Fashion E-Commerce Vip.Com: The Overvalued Myth Legend

Vip.com's market value of China's main online discount merchandise retailer has exceeded $10 billion, becoming the fourth largest Internet Co in China.

According to some people, vip.com's market value can be even higher. Some people even compare it with the forthcoming IPO Jingdong mall. It is probably not Jingdong, but it is based on the fact that the profit earned by the electricity supplier in the past year is several times that of Jingdong.

This is indeed a good evidence, but it ignores a fundamental problem: people invest in a Internet Co because they are optimistic about their ability to continuously generate profits and cash flow after a certain day, rather than how much money they earn. Otherwise, there is no way to explain why investors give Google, Amazon and Facebook a higher price earnings ratio than YAHOO.

To be exact, the value of a Internet Co depends fundamentally on its position in the future industry pattern. Otherwise, you can not explain that Tencent and NetEase are both game oriented companies. Why investors are willing to give Tencent price earnings ratio several times that of NetEase?

Therefore, judging whether vip.com is worth 10 billion US dollars or more (in fact, it has dropped to about 8000000000 US dollars) must also return to this fundamental question: the industry is still growing at a high speed, and the pattern has not been determined yet. When the pattern is established, can vip.com's current momentum continue or even make more money?

The development of the electricity supplier industry in the past more than 10 years shows that if you want to get a good momentum, you either cultivate your own brand in the niche market, such as millet, or become an integrated platform. Taobao, Jingdong and Su Ningdu belong to this category, or take advantage of the limitations of the Internet, such as the O2O website such as the US group and the public comment.

Each mode is built on completely different capabilities: the millet mode resists the cost advantage of the integrated platform through brand ownership and brand premium; the key of the Jingdong mode is to use all possible opportunities to establish cost advantages; the US group mode establishes temporary barriers to Jingdong mode through offline services, but with the disappearance of the Internet limitations, such barriers do not last long, and ultimately return to the brand attribution of millet or take the cost priority mode of Jingdong.

So, what is the mode of vip.com? Yin Sheng thinks, at present, it is essentially a Jingdong mode.

Since it is a Jingdong mode, if it wants to take a favorable position in the future competition, it must at least include rivals such as Jingdong, Tmall, Suning and WeChat. In the end, the most efficient competitors will win most of the value. Take it and the Jingdong:

Jingdong's net revenue in 2013 was about $11 billion 500 million, a compound growth rate of 122% over the past four years, a growth rate of about 70% in 2013, a net revenue of $1 billion 700 million in 2013, a compound growth rate of about 270% in the past three years, and a 146% growth rate in 2013. The growth rate in 2013 is about 270%.

Jingdong's revenue is nearly 7 times that of vip.com, which gives it more scale effect than vip.com: last year, the share of vip.com's order fulfillment, market, technology and content, and general management accounted for 11.6%, 4.4%%, 2.4% and 2.9% respectively. Compared to Jingdong, it was only 5.81% (5.81%, 2.17%, 1.4%, 1.03%) represented by Q3 in 2013.

But vip.com's profitability is much better: its net profit last year was $52 million 300 thousand, its net interest rate was more than 3%, while Jingdong had just crossed the breakeven line. Vip.com's handsome profit comes mainly from its much higher gross margin level. Last year, its gross margin reached 24%, while Jingdong was less than 10%.

Vip.com's high gross margin is attributable to the following factors:

First of all, its main source of income comes from clothing, footwear, cosmetics and other high gross margin products, while Jingdong mainly comes from product standards, transparent prices, intense competition, and much lower gross margins. This can be seen from its gross profit margin from 2009 to 2012 (4.8%, 4.82%, 5.45%, 8.42%) respectively. In 2012, it is also the real time for the non 3C business of Jingdong.

Second, vip.com has so far concentrated on three or four line cities, where consumers can be much less selective than a second-largest city, and are more sensitive to the concept of brand discount. On the contrary, the main source of income of Jingdong is a second tier city, where competition is much more tragic and consumers' cognition is more comprehensive.

