Estimated read time: 4 minutes
Publication date: 12th Jul 2022 11:55 GMT+1
Baozun (NASDAQ: BZUN) is a China-based e-commerce service provider that offers an array of services. It sets up and integrates an organization's IT infrastructure, designs and sets up their online stores, operates those online stores, conducts functions such as visual merchandising and marketing campaigns, provides customer services, and also helps them in their warehousing and order fulfillment activities.
Just like most growth stocks in 2022, Baozun has suffered as well. As a result of the market conditions the stock has lost close to 25% of its value this year so far and almost 70% in the last year. Compared to the S&P 500 which has lost 20% and 12% during the same period, Baozun has turned in a poor show.
Baozun stock offers massive potential
China is one of the largest e-commerce markets in the world, even ahead of the United States, and is thus the most lucrative. As per Statista, the market’s revenue might reach $1,412 billion by the end of this year and $1,626 billion by 2025 growing at a CAGR of 4.82%.
A key advantage for Baozun is its unique business model that ensures growth. It provides a platform for foreign companies to expand their operations in China. Previously, every foreign company that wanted to enter the lucrative Chinese online shopping sector had to set up their own Chinese subsidiaries and then build up their own sales and tech teams while complying with several other unknown and unpredictable regulations at the same time.
However, with Baozun this entire process has been simplified. The company is an end-to-end platform for e-commerce. It performs marketing and logistics functions on behalf of the foreign brands who simply need to outsource all those associated tasks to it.
As a result, many foreign companies like Nike (NYSE: NKE) and Starbucks (NASDAQ: SBUX) have chosen Baozun to establish a good hold over the Chinese e-commerce market by outsourcing most of the critical noncore activities.
Further, as more and more foreign companies move to the Chinese market, Baozun will be receiving significant advantages.
Financials missed expectations
Due to adverse market conditions, the first quarter financials of Baozun for this year was not as per the market’s expectations. Baozun’s total revenues had decreased by 1.8% year-over-year to RMB 1,984.2 million or $313 million although the service revenues had increased by 24% to RMB 1,303.3 million or $205.6 million.
The company also incurred a loss of $6.5 million or RMB41.2 million from its operations compared to the income from operations of RMB52.9 million. Besides, the operating margin was also negative at 2.1% against the 2.6% made last year.
On the operational aspect, the company’s Gross Merchandise Volume (GMV) came at RMB 16,997.5 million representing a 28.4% year-over-year increment while the Distribution GMV decreased by 28.8% year-over-year instead to RMB 764.6 million.
Again, 40% of total GMV came from non-TMALL marketplaces and channels, compared to 31.9% which had occurred during the same time period the previous year. Further, the number of brand partners for store operations had also increased to 345 from 333 in the last quarter.
Baozun has literally taken off in the last few years thanks to international businesses' desire to dominate the Chinese e-commerce market.
However, the Chinese government's tighter resolutions about Alibaba and other comparable e-commerce firms, together with slower consumer spending, supply chain issues, and other factors, have significantly slowed down this rising company's growth.
Another factor contributing to the company's below-average performance has been the recent lockdowns in China brought on by the COVID-19 outbreak this year.
Baozun stock closed July 6 at $10.28 and the average target price for the stock is $20.45 which is a potential upside of almost 99%.
Although a rebound may not occur right away, the company is currently trading at a very cheap valuation, making it worthwhile to purchase given the potential profits it can bring in the coming years.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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