Often labeled as the Shopify of China, Baozun is growing fast, so we ask if this behind-the-scenes e-commerce stock is a good buy?
Dec. 5, 2020
Baozun (NASDAQ: BZUN) is a Chinese company that specializes in end-to-end e-commerce solutions for its brand partners. Its services include store operations, digital marketing, warehousing, and fulfillment services. Baozun is a go-to company to help get the digital side of shopping up and running for many of its clients.
However, in a world dominated by big names in e-commerce, this stock falls a little under the radar. Thus, we ask if Baozun stock is a good investment?
The bull case for Baozun
China seems to be recovering faster and better than the rest of the world after a global coronavirus-instigated economic downturn. Indeed, Baozun as a Chinese company is definitely showing promising signs of recovery; its Q2 results showed a total net income of $304.6 million, up 26.3% year-over-year (YoY). A similar story emerged in Q3 with total net revenue up by 21% (YoY) to $269 million, whilst its services revenue was $151, million seeing a 22% increase YoY. As the Chinese economy has recently been declared as the first major economy to recover, we are likely to see these numbers increase over the next few quarters.
A major factor for increasing its revenue is Baozun's plethora of well-known brand partners, which include the likes of Starbucks, Nike, and Microsoft, amongst others. Over the past year, the number of brand partners has increased from 223 to 260, showing strong growth in this area.
Baozun also recently had a successful IPO on the Hong Kong market, meaning that this company is now listed in the two largest markets in the world. Whilst the U.S. market has space for e-commerce and digital companies amongst its more traditional stocks, the Chinese market is prime-growth space for e-commerce firms. Baozun, as an e-commerce solutions business, is positioned to benefit particularly well from the high growth potential that the Hong Kong Exchange can provide.
This high growth capacity is not just confined to China, but the U.S. as well. Brick-and-mortar stores saw a dramatic drop in traffic with preliminary data showing a 52.1% drop for Black Friday, whilst online shopping, on the same day, rose 21.6%. This is indicative of a major global trend. If traditional brick-and-mortar stores have not yet moved to digital methods, then they soon will, and this is where Baozun will thrive; helping strategize end-to-end solutions for digital commerce.
The bear case for Baozun
To be perfectly honest, there is not much of a bear case for this company. One could point out that the net income growth has slowed down somewhat from the 48% growth that has been witnessed over the past 5 years, yet, this wouldn't take the coronavirus into consideration. We cannot ignore COVID-19 as a major factor in overall income results, which for Q3 was only 21% YoY, thus the slowdown in income growth can be somewhat forgiven.
Another point of contention which investors should be aware of is that Baozun is currently the subject of a class action investigation pertaining to the sale of American Depository Receipts in April 2019 of which by their close date in October 2020 were worth 18% less. Although not too concerning for the moment, this could potentially decrease the overall level of trust shareholders might have in the company for the future.
So, should I buy Baozun stock?
This is a great stock for any investor, it has high growth potential and handled the pandemic relatively well. By providing end-to-end e-commerce solutions to its clients, this company is on track to grow alongside the overall digital shopping market. Investors should keep an eye on the investigation being carried out against Baozun, however, this should not affect its business moving forward.
Quickfire round:
Baozun is similar to Spotify, providing many of the same digital services. However, whilst Spotify focuses on smaller and medium-sized businesses, Baozun looks to larger companies to lock into its merchant strategy services.
- Does Alibaba own Spotify?
Alibaba owns a 17% stake in Baozun and the two enjoy a strategic partnership that integrates the company into sites such as JD.com as well as within WeChat, which is a part of Tencent's social media ecosystem.
- How does Baozun make money?
Baozun makes money through its brand partnerships, by performing services on behalf of the client. Its consignments and services revenue is the main way this e-commerce strategy company makes its money.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
