AMZN's Miss Makes DangDang an Easy Short

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

BEIJING (TheStreet) -- Shares of Amazon.com (AMZN) slid as much as 10% in afterhours trading following its release of disappointing fourth-quarter results on Tuesday. The AMZN selloff led shares of Ecommerce China DangDang (DANG) to fall by 3% to 4% in afterhours, after it was already down by more than 10% during the regular trading session. The question for investors is: what conclusions about DANG can we draw from AMZN.

DANG is often referred to as "The Amazon of China." I have frequently disagreed with this label because ecommerce in China is not dominated by one behemoth like AMZN, but instead is split between a number of substantial competitors. DANG probably ranks about third or fourth based on traffic and revenue (coming in behind such non-listed names as Taobao and 360Buy.com). The reason that Wall Street refers to DANG as the Amazon of China is that we don't really have any other U.S.-listed alternative, so we are stuck playing with the third- or fourth-place player. In the competitive world of ecommerce, there is likely to be no prize for coming in fourth.

Follow TheStreet on Twitter and become a fan on Facebook.

On Monday, as DANG was still ripping higher on the back of the surge in RenRen (RENN), I decided to go short DANG at a price of $8.21, and I expect to stay short through earnings (which are due out shortly) because all signs point to a very disappointing fourth quarter. I believe this will take the stock back below $6, which incidentally is where Wall Street analysts already have a share price target for the stock. The stock currently trades at about $7. At the extreme I see DANG trading back at around $5, where it was a few weeks ago.

In early November (before the recent run up) DANG was still trading above $6, but a "surprise" earnings disappointment caused the stock to drop 27% to around $4.40 over the period of about two weeks. Revenue grew substantially as expected, but the net loss was significantly larger than expected at around $12 million for the quarter.