Douyin, WeChat, And RedNote Expansion Will Unlock Future Potential

Key Takeaways

• Expansion into emerging channels and improved digital marketing strategies are expected to drive revenue growth and positively impact net margins.
  
• Adoption of an asset-light approach and strategic focus on value-added services position Baozun for sustainable growth and increased profitability.
  
• Focus on profitability over revenue growth and competitive pressures may limit Baozun's top-line growth and affect market share, posing risks to future revenue.

Catalysts

Through its subsidiaries, engages in the provision of end-to-end e-commerce solutions in the People's Republic of China.

• Expansion into emerging channels like Douyin, RedNote, and WeChat is expected to drive revenue growth through increased online store operations and enhanced digital marketing capabilities. This will positively impact revenue.
  
• Adoption of an asset-light approach and the expansion of the store footprint in Tier 2 cities with strengthened global and local partnerships are expected to drive BBM's revenue growth and improve operational efficiency, enhancing net margins.
  
• The strategic focus on value-added services like digital marketing and IT solutions, which saw 15% year-over-year growth, positions Baozun for high-quality, sustainable growth and increased net margins.
  
• The aggressive expansion in offline channels, with a planned net increase of approximately 40 new stores in 2025, is poised to drive BBM's top-line growth, potentially improving earnings.
  
• Enhanced use of technology and integration of AI into business operations are expected to drive efficiency, improve customer service, and optimize costs, which could enhance net margins and profitability.

Baozun Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Baozun's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.0% today to 2.0% in 3 years time.
• Analysts expect earnings to reach CN¥206.4 million (and earnings per share of CN¥4.19) by about May 2028, up from CN¥-185.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥255.9 million in earnings, and the most bearish expecting CN¥157 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, up from -8.4x today. This future PE is lower than the current PE for the US Multiline Retail industry at 16.2x.
• Analysts expect the number of shares outstanding to decline by 4.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.18%, as per the Simply Wall St company report.

Baozun Future Earnings Per Share Growth

Risks

• The e-commerce product sales revenue decreased by 4% year-over-year, attributed to weak performance in the appliance category, which may adversely impact overall revenue growth.
  
• Efforts to prioritize profitability over revenue growth in certain categories suggest a focus on margin preservation rather than aggressive revenue expansion, which could limit top-line growth prospects.
  
• The decrease in gross margins for both e-commerce product sales (from 12.4% to 10.8%) and BBM (from 52.9% to 50.4%) due to category mix changes and higher discounts could pose a risk to overall profit margins.
  
• The company's cash and cash equivalents decreased from RMB 3.1 billion to RMB 2.9 billion, indicating potential liquidity challenges that could affect the ability to fund future growth operations.
  
• Competitive pressures, such as commission rate cuts by platforms like Douyin and aggressive market investments by competitors like JD.com, could erode market share and affect future revenue streams.

Valuation

• The analysts have a consensus price target of $3.95 for Baozun based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $4.77, and the most bearish reporting a price target of just $2.88.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥10.5 billion, earnings will come to CN¥206.4 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 12.2%.
  
• Given the current share price of $3.7, the analyst price target of $3.95 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.