This article was originally published by TheStreet on May 28, 2014
By Sarfaraz A. Khan. Research Asst. Ali Elahi
NEW YORK (TheStreet) -- With all the hype surrounding the initial public offering of Alibaba, a little-known, four-year old Chinese company called Jumei International (JMEI), the biggest player in the online beauty products niche, quietly debuted at the New York Stock Exchange.
Jumei, whose shares recently traded around $27, up over 15%, has been growing its revenue, income and customer base at triple-digit rates. The company has a healthy balance sheet, with increasing cash reserves and zero debt.
The Beijing company, valued at $3.2 billion, sells beauty products such as cosmetics, skin care products and fragrances, primarily from its Web site and mobile applications. The company opened its first physical store in Beijing in late 2013. The company is currently eyeing expansion by investing in mobile and growing its exclusive products portfolio.
Jumei's American depository receipts recently traded around $27, up over 15% compared with its IPO price of $22. This makes Jumei a bargain -- on average, shares of Jumei's peers trade at over 50 times their annual sales, according to data compiled by Thomson Reuters.
Jumei gets its revenue from two sources: selling merchandise and generating fees by offering marketplace services to other vendors. Last year, Jumei earned 85.5% of its revenue by selling merchandise and 14.5% by offering marketplace services.
Data from Alexa, which provides commercial Web traffic data, show the popularity of Jumei's Web site in China by visitors and pageviews. According to Frost and Sullivan, Jumei.com was the most visited beauty products Web site in China in 2013.
In short, Jumei is the biggest online player in China's cosmetic industry, with a market share of 22%. That is an excellent position to be in since China is home to one of the world's largest beauty products industry, which is expected to grow at an average rate of 14.3% through 2018.
Jumei's net revenue have grown from just $22 million and in 2011 to $483 million in 2013. The company's bottom line has also improved significantly, from a loss of $4 million in 2011 to a profit of $25 million in 2013.
Meanwhile, Jumei cash reserves climbed from just $9.1 million in 2011 to $111.4 million by the end of last year. During this period, the company's customer base has grown to 10.5 million individuals by the end of 2013, from just 1.3 million in 2011 and 4.8 million in 2012.
Moreover, despite significantly growing its user base, Jumei has not shown any drops in the percentage of repeat customers. On the contrary, its customers are now more loyal than before. For 2013, Jumei said 62% of its active customers came back for another purchase, an increase from 54% in 2011 and 56% in 2012.
The person responsible for the phenomenal rise of this company is its founder and current CEO Leo Chen, an MBA from Stanford University, who is also the brains behind the online gamingportal Garena. Jumei is controlled by Chen, who holds a majority of the voting power.
With increasing cash reserves and a successful $245 million initial public offering, Jumei is eyeing significant expansion in the coming years. The company has planned to invest in its marketing and branding efforts; which include expansion of its higher-margin exclusive product portfolio, development of more physical stores, ramping up its logistics network and improving its IT infrastructure.
Jumei has planned to grow its lucrative exclusive products portfolio by entering into additional exclusivity agreements with its supplier with some of the leading global and local brands.
Jumei is also strengthening its mobile base. The company launched Android and iOS based mobile applications in the middle of 2012 and by first quarter of 2014, nearly half of its sales volume was coming from mobile devices.
The company has said that it aims to transfer its Web site-only customers to mobile. Jumei has been offering mobile-only promotional sales. The company is working on improving the mobile user engagement by offering customized text messages and notifications. Moreover, Jumei is actively looking for strategic alliances with other companies and acquisitions to bolster its growth on the mobile platform.
Jumei operates in an extremely competitive industry. The company has to fight against the conventional beauty retailers such as Watsons and Sephora as well as the bigger e-commerce players such as VipShop Holdings (VIPS), JD.com (JD), Amazon's (AMZN) Amazon China and DangDang (DANG).
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
