Uxin Ltd (NASDAQ:UXIN) is one company that could claim unfair punishment by the equity markets. In the earnings report for the third quarter of 2018, the firm posted strong numbers. However, the stock fell to almost the third of its IPO price.
During the quarter, the company reported revenue growth of 59.6% year-on-year to $125.5 million. Of the total, 2C transaction facilitation revenue grew by the largest margin of 165.3%. Further, the company reported increased profits as well as favorable gross margin.
US-China trade war
However, the stock still fell 12% in the immediate aftermath of the earnings report. One of the reasons for the slump could be the increasing cost of revenue for the quarter.
Further, the firm undertook aggressive marketing campaigns to boost sales beyond the traditional Chinese market. As such, Uxin Ltd reported ballooning operating expenses during the quarter. However, it does not suffice to say that the costs are entirely responsible for the overall 40% slump in November.
In mid-July, the US ramped up its imposition of trade tariffs on goods from China, including automotive parts. Fearing a full trade war, investors walked away from China-focused equity, and in large numbers.
As a result of the walk-away, the stock breached support slumped to under $2.5. At the same time, the stock experienced a sustained weakness in price action for over a week. Particularly, fears of a full trade war solidified on the news of the arrest of Huawei CFO in Canada.
Negative growth for the automakers
Further, the month of October saw the Chinese automakers report negative growth in sales. In particular, sales fell 12.7% to 2.3 million units. As such, this is another reason for the November slump in share price.
Even as Uxin reported strong numbers for the third quarter, it was not enough to buy investor confidence.
However, December began on a high note for Uxin’s stock. First, the firm announced a strategic partnership with Alibaba’s Taobao marketplace. As per the new release, the two e-commerce giants would cooperate on B2B fronts.
Uxin Taobao Marketplace
Notably, the firms agreed to establish a joint online platform for shopping used cars. The “shopping mall” would exist on the Taobao Marketplace platform. In essence, the platform takes customer viewing of vehicles to the next level. It makes use of videos and virtual reality (VR) tools. As such, customers will have much more confidence in the products.
Interestingly, the Uxin Taobao Marketplace was an instant hit. In the first week of the launch, the platform facilitated car transactions for over 2,000 customers.
The equity market was not late in responding to the positive developments. Immediately, the stock jumped over 200%. Interestingly, the stock has sustained the growth with the price establishing support at $5.42 for the 50-day moving average.
Further, the stock seems to be in the bull market as the CCI reading is consistently above 100. The CCI reading also indicates that the stock is strong enough to sustain continued growth.
Uxin’s future growth is uncertain yet strong on the measurement of strategy. If the trade war heats up, the stock will take a harder beating. However, the two countries recently agreed on a truce early December.
If the truce sustains beyond 2019, Uxin Ltd faces a sterling opportunity to grow its stock past the IPO price.
Further, the firm has elaborate strategies in place to ensure more future growth. While commenting on the transaction numbers facilitated by the Uxin Taobao Marketplace, Kun Dai, Founder, Chairman and Chief Executive Officer of Uxin said, “This is just the first step in our partnership with Taobao. Going forward, we will continue to integrate and optimize our platform to make buying used cars online even more transparent and convenient.”