(iChinaStock News) Dangdang’s (NYSE: DANG) CFO Yang Hongjia has a theory: “E-commerce is in a moment of rapid growth, it’s an enormous opportunity. In this phase, gaining market share is our priority,” he told iMeigu in an interview.
That is, of course, exactly what every Internet company in China is saying to justify losses. To dive deeper, I dug through Amazon’s (NASDAQ: AMZN) old financial reports to find a point of comparison: Amazon in 1998, at a comparable size to Dangdang today.
A few key observations:
- Amazon had better margins (23%) than Dangdang does (14%). Today, Amazon’s margin is also 23%.
- Amazon had higher operating expenses (minus M&A costs) as a percentage of revenues (36%). Dangdang is at 22%. Today, that number has also come down to 22% for Amazon.
- Amazon had substantially higher marketing expenses than Dangdang, likely because e-commerce was still a more alien concept to Americans in 1998 than it is to Chinese in 2011. Dangdang’s marketing spend of $6 million looks small compared to Amazon’s $38 million. Today, Amazon’s revenues have grown 70x but its marketing spend by only 10x.
- Amazon didn’t list fulfillment expenses in 1998, a substantial expense for Dangdang.
Dangdang today vs. Amazon in 1998
And, for the sake of comparison, below is Dangdang today vs. Amazon today. As you can see, Amazon today has a huge merchandise (including electronics) business that Dangdang has only started to develop recently–though it grew at a 162% clip over the past year.
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