Thursday, March 10, 2011

Dangdang Must Step Up

By Eric Jackson
RealMoney Contributor

3/10/2011 1:45 PM EST
Click here for more stories by Eric Jackson

What happened to E-Commerce China Dangdang (DANG - commentary - Trade Now)?

It debuted with great fanfare in an initial public offering last December. The stock priced at $16 a share, which was considered high, opened at $24 and quickly went to the $30 range, closing at a high above $34 in mid-January. Since then, the stock has steadily been returning to its initial trading levels.

Yesterday, it released its first earnings report since going public. As usual with these Chinese stocks, it takes time for the market to digest the news contained in the results. The initial reaction was positive. The stock traded up in the premarket to almost $27 after closing the prior day under $26. But it immediately started selling off yesterday and hasn't stopped yet. Today, the stock is currently trading under $23, down nearly 7%. So what happened in the earnings report?

The e-commerce site, which still makes the majority of its money selling books, revealed that its net revenue for the fourth quarter was up 58% year-over-year to $108 million and its full-year revenue also grew 57% to $346 million.

They also boasted in their earnings call that non-book revenue grew 150%. They aim to reposition themselves -- much like Amazon (AMZN - commentary - Trade Now) did 10 years ago -- by selling a variety of goods via e-commerce rather than just books, which tend to be lower-margin sales. General merchandise revenues in 2010 were up 156% to $59.4 million from the previous year.

Yet, the scale of those general merchandise sales -- only 17% of overall sales -- shows that Dangdang still has a way to go to credibly saying it's no longer just a bookseller.

Its first-quarter guidance indicated that net revenue would be between $102.4 million and $103.6 million, representing a 50% increase year over year. That was in line with estimates.


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