Credit Cards Sizzle, Debt Fizzles And Alibaba Crushes Earnings

It’s Friday, which can only mean one thing — time to see what Sizzled and what Fizzled this week.

Sizzle:

Retail Sales: Research firms like Seeking Alpha have pointed out that retail sales are at their highest level since holiday sales shopping dominated in December 2016. And they are at the highest level, as measured in July, on a monthly basis, this year. One reason for the turbo charge: Amazon Prime. Who needs a real holiday when you can create a shopping holiday?

Credit Cards: It’s in the cards — private label cards, that is — where Berkshire Hathaway, the investment vehicle famously helmed by billionaire investor Warren Buffett, took a 2.2 percent stake in Synchrony Financial. It dovetails nicely, perhaps, with Berkshire’s long-standing Amex stake and proof positive that at least one (very) smart guy is not all that worried about cards and credit, at least when issued to prime borrowers.

Discount stores: What’s one of the best things about shopping? Finding a surprise — something you didn’t know you needed. That’s a heady experience. one that can lead to repeat buying. It is also proving to be a lure for shoppers at discount stores such as TJ Maxx and Marshalls, where sales trends have been positive, bucking malaise seen at other retailers.

Fizzle:

Fake Bling: Fake Bling costs a lot of cha-ching — to the tune of $19 million in a verdict a judge levied against one large retailer. (We bet you know who it is. It has Cost in its name). Tread carefully among trademark names like Tiffany and avoid generic references to settings and styles or suffer the consequences. The worst consequence of all? The dire ire from an enraged fiancée who finds out the ring may not really be from Tiffany & Co. after all.

Debt: Total household debt is up to $12.8 trillion as measured at June’s end, notching another record high here in the United States. Credit card balances that are coming delinquent have ticked up a bit — and as rates rise, carrying that debt gets more expensive. No one knows when or where — or even if — there’s a tipping point where distress becomes dire. But, the canary in the coal mine may be clearing its throat.

Live Nation: Heady stock gains come and heady stock gains go. On the day that event ticket maven Live Nation posted results that sent its stock up 12 percent intraday, the company saw that stock rally fizzle a bit, to flat and then ending the day up five percent. The reason? Amazon, of course.  The big A has been rumored to be interested in getting into event ticketing, and if so, would go up against Live Nation’s Ticketmaster.

Sizzle of The Week: Alibaba

Where 466 million come to shop — and spend a lot.

That would be Alibaba’s eCommerce platform, which reported earnings yesterday. CEO Daniel Zhang told analysts that Alibaba’s profit nearly doubled to 14 billion RMB ($2.1 billion) during Q2, a 96 percent increase in net profitability year-over-year. Revenue was also up 56 percent to 50.2 billion CNY ($7.4 billion).

The Chinese middle class seems to be doing a lot of shopping across Alibaba’s various eCommerce outlets.

“Alibaba had a strong start to fiscal 2018, reflecting the strength and diversity of our businesses and the value we bring to customers on our platforms,” Zhang said. “Our technology is driving significant growth across our business and strengthening our position beyond core commerce.”

The largest single contributor to Alibaba’s remains its core commerce business — responsible for $6.4 billion of its revenue. But the largest contributor to that 56 percent annual growth was led largely by the firm’s smaller business units, including its cloud computing business and digital entertainment unit — home of the video service Youku Tudou.

The vast majority of Alibaba’s revenue comes from within China — for now. Alibaba has openly and aggressively been expanding its international presence over the last year, reporting that its international eCommerce services have reached “meaningful scale” with $389 million in revenue.

Alibaba, of course, has something of a history of late summer sizzles.

As summer gave way to fall in 2014, Alibaba had the largest IPO in U.S. history. In the year that followed, it had some trouble living up to the hype and spent much of that time battling sagging share prices — sales grew, but so did the competition for its services. Critics also expressed concerns that Alibaba’s expansion into areas such as cloud computing and entertainment was diverting focus away from its core business.

Today, Alibaba’s shares have jumped almost 90 percent in value, making Alibaba’s single largest shareholder CEO Jack Ma $1 billion richer, but also bringing Alibaba’s market value within literal spitting distance of Amazon’s. (See chart above from Quartz.)

But it remains notable that Alibaba is closing the gap — and fast — even as economic activity in China is slowing down. The Chinese middle class may be slowing its consumption — but by the numbers, when they shop, they are overwhelmingly using Alibaba to do it.