U.S. Markets closed

Why did Tiger Global start a new position in Vipshop Holdings?

Smita Nair

Tiger Global Management's positions in the fourth quarter (Part 3 of 7)

(Continued from Part 2)

Tiger Global Management and Vipshop Holdings

Charles Coleman’s Tiger Global Management started new positions in Restoration Hardware Holding (RH), Vipshop Holdings Ltd (VIPS), Gap Inc. (GPS), sold UTi Worldwide (UTIW), and increased its stakes in Priceline (PCLN) and TransDigm Group Incorporated (TDG).

Tiger Global started a new 1.52% position in Chinese online discount retailer for brands Vipshop Holdings Ltd (VIPS). The company, which listed in the U.S. in 2012, offers high-quality branded products to consumers in China through flash sales on its vipshop.com website.

Shares of Vipshop and other online Chinese retailers recently surged backed by rumors that mobile online shopping is driving sales. According to a Bloomberg report, Guangzhou-based Vipshop’s share price has doubled this year after surging 369% in 2013, the biggest advance on the Bloomberg China-US Equity Index.

According to Vipshop’s 4Q results, total net revenues increased by 117.3% over the year-ago period to $651.0 million, primarily attributable to a 119.5% increase in the number of active customers to 5.7 million from 2.6 million and a 102.4% increase in total orders to 17.7 million from 8.8 million over the year-ago period. Net income increased by 300.0% to $25.4 million from $6.3 million in the prior year period. The company strengthened its core operations by expanding and improving its product offering, ramping up its warehousing capabilities, and enhancing merchandising and IT infrastructure.

Last month, Vipshop acquired a 75% stake in Lefeng.com Limited from Ovation Entertainment Limited. Lefeng owns and operates the online retail business conducted through lefeng.com, an online retail website specialized in selling cosmetics and fashion products in China. The total consideration was approximately $132.5 million including cash payment and financing in connection with assumed liabilities. Vipshop also acquired a 23% stake in Ovation for $55.8 million. Ovation’s business, conducted through its subsidiaries based in China, focuses on the development of cosmetic products under its proprietary brands and media products. The company reportedly revealed plans to spin off lefeng.com in the future.

For the first quarter of 2014, Vipshop expects its total net revenues to be between $640 million and $650 million, representing a year-over-year growth rate of approximately 106% to 109%.

VIPS hedge

Vipshop said in its IPO filing that retail sales are expected to continue to grow as a percentage of China’s GDP as domestic consumption becomes a more important component of China’s economy. According to a Frost & Sullivan report, retail sales are projected to constitute 44.5% of China’s GDP in 2015, compared to 39.4% in 2010.

Flash sales represent a new online retail format combining the advantages of e-commerce and discount sales channels. Unlike leading flash sales models in the U.S. and Europe, the flash sales market in China has quickly expanded beyond selling primarily luxury brands and services. China’s flash sales market encompasses a broader range of brands and products, appealing to a larger base of consumers.

While sales of apparel products comprised of 59.3% of total online flash sales market in China in 2010, they are projected to decrease to represent 43.1% of the total flash sales market in 2015, as other growing product categories such as household goods, cosmetics and other lifestyle products account for a larger portion of the market, according to the Frost & Sullivan report. Vipshop believes that the flash sales market will increase as a percentage of total retail sales in China as merchandising expertise, economies of scale, and fulfillment and logistics capabilities of flash sales companies continue to improve.

Continue to Part 4

Browse this series on Market Realist: