Why Vipshop Holdings Ltd - ADR Got Slammed Tuesday

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What happened

Shares of online discount retailer Vipshop Holdings (NYSE: VIPS) plummeted on Tuesday, falling as much as 21.8%. At 2:23 p.m. EDT, shares were down 19.6%.

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The stock's decline follows Vipshop's first-quarter earnings release. Though revenue during the period increased 24.6% year over year, Vipshop's net income declined and its second-quarter revenue guidance was below the consensus analyst estimate for the period.

So what

For its first quarter, Vipshop reported revenue of 19.9 billion RMB, or $3.2 billion as of May 15, 2018. Up about 25% year over year, the revenue was at the high end of management's guidance range for the period. This was driven primarily by a 25% year-over-year increase in Vipshop's average revenue per customer.

Non-GAAP net income, however, fell from 799.4 million RMB in the year-ago quarter to 727.7 million RMB. Part of Vipshop's lower net income was due to the company's investment in promotional activities to help drive growth.

Now what

Vipshop guided for second-quarter revenue to be between 20.5 billion RMB to 21.3 billion RMB. The low-end of this guidance range converts to about $3.2 billion as of May 15, 2018. On average, analysts were expecting second-quarter revenue of about $3.08 billion.

But management is confident about its long-term revenue growth, noting that its recent strategic collaboration with Tencent and JD.com should be a catalyst.

"Looking ahead, we will continue to work closely with Tencent and JD.com in order to improve the traffic flow and conversion rates, which will contribute meaningfully to our long-term customer and revenue growth," said Vipshop CEO Eric Shen in the company's first-quarter earnings release.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends JD.com and Tencent Holdings. The Motley Fool has a disclosure policy.