In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Maria Gallagher about the latest headlines and earnings reports from Wall Street. They talk about how people have no problem spending money with Alibaba (NYSE:BABA), some new draft regulations by Chinese authorities, and much more.
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This video was recorded on Nov. 12, 2020.
Chris Hill: It's Thursday, November 12th. Welcome to MarketFoolery. I'm Chris Hill, with me today, from the financial capital of the United States of America, it's Maria Gallagher. Thanks for being here.
Maria Gallagher: Thanks for having me.
Hill: Earnings season continues to roll on, but first, we're going talk about Alibaba, the Chinese e-commerce giant. Shares are up a bit in the wake of Singles' Day; and for those unfamiliar, Singles' Day is November 11th and it is the biggest [laughs] shopping day of the year, it is Black Friday and Cyber Monday combined and then, like, double that, because Alibaba did $75 billion in sales for Singles' Day. It's a little hard for me to wrap my head around that.
Gallagher: Yeah, it's pretty wild. So, it started in 2009, Singles' Day as a holiday, it's November 11, 11/11, so four 1s in a row, and that started in the mid-'90s. And then in 2009, Alibaba kind of commercialized it, created the first Singles' Day shopping experience. The gross merchandise volume in 2009 was $7.8 million, and like you said, Chris, this year it was $75 billion. So, it has grown exponentially. The Foreign Brands, which I think is interesting, was a big focus this year. The U.S. was the top-selling country by gross merchandise volume. So, over $5 billion of that total almost $75 billion came from the U.S.
And so many people had no problem spending money, I think, there was kind of an idea that people would be a little bit more stringent this year, but that definitely wasn't the case. And I will say, it's important to note, that this year they, kind of, spread it out, it wasn't just this one day, it started promotions on November 1st. So, there is more time, but still, even with a week-and-a-half, that is a lot of money to pull in, it is bigger than Black Friday and Cyber Monday combined.
Hill: Yeah. Thank you for adding that very important asterisks, because for anyone who has been following this, you know, we've seen it tick up year-over-year, this is a massive leap from what we saw in 2019. So, I don't know if they looked at what Amazon has been doing [laughs] the last couple of years with Prime Day, and saying, oh, it's actually spread out over more than 24 hours, that seems like a good idea. Wherever they got the idea, it was a smart move by them.
Yeah, what's interesting to see, I mean, the stock is up a little bit today. I know that Alibaba is dealing with some regulatory issues. The stock is up about 20% year-to-date. And you can look at that and compare it to what we've seen with Amazon in 2020, along with Walmart and Target and that sort of thing, this is a $720 billion company. I mean, this is a massive entity. So, 20% growth when you're that big, it should never be discounted.
Gallagher: Yeah, it's impressive growth, it has consistently impressive growth, but like you mentioned, there are some new regulations, the Chinese regulators just released the draft of their antitrust rules. So, it's the first publication that is identifying those policies in terms of things, like, pricing, payment methods, use of data. So, investors are a little bit nervous with the type of government that China has, the ability to, kind of, tamp down on those antitrust will be a little bit more intense than we might see here in the U.S. So, I think that is an important thing to know when you're thinking about investing in Chinese companies, especially massive Chinese companies like Alibaba, or JD, or Tencent.
Their government has a lot more control and a lot more potential to hurt them in the long run if they want to.
Hill: Yeah, they move quickly, you know, for people in the United States who look at the wheels of the Federal government in the United States and think, boy! I mean, are they getting anything done in Washington DC, it sure moves slowly. It's like, well, there's a way to move quickly. [laughs] And China is a good example of that.
Let's move on to Wix.com (NASDAQ:WIX), shares falling about 6% today. This is the website creator. The loss for the third quarter was bigger than expected, the revenue looked good, though.
