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BABA: Singles-Day Takeaways

Takeaway: Singles Day was a big success, but we can't glean too much for F3Q15. Mobile continues to surge, which will be a growing headwind for BABA


  • TOTAL GMV: As of midnight in China, BABA reported total transactions with a GMV (Gross Merchandise Value) of RMB 57.1B for the 24-hr Singles Day event, which translates to y/y growth of 57%.  If that growth holds through the quarter, it would mark a considerable acceleration in y/y GMV growth from the 51% growth reported last quarter (F2Q15).  However, we don’t know how much of F3Q15 GMV will be concentrated into Singles Day.  Jack Ma suggested on CNBC that there was a slowdown in GMV in anticipation of Singles Day, so we can’t glean too much for F3Q15 from the Single Day GMV report.
  • MOBILE GMV %: We want to reiterate that Mobile is a headwind to its marketing business since vendors aren't wiling to pay comparable ad rates for mobile ad clicks and BABA isn't delivering a comparable ad load on mobile devices.  BABA reported that 42.6% of GMV occurred on mobile devices, which would mark a 7 percentage-point acceleration from its prior quarter.  If that percentage holds for the quarter, it would be produce a y/y acceleration of 23 percentage points, which would be the largest y/y increase in Mobile GMV % in its reported history.  
  • THE BIGGER QUESTION: How much of BABA's GMV came from Tmall, which is where it collects commissions.  The ongoing shift in GMV towards Tmall remains its largest driver of Commission revenue growth.  The key question: What is the ultimate ceiling for Tmall GMV mix? This will be the key metric that we'll be monitoring moving forward,  because once the Tmall GMV % sputters, the runway for Commission revenue growth will sputter with it.  That would expose the growing weakness that we’re expecting for BABA’s core marketing segment (~60 of revenue).


For more detail on our bearish long-term thesis, see link below.  Let us know if you have any questions, or would like to discuss in more detail.


BABA: Leaning Short, But...

10/21/14 07:02 AM EDT




Hesham Shaaban, CFA



Cartoon of the Day: Thank You

"Since today is one of the most important days of the year to show our gratitude and respect (Veterans Day in the US, Remembrance Day in Canada, Armistice Day across Europe)," CEO Keith McCullough began in today's Morning Newsletter, "I’d like to take a minute to do that this morning."


"While the battlefield of economic and market risks continue to mount, we should never forget the sacred one where our bravest countrymen have fought for our liberty and freedom."


Cartoon of the Day: Thank You - veterans day cartoon 11.11.2014

That Old Wall Guy Telling You ‘Oil’s Down! Buy Consumer Discretionary!’ Ignore Him | $XLY

Popular consensus right now is that Down Oil = Up Consumer Stocks. But that isn’t working.


That Old Wall Guy Telling You ‘Oil’s Down! Buy Consumer Discretionary!’ Ignore Him  | $XLY - guy


Consumer Discretionary (XLY) was both down on a "market up" week (last week) and down again on a "market up" day yesterday. By our math, 2/3rds  of the United States is still in a spending recession.


In other words, no wage growth and highest cost of living, all-time.

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Macro Notebook 11/11: Commodities | XLY | Volume


Hedgeye Director of Research Daryl Jones shares the top three things in Keith's macro notebook this morning.

Retail Callouts (11/11): ICSC, KATE, M, TGT, KSS, BABA, ZQK

Takeaway: No snapback in ICSC on easy compares. KATE/NB partnership no lose for KATE. More Black Friday moves by TGT. Creating our own KSS word cloud.



Retail Callouts (11/11): ICSC, KATE, M, TGT, KSS, BABA, ZQK - 11 11 chart2




ICSC (International Council of Shopping Centers -- Sales index of 80 general merchandise retailers)

Takeaway: Very slight sequential bump to +2.1% vs +1.8% last week. Not enough to reverse the downtrend we've been seeing for the past month. What's interesting is that last year, we saw disposable personal income growth go negative in November and December. That suggests to us that we should be seeing a pop in sales growth as we head into the final stretch of the year. Guess not.


Retail Callouts (11/11): ICSC, KATE, M, TGT, KSS, BABA, ZQK - 11 11 chart1





Retail Callouts (11/11): ICSC, KATE, M, TGT, KSS, BABA, ZQK - 11 11 chart3


KATE - How New Balance Became Fashion's No-Risk Source for Sneaker Cred



  • "Last week the company told analysts that New Balance is stitching up a special line of its WX711 and the coming WX811 in Spade’s 'signature bright colors and graphic prints.' The shoes will start selling in February for $95 at both Kate Spade and New Balance stores.


