in the quarter to $3.7 billion, showing the company’s take rate is falling.

Despite the decline in revenue, Baozun managed to grow profits by cutting costs, and adjusted operating income jumped 157% to $26.5 million. On the bottom line, the company finished the quarter with adjusted earnings per share of $0.34, up from $0.16 in the quarter a year ago, but that was below expectations of $0.39.

CEO Vincent Qiu acknowledged that consumer demand still hasn’t made a full recovery in China, but said: “Despite the tough environment due to COVID-19 in the fourth quarter, we achieved higher operating profits and cash flows. Our diversified category mix with growing value-added services further enhanced our business resilience.”

Now what

Baozun said that in response to changing business conditions and a merging of online and offline commerce, the company was restructuring into three major business lines: Baozun E-commerce, Baozun Brand Management, and Baozun International.

While the profit improvement is encouraging, investors are likely to remain skeptical of the stock until revenue starts to grow. Given the company’s challenges and the unsteady economy in China, that could still take a while.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Baozun. The Motley Fool has a disclosure policy.