Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

As the sun was preparing to greet the day in Guangzhou, and just as U.S. investors enjoyed the last hours of a three-day weekend, China's forgotten e-commerce player quietly announced results that beat analyst estimates.

Vipshop Holdings Ltd., which is traded in New York, lacks the massive girth of Alibaba Group Holding Ltd. or the star power of JD.com Inc., but it does have better return on equity and price-earnings ratios.

Sizing Up
Vipshop's sales are dwarfed by JD.com and Alibaba
Source: Bloomberg

It's also getting a closer look from investors seeking alternative ways to bet on China's growing consumer market while avoiding frothy valuations.

Vip.com has managed to turn the decidedly unchic business of flash discount sales into a high-class luxurious experience, adding in brand cachet and solid delivery. Its homepage is all you need to see to understand why: Western female models adorned with Gucci sunglasses and Versace clothing.

Value Comparison
Vipshop is trading at a lower valuation than Alibaba
Source: Bloomberg
Note: No P/E is shown for JD.com because it hasn't posted a profit.

While JD.com and Alibaba are both pushing into fashion retailing, Vipshop's early-mover advantage in flash sales has helped it build some critical mass, not only among shoppers but among brands looking to clear inventory while lacking the offline outlets commonly available in Western markets.

The result has been an average 71 percent sales growth over the past 10 quarters and continuous profitability for the past four years.

VIP Returns
Vipshop has delivered a higher return on equity than selected peers while its enterprise valuation against ebitda remains low
Source: Bloomberg

At the same time as it faces solid competition from JD.com, and Alibaba looks to offline channels (including a recent tie-up with Shanghai Bailian Group Co.), the market for clearance sales may have a ceiling. Sanford C. Bernstein, for example, estimates that the addressable market for flash sales is around 25 percent of the total e-commerce pie, and thus predicts that this will be the last year in which Vipshop can outpace industry growth.

Now the dilemma for investors is whether an inevitable slowdown will markedly affect returns, or if a management focus on sacrificing pace for margins will be enough to buoy earnings. As the adage goes, past returns are no guarantee of future performance.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net