Dangdang (NYSE: DANG), China’s only major listed e-commerce site, has just released its latest quarterly results that show its losses ballooning, reflecting the overheated competition in the space that is already starting to hit many smaller companies and could soon even claim a bigger player. Dangdang’s latest report shows its loss jumped to 130 million yuan, or nearly $21 million, in the final quarter of last year, reversing a $2 million profit the previous year. (company announcement) But perhaps more worrisome, the loss was nearly double the company’s loss for the previous quarter, as its margins tumbled amid a series of price wars with archrivals 360Buy, Amazon China (Nasdaq: AMZN) and Wal-Mart-backed (NYSE: WMT) Yihaodian, in an increasingly bloody war that has already started to claim a number of smaller victims. Earlier this week, another online retailer, money-losing Vipshop became China’s first Internet company to file for a New York IPO this year, amid a flurry of chatter that the company was in desperate need of cash that boded poorly for the offering, which I suspect may never happen. (previous post) Another high profile dispute has seen a company named Pinju Wang have to suspend operations after saying it failed to receive promised funds from entities connected to online entertainment specialist Shanda. (Chinese article) Also significantly, 360Buy, one of the biggest forces behind the current price wars, has denied several times this week it has plans to launch a New York IPO this year, even after it announced such plans late last year, only to almost immediately start running into delays. Such denials are always problematic, as Chinese companies will often deny something even when it’s true. But in this case, I suspect that 360Buy may be afraid to proceed with an offering right now for fear of having to release a set of very ugly financials that would show the markets just how badly it is bleeding cash — hardly a way to attract investors. The markets are already showing their displeasure at the rampant competition, bidding down Dangdang’s shares by as much as 10 percent after its results came out, though they bounced back a bit afterwards to close down just 4 percent. Still, Dangdang’s shares are trading at a quarter of their level from just a year ago, and I see further pressure until the current price wars finally start to subside — a turn unlikely to happen until late this year at the earliest.
Bottom line: Dangdang’s ballooning loss in its latest results reflect rampant competition in China’s e-commerce space, with little relief in sight until late this year at the earliest.
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