Gallagher: Yeah, so the revenue was up 29% to $254.2 million. Creative Subscription revenue was up 23%, Business Solutions revenue was up 60%. So, there was a little bit of a hit to the gross margin, because that Business Solutions revenue is lower margin and is becoming a bigger part of their overall revenue. And I think something to note that's really interesting is that this new cohort is actually spending more than previous cohorts. So, they're getting more new customers and those customers are continuing to spend more. So, both of those are really good indicators for the long-term growth of Wix and for that potential for some of those free users to become paid users, and then what those paid users are in fact paying for the platform.
Hill: I think that's really important, because, you know, as someone who has never started his own personal website, and probably never will, you know, I look at Squarespace, Wix.com, I look at these businesses, and one of my thoughts as an investor is, well, how big is the market? Like, how many people are going to start websites? And as you indicated, that move into, sort of, the more business side, the less individual consumer and the more business side, I mean, that's got to be a key driver for them going forward.
Gallagher: Yeah. And I think it also, kind of, indicates the difference in people's consumption habits. So, I would find it hard to believe that somebody would want to start a store without an online presence these days, and so I think that that shift is more and more pronounced, especially now it's being even more accelerated. It's not really possible to exist in this economy without an online presence. And so, it's now, sometimes people would say, oh, I'm old school, I don't even have a website, that's not really an option anymore. And so, I think that that will keep propelling Wix forward, as well as Shopify (NYSE:SHOP), Squarespace, some of those other companies.
Hill: I don't know about you, but it's not surprising to me when [laughs] I run into a situation where I'm looking up whether it's a store I've heard about, a restaurant, something like that, I do a quick Google search, and they don't have a website. They have, you know, maybe a page on Facebook, but they don't have [laughs] their own website. And it's always, sort of, a doubletake situation for me.
Gallagher: Yeah, it's that. And then if I go to a restaurant or something and they're cash-only, I am like, OK, well, where's the nearest ATM? Because I almost never have cash on me.
Hill: When you look at the stock, I mean, unlike Alibaba, shares of Wix have basically doubled this year. So, we're seeing a pullback today, but I mean, this has been a great run for anyone who owns this stock. Do you look at something like this, the market cap around $14 billion and $15 billion, something like that, do you think this presents an opportunity to just get shares at a cheaper price or do you think, well, this is still kind of a richly valued stock?
Gallagher: So, it's definitely richly valued, but I do think that the long-term potential for Wix is really strong. And they also have, kind of, a differentiation where they look at those smaller- to middle-sized companies as opposed to Shopify, looks at those, like, larger enterprise companies. And if you look at Shopify as an indication, you can see all of the different optionality that can potentially exist for Wix. And I think the management team is really strong and I think that they have really big growth potential, like, if you look at Shopify, it is $115 billion. So, even just compared to its largest, but definitely still in a slightly attainable goal, I think it's a possibility that it will continue to do really well; I like the company.
Hill: We're going to wrap up today with Edgewell Personal Care, which is one of those companies where nobody is familiar with the name of the parent company, but everyone is familiar with the brands underneath it. As the name indicates, this is a business that has a number of brands in the categories of things like shaving and grooming and skincare. So, Schick razors, Edge gel, Hawaiian Tropic, Banana Boat Sunscreen, those types of things.
They wrapped up their fiscal year pretty nicely. Fourth quarter revenue was higher than expected, they bumped up their guidance for 2021. Although, [laughs] I will point out that the guidance they gave for 2021 was essentially growth of mid-single-digits, which isn't really [laughs] lighting the world on fire. But shares of Edgewell Personal Care are up more than 8% today.
Gallagher: Yeah, it's interesting. Like you said, they own Schick, Edge, Skintimate, Banana Boat, Playtex is one that I didn't realize they owned. And so, they had stronger than expected earnings, but I will say, sales still fell. So, it was better than expected, but it wasn't, you know, a blowout quarter by any means. Sales fell to $488 million from $528 million a year ago. Their areas of strength were wet shave and sun care. They're trying to work on expansion. They have a lot of savings programs. It's kind of a company that is big enough that you know some of the brands, but it's not Procter & Gamble, it doesn't have Gillette. Gillette has 47% of the shaving market.
