The Chinese e-commerce market emerged quickly over the last five years, becoming the world's largest, as consumers increasingly shift from offline to online shopping. Notably, Chinese online retail sales amounted to 13,088.4 billion yuan in 2021, representing a 14.1% increase compared to the previous year.
Furthermore, online retail sales in China are projected to surpass $3.6 trillion U.S. by 2025, Statista reports. The market's growth should be achieved by the rising internet and smartphone penetration, increasing consumer confidence in online shopping, and the emergence of e-commerce platforms.
With this in mind, I will analyze and compare two Chinese internet retail stocks, Vipshop Holdings Limited (VIPS) and Alibaba Group Holding Limited (BABA), to find out which one is currently a better investment.
Founded in 2008, Vipshop serves as an online discount retailer for various brands in China, operating in Vip.com, Shan Shan Outlets, and Others segments. BABA is one of the world’s largest e-commerce companies that operates through various segments, including Core Commerce, Cloud Computing, Digital Media and Entertainment, as well as Innovation Initiatives. It also owns such well-known marketplaces as Tmall, Taobao, AliExpress, Alimama, and others.
Year-to-Date (YTD), VIPS stock has risen more than 14%, outperforming its rival Alibaba, which has fallen 1.75% over the same period.
Recent Developments
On March 22nd, Alibaba announced that it had raised its share buyback program to $25 billion, aiming to support its share price, which has dropped over 50% since the ruling Communist Party tightened control over tech industries by launching regulatory crackdowns. The company has already paid out $9.2 billion in the previously announced buyback. This move is a “sign of confidence in the company’s continued growth,” Alibaba said.
Recent Quarterly Performance & Analysts’ Estimates
Vipshop's revenues for its fiscal fourth quarter ended December 31st, 2021, decreased 1.5% year-over-year to $5.4 billion, missing the Wall Street consensus by $170 million. Besides, its fourth-quarter Gross merchandise value (GMV) stood at RMB57.0 billion, compared to RMB59.3 billion in the year-ago quarter.
The number of active customers deteriorated as well, standing 7.16% lower year-over-year at 49.2 million. Its Non-GAAP net income came in at RMB1.8 billion, down 30.77% from the prior-year period. As a result, VIPS' non-GAAP EPS was $0.41, missing analysts' expectations by $0.01.
Wall Street analysts expect Vipshop's earnings to drop 17.43% YoY in the first quarter of 2022 to $0.31 a share. Moreover, analysts expect that its FQ1 revenue will decrease 4.86% to $4.20 billion.
On February 24th, Alibaba issued an earnings report for the third fiscal quarter of 2022. In Q3, the company's total revenue was up 9.7% year-over-year to RMB242.58 billion, primarily driven by the revenue growth in China's commerce segment. However, BABA failed to meet Wall Street estimates, missing by RMB3.21 billion.
BABA's non-GAAP net income decreased 25% year-over-year to RMB44.62 billion in Q3. Alibaba reported a Non-GAAP EPS of RMB16.87, beating analysts' consensus by RMB0.82. Annual active consumers in the Alibaba Ecosystem around the world totaled 1.28 billion for the twelve months ended December 31st, 2021, representing a quarterly net increase of 43 million.
A $1.41 consensus EPS estimate for the fourth fiscal quarter of 2022 represents a 12.03% decrease year-over-year. However, its revenue for the current quarter is expected to increase 11.93% year-over-year to $32.51 billion.
Comparing Options Market Sentiment
Let's take a look at the May 20th, 2022 option chain for both VIPS and BABA to define options market sentiment by comparing the calls/puts ratio. In VIPS' instance, the open calls/open puts ratio at the $10.00 strike price comes in at 0.55x, indicating a bearish options market sentiment. When it comes to BABA, the open calls/open puts ratio at the $120.00 strike price stands at 2.32x, showing a solid bullish market sentiment.
Bullish Options Bets Placed On BABA Stock
The options, which expire on June 16th, 2023, saw increased call buying on Tuesday. The open interest for the $250.00 calls rose by 7,486 contracts to a total of about 7,500 open contracts (source: barchart.com). A buyer of those calls would need the stock to rise to $253.50 by the expiration date, a gain of about 117% from BABA stock’s current price.
Conclusion
I believe that BABA is a better investment than VIPS at current levels. The company's buyback program is expected to support its share price. Also, BABA’s financials look more attractive, with relatively better revenue and user growth figures. Finally, BABA has a superior options market sentiment, backed by bullish bets from options traders.
VIPS shares were trading at $9.58 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, VIPS has gained 14.05%, versus a -2.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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