JMEI Jumei International Holding
Sector financial performance:
This china-based company, who primarily sells, by itself and though its own websites, beauty products, baby, children and maternity products, light luxury products and health supplements and as well provide service such as marketplace, has been grouped into online retail& service sector in merchandise- industry.
Almost all companies in this sector in our analysis have experienced fast growth in terms of direct products sales between 2015 and first half of 2017 (double digits growth rate) as reflected from the increased sales volumes. This can be attributed to the lower purchasing costs (price/shipping) in North America or strong natural demands in China. Correspondingly, the service revenue of some of companies where apply increased as well as the sales of third-party seller who use their marketplace increased quickly.
Products sales of most companies in this sector grew slowly or decreased in 2017 in US market and some rebounded back on the track of 2015/16 in 2018. The slowing growth of 2017 in direct products sales of many companies in China market seems to be continuing after entering 2018 and presents a more clearly downward growth trend since 2015for those China-based companies probably due to increasing pressure on price resulted from competition.
Direct sales gross margins (merchandise margin) of companies that focus on US market decreased significantly probably due to the lower price and shipping costs. Benefiting from economy scales and getting better of retail market and from leverage of other expenses such as fulfillment as a result of fast increase in revenue from service, some of US companies have been seeing the improved operating margin and cash flow. However, in China market, due to increasingly intensive competition, most of companies experienced shrinking margins and decrease in cash flow as compared with 2016.
The current average gross margin (direct sales gross margin) is about 15% with a range in 5-28% down from about 17% three years ago. The current average gross margin (products and service) is about 23% with a range in 7-36% up from about 17% three years ago(fulfillment expenses included). At the same time, as companies continued to increase investments in selling& marketing and technology innovation when facing intensive competition since 2017, the average SG&A as percentage of sales (currently average 18.5% with a range 6-32%) and average technology& content as percentage of sales (currently average 5% with a range of 2-13%) got worse in 2018. Therefore, under the help from improved gross margin, the average operating margin firstly went up above 0% from -3% in 2017 (12 months trailing data) and down back to -1% in 2018.
According to our analysis, the current companies’ enterprise price/EBI ratios vary from 100 to 200 and enterprise price/sales ratios vary between 0.4 and 4.5.
Revenues from this company’s marketplace services has decreased between 2015 and 2017 and this company gradually shifted its focus away from service of marketplace to direct sales of cross-border products but have to face increasing regulation of PRC on import tax. Direct sales significantly decreased by more than 30% in 2018 while revenue of marketplace jumped largely.
The first half of fiscal 2018 compared with the same period of 2017
Net sales decreased about 22.8% primarily due to decrease in number of active customers and number of orders. The sales of marketplace services increased significantly.
Fiscal 2017 compared with 2016
Net sales decreased about 7.3% primarily due to decrease in sales volume of direct sales as a result of intensive competition. Number of active customers decrease but number of orders increased. Sales of marketplace services increased.
Fiscal 2016 compared with 2015
Net sales decreased about 14.5% primarily due to decrease in orders and sales volume of direct sales as a result of changes in PRC import tax and the decrease in sales of marketplace services.
Fiscal 2015 compared with 2014
Net sales increased about 89% primarily due to the increase in sales resulted from the launch of new business offset by the decrease in sales from marketplace service.
We see a decrease of about 700 basis points in gross margin of direct sales products (excluding fulfilment costs) between 2015 and 2017 primarily due to changes in import tax and increased promotion activities as a result of competition. The sales’ shifting to direct sales, which has much lower margin than previous marketplace service, dragged down the total gross margin( including fulfilment costs) by 1600 basis points. Therefore, while it managed to improve its SG&A spending, this company’s operating margin went to about -1% from 9% in 2017 ( 12 months trailing). Gross margin of direct sales (excluding fulfilment costs) continued to quickly decline by about another 1000 basis points in the first half of 2018. Therefore, while leverage of increase in marketplace sales is significant its operating was down to -3% in 2018.
This stock currently has a stock price/sales ratio of 0.42($14). We think that its stock is being relatively overvalued considering that uncertainty in its marketplace performance and significant decline in direct sales.