Second-tier growth stocks in China are risky, and last week’s demise of three Internet stocks reminds of that golden rule. Bitauto (BITA), Vipshop (VIPS) and Renren (RENN) all saw double-digit declines, mostly due to disappointing quarterly results.
Although Bitauto posted healthy growth and earnings, the company, which provides online content and marketing services for China’s auto industry, was downgraded by Morgan Stanley last Monday. Amanda Chen, analyst, pointed to sluggish ad subscriptions and concerns over the sustainability of the company’s transaction monetization. Chen reduced the price target just above $20. The stock is down 13%.
Vipshop, which offers flash deals on brand-name apparel, posted rough financials last week, although the company is still growing at a healthy pace. Since the first quarter of last year, Vipshop saw earnings soar 41% to $1.89 billion. While earnings have slowed, the company beat expectations with double-digit growth. Yet still, the top line is where analysts were looking for more. Vipshop is still within its February forecast of growth between 37% and 43%.
Guidance from the company also failed to ease growth concerns. The company projects growth of 37%-42% year over year for the current quarter, which is in line with the first quarter. However, analysts were looking for a slightly higher range.
JPMorgan downgraded the stock last week, which sent it tumbling to a 52-week low. Vipshop is down 13%.
Renren is also in trouble. The social network platform posted weak quarterly results last Monday. Revenue from the company’s Internet value-added services and advertising tumbled 25%, with monthly unique logins dropping to 41 million over the last 12 months.
Renren’s foray into consumer financing managed to push the company’s overall revenue higher. While auto and consumer loans can be profitable, they come with inherent risks.
The trouble with Renren is that it hasn’t been profitable for years, with five straight years of losses. While its balance sheet shows $1 billion in long-term investments and cash, the company’s guidance points to continued weakness in the future.
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