Third, the past few years, the world's major Clothing footwear Brand Company has been running a bottleneck period, and the need for de stocking is very strong, which provides a rare opportunity for vip.com to position itself.

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But none of the three is sustainable: higher gross margins and substantial net profit margins will only attract more competitors; Jingdong and other companies have increased their penetration in the three or four tier cities, and Jingdong will have a lot of influence on consumers in the three or four tier cities after their cooperation with Tencent; the flow of consumers and information will flatten any information asymmetry; unless you can establish brand ownership, it is hard to expect consumers to be attracted by platforms that are more attractive to price.

Finally, Jingdong, which has established the scale advantage and will continue to strengthen its cost advantage, will lose its advantage in gross margin in the current heavy profits of vip.com. Ultimately, it will only support the expansion of vip.com's value.

As far as size is concerned, it recently bought a happy bee net. Maybe this is a good start. It can make full use of its high recognition in the capital market, and acquire more companies by means of easy shares, so as to rapidly expand its scale, or simply go along a road like millet. It encourages internal and external entrepreneurs to create more brands based on vip.com. But taking into account the impression of vip.com's brand discount, it is difficult to create a real brand.

In general, taking into account Competition pattern And the trend of market change, Yin Sheng believes that the probability that vip.com will grow into a mainstream integrated platform such as Jingdong or millet brand operators such as millet is only 30%. In the Internet field, it is so cruel that you either strive to become one of the best, or you can only become a mediocre participant, and eventually be bought or disappeared.

Even so, vip.com has been closer to the dream of entrepreneurs than most companies. Now answer the last question: how much is vip.com worth?

At present, Amazon is the most comparable company for Jingdong and vip.com. The compound growth rate of Amazon in the past few years is 30%, assuming that its compound growth rate will be 20% in the next three years. Based on its average market value in the past year, the net revenue in 2013 and the average sales rate in the past few years, it calculates that its PSG based on the growth expectation in the next three years is 9.4.

Assume Vip.com The composite growth rate in the next three years is 100% (compared with Yin Sheng's composite growth rate of 35% in the next three years when valuing Jingdong), which is also the most optimistic case mentioned before. When vip.com's net revenue will reach US $13 billion 600 million, it will exceed the size of Jingdong in 2013, so the appropriate location will continue its next high growth.

In this context, compared to 9.4 of PSG, vip.com has a value of $16 billion (Jingdong corresponds to a value of $37 billion 800 million).

If the misfortune is the possibility of 70%, it means that vip.com has lost the ability to compete effectively, and can barely maintain it until a more effective competitor comes to buy it.

Just like Dangdang: some of its quarterly profits will also be made, but revenue growth is slower than the industry average. The market to its market sales rate is only 1.2, PSG is only about 6 - implying the logic that its revenue per unit and the growth of each percentage contribution to the value is only about 60% of that of Amazon.

So how will vip.com come to the 70% pessimistic outcome? First, in the next three years, its growth is not 100%, but it may still be faster than the market average, for example, 50%, so that its net revenue will reach US $5 billion 700 million in 2016, which may not be enough to establish a competitive position. Therefore, from the next three years in fourth years, the compound growth rate may drop sharply to 10% or even lower.

In this case, even in the most optimistic situation, that is, potential purchasers are willing to transfer most of the value of synergy to vip.com shareholders (taking into account vip.com's position in the three or four tier market, which is very likely). That is to say, it still gives 9.4 times its expected PSG, which is worth 5 billion 400 million dollars at the end of 2016. Discounted at 20% discount rate, the present value is US $3 billion 100 million.

Therefore, without calculating the contribution of Le bee net, the weighted average value of vip.com is about $7 billion, which is about 17% lower than the current stock price. In other words, the stock price has been overestimated by about 20%.