Vipshop Earnings: Gloomy Outlook; Fair Value Estimate Slashed by 44%

No-moat Vipshop’s second-quarter revenue tracked significantly below our full-year estimate while non-GAAP net profit was slightly below. Its share price fell 18% after the earnings release due to the disappointing revenue growth and weak quarter-to-date momentum. We cut our 2024-26 gross merchandise volume estimates by 15%-31% to reflect declining GMV in both its stronghold apparel segment and the less-competitive standardized goods category, the anemic consumption outlook in China, and continuous price competition. We also cut 2024-26 total revenue by 11%-38% to account for lower take rates amid higher returns, while non-GAAP net profit estimates fall by 2%-26% as we expect higher inventory write-downs and operating deleverage, partly offset by better cost control. Consequently, we slashed our fair value estimate by 44% to USD 11.70 per ADS. The shares are now fairly valued, in our view. We forecast non-GAAP net income to decline by a 13% compound annual growth rate in the next five years.