Takeaway: At first blush, this wasn't exactly what we had in mind when it came to the Saturday-New Balance partnership. Very little branding from what we can see outside of the text towards the heel of the shoe plus some funky pattern on the midsole = a black New Balance shoe with Zebra stripes.  But the reality for KATE is that this partnership has zero downside. They're using the Saturday banner, which has zero relevance to the consumer. They can't damage what does not exist in the event that this initiative goes South.  We're a lot more interested to see how the West Elm partnership goes for KATE.


M - Macy's Set to Unveil Visual Search App



  • "(Macy's) today will unveil a new app that allows customers to snap photos of outfits they like, upload them and have the same or similar items identified from its existing inventory and made available for immediate purchase."


Takeaway: Smart move by Macy's here. We'd be shocked if it directly generates even a hundredth of a point in comp. But it is a way for Macy's to collect information regarding consumers likes/dislikes that will help the company merchandise the store better. We still think Macy's is a short here. But we recognize and admire what it's doing as industry forces pressure earnings and cash flow.


TGT- Target opening at 6pm Thanksgiving, Announces Black Friday Deals



Takeaway: Target is opening 2 hours earlier -- again -- are giving 10% off gift cards on November 28th, and that's on top of offering free shipping on every single item (no matter how low priced) on Target online. Could Target win back traffic in Cornell's first holiday at Target? Sure. But we seriously question what kind of Gross Margins TGT will put up over the next two quarters.


KSS: A Play On Words



Retail Callouts (11/11): ICSC, KATE, M, TGT, KSS, BABA, ZQK - 11 11 chart4

Takeaway: Hey, give KSS a little credit here. At least the company is being consistent with consumers and investors alike. At the company's analyst meeting on 10/29, the company mentioned the word 'Frozen' 10 times throughout the day. In fact, we ran our own word cloud from the KSS Analyst Day transcript looking for traditional Wall Street words like revenue, margin, and profit as well as some of the 'head scratcher' words we heard during the 7+ hour meeting ie. Love, Frozen, and Greatness Agenda. This is the result. Not a surprise that the word 'Love' = 27x ('Love will drive our business'), and 'Greatness Agenda' 18x. The word 'Profit', which we think is a pretty important one, was mentioned only 10x, 'Earnings' only 2x, and 'Revenue' only 1x.


BABA- Alibaba Singles' Day Sales Top $5.9 Billion



  • "Alibaba Group Holding Ltd. turned an obscure Chinese holiday into the country's biggest shopping event. Now it's aiming to take the success of Singles' Day global by tapping foreign brands, including Calvin Klein and Blue Nile Inc."
  • "Those companies, along with Costco Wholesale Corp., Origins Natural Resources Inc. and American Eagle Outfitters Inc., are participating in Tuesday's event for the first time. Alibaba said it sold more than 36.2 billion renminbi, or $5.9 billion, of merchandise within 14 hours of the promotion kicking off, eclipsing last year's record."


Takeaway: To put this number in perspective, US Consumers spent $1.25bn on Cyber Monday last year on ALL online sites.  Alibaba alone clocked in 4.7x that amount on Singles' Day.  BABA did $1bn of volume in the first 18 minutes, and $2bn in the first hour alone.


ZQK - Quiksilver Reaches Agreement to Sell Surfdome to SurfStitch Group



  • "Quiksilver expects to receive net proceeds of approximately (US)$16 million for its equity interest, loans and other amounts due from Surfdome. The all-cash transaction, which is subject to SurfStitch reaching agreement to purchase the minority interest in Surfdome, is expected to close before the end of the current calendar year."


Takeaway: No brainer for ZQK on this one. The balance sheet needs every nickel it can find. Though the company did not release precise economics, we think that the income from Surfdome was well below $1mm annually. $16mm in proceeds makes a lot of sense from where we sit.





India to Ban Import of Animal Tested Cosmetics



  • "In a historic move for the beauty industry in India a ban on the import of cosmetics tested on animals will go into effect Thursday."


RSH- RadioShack Resorts to Thanksgiving Openings to Boost Sales



  • "More than 3,000 of RadioShack’s stores will be open on Nov. 27 from 8 a.m. to midnight"

LEISURE LETTER (11/11/2014)

Tickers: H


  • Nov 11
    • Stations Casino Q3 earnings: 4:30pm
  • Nov 13-16
    • Macau Grand Prix
    • Hedgeye Cruise Pricing Survey
  • Nov 16-18
    • Quantum of the Seas investor event


H – Hyatt Hotels and Playa Hotels & Resorts B.V., announced the upcoming opening of Hyatt Ziva Puerto Vallarta, Mexico. The new all inclusive resort, which is scheduled to open December in time for the winter holiday season, is at the site of the former Dreams Puerto Vallarta. It is the culmination of an approximate $20 million expansion, renovation and repositioning that is intended to reinvent this resort destination in a way that brings effortless indulgence to the all inclusive vacation experience.

