Dangdang Surges as 'China's Amazon' Hits Crossroads

NEW YORK ( TheStreet) -- E Commerce China Dangdang ( DANG) was climbing Thursday on more than three times its average volume after an upbeat outlook triggered a short-squeeze, prompting investors who had bet the stock would fall to buy shares to curtail their losses.

Dangdang was surging more than 5.5% to $5.22, extending a two-week gain to 41%. Shares have been soaring since May 2, when the company announced that it was launching a "Flash Sales Channel" on May 7, featuring 'deal-of-the-day' items to encourage impulse purchases.

"They've had a vertical move over the past two weeks and are sitting right near potential resistance from their 200-day moving average right here," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "If the shares can break this trend line, the shorts betting against the shares could be forced to cover and push the shares that much higher."

After a better-than-expected first quarter that showed growth in its marketplace unit, the company known as the "Amazon" of China said revenue for the second quarter will increase 23% to about RMB1.6 billion, or about $260 million. Dangdang also expects its marketplace unit to grow 175% this quarter compared to the same period a year ago. Dangdang's been trying to improve its margins by shifting its focus to the marketplace unit, which allows third-party merchants to sell their general merchandise products alongside products sourced by the company.

"We are confident that Dangdang's transition from online bookstore to an integrated online shopping mall is well under way," Peggy Yu Yu, Dangdang's executive chairwoman said in a statement.

This morning, Dangdang reported a first-quarter loss of 15 cents (RMB0.91) per ADS on a revenue increase of 23% to $214.75 million (RMB1.3338 billion). Wall Street on average was expecting an 18 cents loss on revenue of $214.69 million.

General merchandise revenue for the first quarter increased 12% from a year ago to $66.3 million (RMB411.7 million). Other revenues, including revenues from third-party merchants jumped 194% to $9.4 million (RMB58.1 million). Book and media sales grew 24%, allowing the company to maintain a dominant market share in online media sector. The company's gross margin rose to 17.2%, the highest since the second quarter of 2011, compared with 14.2% in the first quarter of 2012 and 13.4% in the fourth quarter of 2012.

Written by Andrea Tse in New York

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