E-Commerce China Dangdang (DANG, Financial) posted a robust performance last quarter, and swung to a profit as compared to a loss last year. In spite of strong numbers, the stock tanked close to its 52-week lows as earnings missed analysts’ consensus, which was mainly on account of its increased spending on marketing initiatives. However, in the long run these short-term pains will yield good return and strengthen its business for further growth.
On track to benefit from changing trends
Dangdang was quick to identify changing trends and therefore was able to capitalize on the shopping habits of millennial mothers, who considered online shopping more comfortable than brick and mortar shops. Since its inception, the company has come a long way, from an online book seller to a multiband e-commerce website. This is a wise decision, which will yield good return in the days to come.
And now sensing the need of the hour, it is spending heavily on marketing initiatives to lure young mothers. Interestingly this new initiative has hit the spot as the number of new customers rose 24% to 3.6 million from 2.9 million last year. This is a part of its strategy incorporating multiple channels to optimize advertising and promotion. As seen from the above numbers, these efforts are paying off and will play a significant role to enhance its financials.
Focusing on key growth areas
To tap the increasing e-commerce platform the company launched various new online shopping channels during the quarter. It includes ShipNow, Dangdang Jeans, on mobile Dangdang and others, targeting the young fashion-loving buyers. Also, its e-reader app was well accepted by online readers, which increased its mobile orders to 24% compared to 10% in the same period last year. Using big data based on age, gender, education and other factors, it directed off-site traffic to mobile Dangdang through targeted marketing campaigns and promotions. And the management expects the same momentum to continue in mobile Dangdang.
With these moves it will be able to monetize the mobile platform while developing its business to focus on new categories including fashion and apparel, baby and maternity, home and lifestyle.
Going forward Dangdang expects its fourth-quarter revenue to be around $407 million, reflecting a 27% increase on a year-over-year basis. The company has solid valuations, prompting many analysts to upgrade the stock to outperform. According to HSBC analyst Chi Tsang, “We remain confident Dangdang’s high operating efficiency will enable it to grow profits even from a lower margin level.”
Conclusion
These are encouraging facts, which could be of great help to investors. It had a strong set of numbers for the third quarter but the stock was spanked because of the earnings miss. This is indeed a good news as the stock has now opened enough room for an upside move making Dangdang an attractive investment option.
