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Baozun IPO Set Up To Compete For Chinese eCommerce

Alibaba-backed Chinese e-commerce company Baozun expects to IPO Thursday, May 21. The company expects to raise $143 million by offering 11 million ADSs priced at $12 to $14 per share on the NASDAQ under the ticker BZUN.

At this range, the company’s market value is around $1.8 to $2.1 billion.

China’s Leading E-commerce Solutions Provider

Founded in Shanghai, 2007, Baozun provides logistics services to help large brands sell products online. After eight years, the company has a 20 percent market share by transaction value, indicated by iReseach Report. Baozun’s services transcend all aspects of the e-commerce chain, covering IT solutions, store operations, digital marketing, customer services, warehousing, and fulfillment.

The company operates in the fast growing business-to-consumer e-commerce space, allowing online stores to operate with the company’s unique brand image and allows each company to control its own branding and merchandising through official marketplace stores.

Related Link: IPO Outlook: Is Shopify A Better Investment Than Etsy?

China’s brand e-commerce market is expected to grow from $4 billion in 2010 to $129 billion in 2014, a 145 percent compounded annual growth rate (CAGR). In 2017, these numbers expect to increase to $379 billion in 2017, a CAGR of 43 percent.

Baozun’s brand partners grew from 56 in 2012 to 94 as of March 2015. The brands range from apparel, appliances, electronics, home, food and health, cosmetics and consumer goods, insurance and automobile. Many of its brand partners are market leaders in their industries, like Nike, Microsoft, Haagen Dazs, and Philips.

China’s largest e-commerce company, Alibaba Group Holding Ltd (NYSE: BABA), owns 23 percent of Baozun through the company’s investment unit Alibaba Investment Ltd. It is currently Baozun’s largest investor. After the offering, its stake will fall to 18.2 percent and its voting power will reduce to 10 percent.

Financial Info

Baozun generates revenue in two ways: product sales and services. The company centers on one of three business models: distribution model, service fee model, and consignment model or combination of all three.

Product sales revenues are generated when Baozun sells products to customers under the distribution model.

Services revenue is obtained under the service fee and consignment models. Services consist of IT services, online store operations services, digital marketing, and other services such as payment collection.

Total revenue including product sales and services increased 65 percent from $154 million in 2012 to $255 million in 2014. Revenue for the first quarter ending March 31 2015 increased 77 percent to $77.0 million from $43.3 million in 2014. Product sales makes up the majority of Baozun’s revenue.

Q1 2014 sales were $31.9 million compared with $57.1 million in 2015. Services revenue during the same time period in 2014 was $11.4 million versus $19.9 million in 2015.

Most of the company’s losses are rooted in operating expenses, which includes cost of products, fulfillment, sales and marketing, technology and content, and general and administrative expenses. From Baozun’s distribution model, its biggest costs are derived from its products which is purchase price, shipping charges, and inventory write-downs.

Cost of products increased in Q1 of 2015 to $52.1 million from $29.4 million in 2014.

The company has yet to be profitable.

Baozun’s net losses for 2012 to 2014 were: ($7.61) million, ($6.08) million, and ($9.65) million. This year’s Q1 loss of $321,000 in March increased 13 percent from a loss of $284,000 in 2014 for Q1.

Baozun has $137.6 million in assets, of which $28.4 million is cash. The company’s total debt is $59.1 million with the majority in $47.6 million in accounts payable.

Conclusion And Pricing Info

Throughout the recent years, e-commerce has gained immense popularity in China with players there such as Alibaba and JD.Com Inc (ADR) (NASDAQ: JD) becoming household names. This e-commerce boom in China is only expected to grow as global brands work to penetrate the Chinese market.

Baozun is already well-positioned as a market leader to increase revenue from remarkable growth rates expected in Chinese e-commerce.

Baozun expects to net $129 million from the IPO proceeds. It intends to use the net proceeds in the following manner:

  • $32.2 million for sales and marketing activities

  • $25.8 million for R&D and technology infrastructure

  • $12.9 million for the expansion of its warehousing and fulfillment infrastructure

  • Any remaining proceeds will be used for corporate purposes, working capital, potential acquisitions, investments and alliances

The lead underwriters to deliver the American Depository Shares (ADSs) are Morgan Stanley, Credit Suisse, and BofA Merrill Lynch. Baozun will offer 11 million ADSs on the NASDAQ under the ticker BZUN on Thursday, May 21.

The shares are expected to price between $12 and $14 per share. Each ADS is worth three Class A ordinary shares, giving shareholders one vote each in shareholder votes. The company is expected to price Wednesday night.

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