Shares of Vipshop (NYSE: VIPS) rose 2% during after-hours trading on Monday following the Chinese e-tailer's release of a solid third-quarter earnings report. Its revenue rose 27% annually to $2.3 billion, narrowly beating estimates by $10 million. Earnings per ADS dropped 7% to $0.14 per share, which matched analysts' consensus estimate.

The key numbers

Vipshop specializes in flash sales, a strategy which is being increasingly used by bigger e-commerce players like Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD). Vipshop is much smaller than those two, but it's growing at a decent rate.

Its total number of active customers over the past 12 months rose 22% annually to 60.5 million, while total orders during the quarter rose 23% to 74 million. However, its non-GAAP net income dipped 6% to 559.8 million yuan ($84.1 million), as promotional activities designed to grow its market share reduced its gross margins. Vipshop notes that it reduced spending across its "broader marketing efforts" to soften that blow.

Vipshop forecasts its fourth-quarter revenues will rise 20% to 25% year over year. Analysts expect the company's revenue and non-GAAP earnings will rise 27% and 1% respectively this year. The stock currently trades at just 11 times next year's estimated earnings, making it a surprisingly cheap play on the red-hot Chinese tech market.

The key takeaway

Vipshop's numbers look decent, but the stock remains down about 15% for the year, due to ongoing fears that bigger players like Alibaba and JD will eventually render it obsolete. Vipshop's margins will also likely keep contracting as it slashes prices to gain market share. Investors should take a closer look at those issues before buying this stock.

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The author(s) may have a position in any stocks mentioned.

 

Leo Sun has no position in any of the stocks mentioned.

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