Baozun IPO: An Interesting Angle To The Chinese E-commerce Market

  • E-commerce service provider, Baozun, filed for IPO last week.
  • The company provides end-to-end e-commerce services for international brands looking to penetrate the Chinese e-commerce market.
  • Baozun is well positioned as the market leader to benefit from the impressive growth rates expected in the Chinese e-commerce services market.
Baozun IPO analysis

The Chinese e-commerce service provider company, Baozun (NASDAQ:BZUN), filed for an IPO recently, seeking to raise $200M by listing on the NASDAQ. For many Chinese and non-Chinese investors, Baozun is an unfamiliar name; however, behind the scenes of the evolving Chinese e-commerce market, Baozun is an imminent player. International retailers who are interested in offering e-commerce services in China need to create an online store with significant hosting and IT infrastructure, maintain logistic centers and warehouses, and hire a large number of employees to support this operation. Baozun, specializing in providing end-to-end e-commerce services in China, offers to outsource the entire e-commerce value chain in China to international retailers interested in offering their merchandise online for the Chinese market.

Note: Watch our Technology IPO videographs.

Chinese E-commerce Services Market

E-commerce has gained enormous popularity in China in recent years, and local e-commerce players like Alibaba (NYSE:BABA), (NASDAQ:JD), and many others are household names in the Chinese and global markets. The increasing awareness of the benefits of e-commerce drives many global brands to adopt this strategy when trying to penetrate the Chinese market. Global brands benefit from an increase in the local brand e-commerce market in China that grew at an amazing 147.5% CAGR from $4B in 2010 to $129B in 2014. The research firm, iResearch, expects the Chinese e-commerce market to continue its rise and reach $379B in 2017, at a 43.3% CAGR.

BZUN_chart 1_042315

As the Chinese e-commerce market is expected to grow rapidly in the following years, the e-commerce services market is expected to flow as it directly correlates with it. As shown in chart 1 below, the Chinese e-commerce services market is expected to grow from a $4B market in 2014 to almost $16B in 2017 which reflects an impressive 56.7% CAGR.

According to its F-1, Baozun is leading the e-commerce services business market in China with a 20% market share, and with more than 45 thousand square meters of warehouses across the country, Baozun can deliver a package within one day to 95 cities across China which positions the company in an excellent place to benefit from the market expansion.

Baozun Financials

Baozun works with international brands in three models: distribution model, service fee model, and consignment model. Each model is charged either on a fixed fee per service or a percentage of the gross merchandise value (GMV). Revenue from selling products under the distribution model is recorded under the product sales revenue stream and revenue from the other models is recorded under the services revenue stream.

Note: Read our detailed coverage of the Outbrain IPO.

As shown in Chart 2 below, Baozun experiences the same seasonal volatility in revenue as e-commerce business, and the company can increase product sales revenue at a quarterly pace of 18% and services revenue at a quarterly rate of 22%.

BZUN_chart 2_042315

Even though the company operates in a rapidly growing market, it is also spending a lot of money to maintain its large IT, fulfillment, and marketing operations that drove the company to report a net loss of $25M attributable to ordinary shareholders. In 2014, the company generated $255M in revenue and is expected to use the IPO proceeds to invest further in its operations to improve its solutions, increase efficiency, and meet the future demand.

Baozun’s largest shareholder is e-commerce giant Alibaba with a 23.5% stake in the company. It is unclear whether Alibaba holds Baozun as a pure financial investment or as a strategic investment that could impact its logistics worldwide. However, it is without doubt an interesting angle to the Baozun IPO.


Baozun, a Chinese e-commerce service provider, filed for IPO recently. Baozun provides end-to-end e-commerce services for global brands in the Chinese market and presents impressive high double-digit growth rates in its top line coupled with a negative bottom line. An expected boom in Chinese e-commerce should drive the e-commerce service market up and drive additional revenues for Baozun. Investors interested in benefiting from the rapid expansion in Chinese e-commerce and intimidated by Alibaba’s or JD’s valuations may find Baozun IPO interesting. Once the company prices its IPO shares and the valuation is clear, I will revisit this thesis with a valuation comparison to the main Chinese e-commerce players.

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Comments on this article and BZUN stock

The only worrisome part with all these Chinese ventures is their complicated holding structures via Cayman Islands. Alibaba did it that way. What is the situation with this company? Alibaba owns a good amount of Baozun, and that is definitely going to help this small company.
1 reply
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In Baozun case, the structure is relatively simple. Boazun offers shares in Baozun Inc. the holding company in the Cayman Islands. The Cayman corporations holds 100% of all subsidiaries through Shanghai Baozun E-Commerce Limited.
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