Mecox Lane, the first publicly listed online retailer in China, was sued by investors after reporting a disappointing third quarter report.

The company was listed on October 26 in Nasdaq. At its debut, its share raised as much as 68%, as investor grab a piece of the online garment and appeal retailers. Everyone believe it will be a winner. At US$17.26 a share, Mexco Lane’s is selling at 157 times earning. In comparison, Amazon was only trading at 47.5 times earing.

But after it reported its third quarter result, investors’ mood changed 180 degree. Its share dropped 40% on Nov 30 and another 18% on Dec 1. Its share price was as low as US$6.45, before recovering to US$7.8 last Friday.

The result showed Mexco Lane’s sales grew 36% and profit almost triple from a year ago. But it expected its fourth quarter revenue to only mildly improve from the third, US$57.2-60.4 million, compared with third quarter’s US$55.3 million. Obviously, that is too small an increase to support a PE ratio of over 150.

Now, U.S. based Rosen Law Firm is suing Mecox, in a class action, for inaccurate registration statement in its IPO prospectus.

The incident makes you wonder how much oversea investors really know about the Chinese companies before they buy their shares. Only a few weeks ago, they thought Mecox Lane is an hot issue as online retailing is growing fast in China. But, when the result came out, they realized the company’s growth was only average.

Should Mecox Lane’s executives and the bankers arranging its IPO be blamed for misleading the investors?? Maybe. Should the investors be blamed for not doing their homework and really studying the fundamental of Mecox Lane, before they invested?? Maybe, too.

Many people in China can point out: Mecox Lane is not the best among all the online retailer. Its offline business (about 30-40% of revenue are from its own and franchised stores) is also dragging its growth and profitability. So, they are not surprised at the third quarter result.  It is why Mecox Lane could fetch such a high price during IPO debut they are surprised at, said a China based industry analyst.

The incident obviously will have an impact on the other online retailers planning IPO. With such a disappointing starter, would investors have appetites for the main courses ?? Dangdang’s IPO seems to be delayed, until the Mecox Lane incident is resolved or forgotten…

Sherman So

Author of Red Wired: China's Internet Revolution, the first book to completely survey the nature of China's internet. ( She previously was the lead China technology reporter...

Leave a comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.