Please note that we are adding Gold (GLD) to Investing Ideas today.
Our macro team will outline our bullish thesis in this weekend's edition.
In today's edition of RTA Live, Hedgeye CEO Keith McCullough did not mince words when asked about Alibaba.
RTA Live is available exclusively to Real-Time Alerts subscribers.
In today's edition of RTA Live, Hedgeye CEO Keith McCullough ran through the Real-Time Alerts positions as of 10:30AM ET and answers subscriber questions on $RH, $BABA, and more.
Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.
Takeaway: The last time jobless claims were this low it was the year 2000. $45 oil, however, continues to take its toll on energy states.
Below is the detailed breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact
Claims Match Y2K Lows, While Energy State Labor Weakness Persists
Total initial claims showed an impressive decline in the latest week, falling -80k Y/Y to 265k (SA) and putting in their lowest reading since 2000. NSA claims, meanwhile, were lower by -22% Y/Y on a single week basis. There don't appear to be any special factors in the report.
It's worth noting that while Y2K started out decently from an equity market performance standpoint, the S&P 500 was down 10% by the end of that year and went on to lose another 13% in 2001 and 23% in 2002.
For the last several weeks we've been calling out the performance of the eight energy states (AK, LA, NM, ND, OK, TX, WV, WY) to gauge whether labor conditions there are diverging from the country as a whole. In the latest week it appears the spread between the country and the basket of energy states remained steady at around 15 points. For reference, we've indexed the two series back to May of last year and we're interested in the spread between the two indices. The two charts below illustrate this dynamic.
Prior to revision, initial jobless claims fell -42k to 265k from 307k WoW, as the prior week's number was revised up by 1k to 308k.
The headline (unrevised) number shows claims were lower by -43k WoW.
Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -8.25k WoW to 298.5k.
The 4-week rolling average of NSA claims, another way of evaluating the data, was -9.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -8.0%
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
Takeaway: Net yields guidance uninspiring and European commentary a little tenuous
The chart below describes one reason why there was mismodeling for fuel and how the Street missed FX impact.
For your reference, we have reattached our past pricing survey. http://docs.hedgeye.com/HE_Cruise_Pricing_JAN2015_Wave.pdf
Q & A
Takeaway: Only two key themes matter. The mobile hammer is crushing its business, and stalling Tmall mix shift is the nail in the coffin.
BABA's mobile GMV percentage experienced its sharpest y/y growth in its reported history. In turn, BABA's ad monetization rate (GMV take-rate) got hammered on a y/y basis, and estimated y/y growth on its core marketing segment decelerated precipitously to 19% vs. 32% in the prior quarter.
So why is mobile a headwind? BABA’s ad prices are determined through on online auction platform, which means its vendors set the price. Vendors are not willing to pay comparable rates for mobile ad clicks as they are for desktop clicks.
We suspect the reason why mobile ad rates are lower is because vendors are getting a lower ROI on that ad spend, likely mobile is how China's less affluent access the internet access, and those consumers must be inherently more selective with their purchases. BABA's own metric suggest as much, with mobile representing the majority of buyers, but the minority of GMV
Moving forward, BABA's next wave of user growth will come from a less-affluent consumer, meaning the pricing pressure across its core marketing segments will only get worse. So while there will be some sell-side noise touting mobile as a long-term opportunity, it's because they don't understand who that mobile consumer is. Mobile is not an opportunity, it's a secular headwind. See notes below for more detail.
BABA: Model Facing Secular Pressure
12/04/14 09:17 AM EST
BABA: What the Street is Missing
11/26/14 08:03 AM EST
The key metric that we were keying in on this quarter was Tmall GMV mix shift, which had been propelling Commission revenue growth well in excess of GMV growth.
The reason is that BABA charges commissions on Tmall transactions, so if a greater percentage of GMV flows to Tmall, BABA has more GMV to tax. In turn, even if BABA's core marketing segment is under pressure, commission revenues could compensate alongside growing Tmall mix. That is what has kept us on the sidelines on the short side.
However, that sputtered out this quarter. Tmall GMV mix only increased by 2.6 percentage points y/y vs. its historical tend of 5+ percentage point. In turn, commission revenue growth slowed precipitously, exposing the weakness in BABA's core marketing segment.
In short, we don't see Tmall Mix Shift as long-term secular tailwind. That means BABA's growth prospects are now even more dependent on its GMV, which is where we are decidedly bearish.
Let us know if you have any question, or would like to discuss in more detail.
Hesham Shaaban, CFA