Chinese Internet retailer, E-Commerce China Dangdang (DANG, Financial) continues to embrace essential growth, driven by accelerated investment in marketing and branding. Also, its mobile Dangdang and Dangdang e-reader app look very attractive as it continues to strong momentum for these apps. Looking ahead, the company is expected to benefit from the launch of new channels and new style for Dangdang e-reader app.
New channels will be growth drivers
Dangdang has recently rolled over many new exciting shopping channels online. These channels are targeted towards young people and are very trendy. The company expects these new channels focused on fashion forward men and women to drive growth for its brand going forward.
In addition, the company has brought in a new version for its Dangdang e-reader app of late. This app now includes digital book SKUs and new features. This added features and contents should help the company to better engage the online book readers and enhance customer stickiness. Dangdang sees continuous growth for its mobile Dangdang in the future.
It is additionally investing heavily in the mobile Dangdang that should help the company reinforce its relationship with mainstream mobile media partners. Also, the company is hostilely spending in marketing campaigns and promotions that should enhance its off-site traffic to its mobile Dangdang. Moreover, the company intends to better monetize its mobile platform going forward.
It is strategically engaged in developing newer destination categories such as fashion and apparel, baby and maternity, home and lifestyle. Also, it is focusing on the advertising and marketing programs to build awareness for these newer destination categories. This should further reinforce its mobile penetration.
Tough competition ahead…
E-Commerce China Dangdang sees tough competition in the industry. Its rivals such as JD.com (JD, Financial) and Alibaba (BABA, Financial) have greater mobile penetration in the market. Both these companies are offering books and media at relatively cheaper prices than Dangdang. Also they supply the physical books faster than Dangdang. However, Dangdang has a competitive advantage as it has diversified its business. It is now less dependent on its books and media businesses.
Dangdang is also making significant progress in GMV. Its GMV grew about 80% year-on-year basis to RMB 1.7 billion. Even more interesting, its third-party GMV grew about 50% to RMB3.7 billion in the third-quarter. Also, its new and active customers had a double-digit growth. Its new customer and active customers grew 24% to 3.6 million and 14% to 9.6 million respectively in the reported quarter.
Dangdang has provided guidance for the fourth quarter. It expects its revenue for the quarter to be approximately RMB 2.5 billion. This represents about 27% growth over the same quarter 2013. Also, it projects its GMV from its market place to grow at a rate of 60% annually to RMB2.23 billion in the fourth quarter of 2014.
Ending remarks and valuations
Dangdang still looks like a good bet. It is finding more ways to increase monetization for its mobile platform that should drive growth for the company in the future. The analysts expect its earnings to grow at CAGR of 19.80%, higher than average industry CAGR of 15.13% for the next five years. This indicates strong growth prospects for the company in the future. In fact, the stock carries very promising short-term returns. Its earnings will grow 162.10% this year and 194.40% by next year, respectively.
Moreover, the stock is cheap. Its trailing P/E of 60.26 and forward P/E of 17.51 demonstrate strong growth for its earnings in the future. Also, it has PEG ratio of 2.60, which looks reasonable to withstand its growth in the long run. Its balance sheet carries total cash of $270.92 million and has no debt outstanding.
