Baozun (BZUN) has been on our watch list as we have been expecting earnings. This is a volatile and popular e-commerce solutions stock. It is involved in he sales of apparel, home and electronic products, online store design and setup, visual merchandising and marketing, online store operations, customer services, warehousing and order fulfillment. Baozun’s segments include the brand e-commerce segment, which provides brand-e-commerce solutions to its brand partners, including IT services, store operations, digital marketing, customer services, warehousing and fulfillment, and the Maikefeng segment that operates its retail online platform, Maikefeng, which operates as a mobile application and offers branded products at discounted prices. Baozun’s e-commerce capabilities encompass the e-commerce value chain, including information technology (IT) solutions, online store operation, digital marketing and customer service.

Baozun’s business model is that it seeks quality. As evidenced by the list of premier brand partners, the company is highly selective about the customers it works with, and isn’t one to focus on quantity over quality. Some key attributes it seeks before locking in a partnership, according to its annual report, are:

  • Established brands in profitable industries with growth potential.
  • The amount of projected gross merchandise value (GMV) and related service fees.
  • Projected profitability and proposed partnership duration.

Once it’s selected a brand partner, it delivers its services under one of three distinct business models:

1. Distribution – Under this model, Baozun selects and purchases goods from brand partners to sell directly to consumers. In the past few years the company has been actively moving away from the distribution model to avoid taking ownership of products, reduce inventory risk, and achieve higher-margin service fees.

2. Service Fee Model – Under this model, Baozun provides its full range of e-commerce solutions, including online store operation, digital marketing, and customer service, but doesn’t take possession of inventory.

3. Consignment Model – Under the consignment model, the company offers its full range of e-commerce solutions as with the service fee model, but also provides warehousing and fulfillment services, whereby brand partners stock goods in its warehouses and Baozun delivers them to customers. However, Baozun never takes title to inventory, doesn’t select merchandise, and doesn’t establish prices.

The question is, has this paid off? Well, Baozun earnings were just reported, and they were strong. We had covered how Baozun had a big day coming up, and we were not kidding. Baozun earnings are lighting up the wires as investors react. So just how good was the quarter?


Here are the key results:

“Third Quarter 2017 Financial Highlights

Total net revenues were RMB890.2 million (US$1133.8 million), an increase of 18.8% year-over-year.

Income from operations was RMB27.8 million (US$4.2 million), an increase of 22.6% year-over-year.

Non-GAAP income from operations2 was RMB41.2 million (US$6.2 million), an increase of 32.6% year-over-year.

Net income attributable to Baozun (BZUN) ordinary shareholders was RMB21.9 million (US$3.3 million), an increase of 11.7% year-over-year.

Non-GAAP net income attributable to Baozun ordinary shareholders3 was RMB35.1 million (US$5.3 million), an increase of 25.2% year-over-year.

Basic and diluted net income attributable to Baozun ordinary shareholders per American Depository Share (“ADS4”) were RMB0.40 (US$0.06) and RMB0.37 (US$0.06), respectively, compared with basic and diluted net income attributable to Baozun ordinary shareholders per ADS of RMB0.39 and RMB0.36, respectively, for the same period of 2016.

Basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS were RMB0.64 (US$0.10) and RMB0.59 (US$0.09), respectively, compared with basic and diluted non-GAAP net income attributable to Baozun ordinary shareholders per ADS of RMB0.56 and RMB0.52, respectively, for the same period of 2016.
Third Quarter 2017 Operational Highlights

Total Gross Merchandise Volume (“GMV”)5 was RMB4,104.0 million, an increase of 70.7% year-over-year.

Distribution GMV6 was RMB546.0 million, a decrease of 2.3% year-over-year.

Non-distribution GMV7 was RMB3,558.0 million, an increase of 92.8% year-over-year.

Number of brand partners increased to 146 as of September 30, 2017, from 127 as of September 30, 2016.

Number of GMV brand partners increased to 141 as of September 30, 2017, from 115 as of September 30, 2016.
“We are pleased to report another outstanding quarter where we continued to strengthen our long-term competitive advantages, drove strong growth from our existing online stores and optimized efficiency with innovative new tools,” commented Mr. Vincent Qiu, Chairman and Chief Executive Officer of Baozun. “I am proud of our strong performance during this year’s Singles Day where we recorded total order value around RMB5 billion, almost double the amount from last year. Technology plays a central role in our strategy and we will continue to invest in it to further strengthen our leadership position and expand the array of services we are able to offer in order to create greater value for our shareholders.”

Mr. Beck Chen, Chief Financial Officer of Baozun commented, “We delivered another solid quarter of growth with GMV increasing by 70.7% year-over-year. Brands under our non-distribution model performed particularly well, with non-distribution GMV continuing to grow at an even faster rate of 92.8%. With strong confidence in our strategy and operations, we expect GMV during the fourth quarter of 2017 to grow faster than 70% on a year-over-year basis as services revenue continues to rapidly grow.”


OUR take? We think shares might trade with volatility following this news. Overall it was a solid quarter.

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