KeyBanc Highlights Tencent And JD Concerns In Vipshop Downgrade

Vipshop Holdings Ltd - ADR VIPS, a China-based e-commerce platform that focuses on discount sales, had a concerning earnings report Monday, which prompted KeyBanc to no longer hold a bullish stance on the stock.

The Analyst

KeyBanc Capital Markets' Hans Chung downgraded Vipshop from Overweight to Sector Weight with no assigned price target (prior price target of $20).

The Thesis

Vipshop in late 2017 secured a combined $863 million investment from fellow China-based giants JD.com Inc JD and Tencent, but Monday's earnings report showed initial results from the partnerships is below expectations, Chung said in the downgrade note. Specifically, Vipshop's shortfall in the quarter is attributed to low conversions from UVs into orders on Tencent's WeChat Wallet entry and low click-through on the Vipshop entry on the JD mobile app.

Chung did say Vipshop has a strategy to improve conversion ahead, including more data integration and social e-commerce promotions on WeChat and more personalized recommendations and access points on JD's platform. Exiting Monday's report, however, it's apparent the partnership needs "more time and effort" before it can see any meaningful traction.

Bottom line, it's difficult to downgrade Vipshop's stock given the real growth opportunities through the partnerships with Tencent and JD, the analyst wrote. But the fact is the "uncertain visibility" of their contributions to Vipshop's business calls into question the potential for growth re-acceleration and multiple expansion ahead.