Takeaway: Based on our search, we found availability beginning on Sunday, December 28 at a nightly rate of $368 for a Ziva Terrace King Bed.


Insider Transactions:

BYD - Vice Chairman Marianne Boyd Johnson sold 22,800 shares, sold 800 shares at $11.84 each and another 22,000 at $11.54 each out of the Marianne Boyd Gaming Properties Trust. The trust still owns 5.612 million shares.

Takeaway:  Not sure why she is selling but it does not appear to be related to the expiration of options.  Ms Boyd has sold 74,300 shares so far in November.


Macau's Secretary for Economy & Finance – Lionel Leong Vai Tac is rumored to be the favorite to replace Francis Tam Pak Yuen as Secretary for Economy and Finance, the official that oversees Macau’s gaming industry. Lionel Leong Vai Tac, Vice-Chairman of the Advisory Council on the Environment and member of the Executive Council and the National People’s Congress.


Takeaway: If true, it will be interesting to see how Mr. Leong Vai Tac works with the gaming operators - in a prior business life, he provided laundry services to many of the Macau casinos/hotels.


Macau Population Increase – The population of Macau was 631,000 at the end of September, 7,000 more than three months earlier. The Statistics and Census Service attributes the increase to the influx of migrant workers, whose number rose by 7,567 to 162,877. In the third quarter 1,971 babies were born in the city, 419 people died, 2,656 Chinese immigrated and 538 people gained the right of abode.




Zhuhai MICE – last week, the Zhuhai International Convention & Exhibition Center (ZCEC) opened to its first event when it hosted the China (Zhuhai) International Automobile Exhibition.  Costing 7 billion yuan ($1.14 billion), the 269,000sqm CEC is comparable to the Shenzhen Convention & Exhibition and the Guangzhou (Pazhou) International Convention & Exhibition center. The first phase, with floor space of 700,000sqm, encompasses the International Exhibition Wing with six 5,000sqm halls at ground level; International Convention Wing with the 2,000sqm Plenary Hall; Opera Theater, Concert Hall; 35 meeting rooms; and support facilities. The 30,000sqm exhibition floor accommodates 1,600 standard 3-square-metre booths. The CEC also has a 4,500sqm column-free, divisible Grand Ballroom with a 4,000sqm kitchen capable of catering round-table banquets of up to 6,000 people.


Takeaway: Increased competition for MICE from Zhuhai and more importantly MICE attendees will not need a Macau visa. 


Macau Loansharking Increasing – A total of 177 loansharking cases, mostly related to ‘gaming activities’ in the city, were recorded for the first nine months of this year, according to Secretary for Security Cheong Kuoc Va. The number of registered loansharking cases as at end-September represent a rise of 48.7% when compared with the same period last year, making it one of the types of crime recording the most rapid increase so far. Of the 98 people arrested for the loansharking cases in the period this year, most were from mainland China.


Takeaway: Increased loanshark activity, an outward sign of tighter credit for the mass population.


Macau Visitation Overstay Crackdown – for the January to September period, Macau Immigration Security Units have seen more mainland Chinese overstay using permits other than the individual visit scheme visas. A total of 31,198 of these overstays were recorded for the period, which is 5,520 more people than a year ago, while the number of overstays using a permit for the individual visit scheme in the period is 3,426 people, 75 people less than the same period last year.  However, Secretary for Security Cheong Kuoc Va noted the number of overstays from the mainland has already fallen since July, the month authorities imposed the new rule requiring mainland Chinese passport holders transiting Macau to and from another country or territory be granted a stay of five days maximum instead of seven.



Florida Casino Boat Files for Bankruptcy – the Palm Beach-based, 600-passenger Island Breeze Casino filed for bankruptcy.  The operators are hoping to restart operations next month after reaching an agreement with its Miami slot machine leaser. The Island Breeze charges a $15 boarding fee to non-members and $10 fee to player club members.


Takeaway: Apparently not quite the "from Palm Beach to Vegas in 30 minutes" experience as advertised.  The operators promised the Port of Palm Beach the vessel would carry 125,000 passengers per year OR pay $5 for each person below that headcount.


Real Estate to be 11 GICS Sector – last night MSCI and S&P announced Real Estate will become the 11th Global Industry Classification Standard (GICS) sector with implementation to be effective after market close on August 31, 2016. Both, MSCI & S&P are requesting feedback on the implementation by February 13, 2015. 

Takeaway: While likely an initial 3.5% weighting in the Index (based on current weighting), this segregation likely paves the way for additional REIT inclusions in the Index. 


Japan Consumer Sentiment dropped for the third consecutive month in October.  The Japanese Consumer Confidence Index was 38.9 in October, down from 39.9 in September. A reading below 50 suggests consumer pessimism


Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

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