• Vipshop share price is yet to recover from the slump occasioned by the Archegos crash.
  • A $500 million share buyback program to contain the price swings linked to Archegos’s liquidation hasn’t been fruitful.

Vipshop Holdings Ltd. (NYSE: VIPS) has had a mixed year in share price performance. The Chinese e-commerce giant that offers discount branded merchandise to domestic consumers was fined $464,000 (CNY 3 million) in early February 2021 for unfair competition.

But the fine did not seem to deter investors because the stock price remained solid. While this is curious, it helps to know that barely a month earlier, China’s State Administration for Market Regulation had extended the exact charges to tech giants like Tencent and Alibaba, making this a broad assault. Thus, to investors, Vipshop’s fine seemed like a kink they could excuse.

VIPS share price movement

The big elephant in the room is the substantial volatility in VIPS stock for the past year. Coming into Thursday, 11 November 2021, the stock was up 0.52% to $11.66 from the previous day’s close and up 4.29% over the past month.

But the scenario appears bleak when zoomed out. For example, VIPS share price declined 54.72% over the past six months and 58.80% year to date. 

A daily chart showing VIPS price action as of 11 November 2021.

The price movement is curious, noting that the company beat estimates for three quarters but missed Q2 2021. In a sense, the performance suggests other headwinds affecting investor sentiment.

Vipshop is tackling intense headwinds

We already mentioned the antitrust fine in February, but there is more to talk about concerning Vipshop’s headwinds.

For instance, the company announced a share repurchase program back in March after the Archegos drama. The $500 million program would repurchase Class A ordinary shares over two years. Although the management failed to state the particular aim of the program, anyone would guess that the company was mopping up the excess supply resulting from massive liquidations.

After Archegos collapsed, it became necessary for big banks like Goldman Sachs and Morgan Stanley to liquidate positions in several assets, including Vipshop. However, there are claims that the liquidation benefited from insider information, a matter that is a subject of a class-action lawsuit.

To make it worse, the massive sell-off of VIPS shares came on the heels of a broader exit from China stocks on the back of the regulatory crackdown. Interest in the stocks started to recover in October, but this does not extend to VIPS, as the chart above shows.

Moreover, Vipshop’s sales suffered immensely due to the pandemic-led macro-environment cool-down. The company built its business model around selling discount items (most of them being consumer discretionary), whose demand plummeted during the pandemic. Meanwhile, according to earnings reports from the two most recent quarters, the company failed to scale back substantially on marketing and sales expenses. 

Thus, the company faces a situation where revenue opportunities are shrinking, but expenses are still high. 

What are Wall Street expectations for the upcoming earnings release?

Wall Street expects Vipshop to post $0.24 per-share earnings when unveiling the earnings report on 18 November 2021. Interestingly, the EPS estimate for Q3 2021 is 27% lower than the reported EPS for Q2 2021 and 33% lower than the estimated EPS in the same quarter.

This tells you that the bearish sentiment on VIPS is growing predominant on Wall Street. However, it also communicates a need for confidence-building from Vipshop’s management, which should be urgent during the earnings release.

Bottom line

Vipshop is in a rough patch, and market sentiment is not helping. Without the business recovering soon, the company’s long-term prospects appear to be in jeopardy. Thus, the stock’s recovery hinges on the outcome of the Q3 report. Anything close to disappointing is likely to strengthen the bears.