And so, they don't even come close to that, so they kind of exist in this unprofitable, smaller space that sometimes is profitable, sometimes isn't. But it's not, by any means, a blowout company that I think has really expansive potential.
Hill: For anyone wondering about the ambient noise, as I pointed out at the start of the show, Maria is in New York City, it's not a quiet place. So, this is interesting to me, because I'm reminded of a couple of things, one of which is Under Armour, which I've talked about [laughs] plenty of times on the show, and saying, you know, the weirdly intriguing thing as an Under Armour shareholder to me, is that, arguably the toughest part of the business, they got that right, they make good products, they've just managed to screw up every other part of their business.
In the case of Edgewell Personal Care, they make these products, they are known, there is some brand affinity there. And also, these are, on the surface anyway, these appear to be high margin products that they're making. You know, for whatever people shell out for sunscreen, I can't imagine it costs a lot of money to make a bottle of Hawaiian Tropic or Banana Boat. When we talk in glowing terms about businesses that have the "razor and blade" model, this is a company that [laughs] sells the blades. So, I'm wondering if, in the next year or two, we're going to see maybe an activist-investor get involved here? Because the stock is up a little bit today, it's down 50% over the last five years. And I don't know what they're [laughs] doing wrong, but they're making products that people need, there is demand for everything they're making. Again, these are known brands, so I don't know, like, what are they doing wrong here, Maria?
Gallagher: So, I think it's kind of interesting, because when you look at these brands, I don't think they exist in places that have a ton of loyalty, and in the places they don't have a lot of innovation, right? So, people might have loyalty to Dollar Shave Club or Harry's razors, but I wouldn't say that they'll necessarily have it to some of those other places that they have. And so, I think that their brands are pretty interchangeable. That doesn't have the loyalty that some other brands or some of these other bigger conglomerates might have in terms of even, like, shampoo. If Procter & Gamble has Head & Shoulders and L'Oreal has TRESemmé, things like that, those have some more loyal customers, whereas, I'll just buy the cheapest sunscreen, because I just assume it works. And so, I think it would be interesting if activist-investors come in, because I think that that's something they need to do, is they either need to invest in making their brands more interesting, [laughs] so that people want and feel that loyalty to the brand or they need to get some new brands in their arsenal that do that, because I don't think they have any right now.
Hill: Well, and you mentioned Harry's razors. In doing a little digging around this morning, I was reminded of the fact -- I had forgotten this -- that Edgewell tried to buy Harry's early in 2019. They made a bid for Harry's for something, like, $1.4 billion, I think. And it got blocked by the Federal Trade Commission.
I don't know if maybe they should get rid of one of their other razor brands, whether it's Wilkinson Sword, maybe there is some popularity there in Europe that I'm not aware of, it's certainly a brand that goes back a long time, so maybe there is, but whether it's that or Schick, I don't know. I would think very seriously about shedding [laughs] some of those brands and making another run at Harry's.
Gallagher: I also think it must have been a real bummer for them, because Unilever was able to buy the Dollar Shave Club in 2016, but they got blocked from buying Harry's. And I just feel like [laughs] they were probably pretty annoyed about that.
Hill: Yeah. Do you have any idea how much smaller we are than Unilever? Come on!
Gallagher: Yeah.
Hill: The other thing I thought of was just the -- and, you know, I probably shouldn't say this, because I don't know the people running Edgewell, they may be very competent and smart people, but I did think -- again, just looking at it on the surface -- how are they not even treading water as a stock? You know, down 50% over the last five years is really something in this environment -- I thought of the one of my favorite lines from the movie Wall Street where Gordon Gekko is all steamed at some executive of a company that he's involved with and he screams at one of his assistants, like, what is this guy doing, like, you know, he's braindead? If this guy owned a funeral home, nobody would die. And that's, sort of, [laughs] how I feel about Edgewell, like, what are they doing? Like, these are things everybody needs. And by the way, in 10 years, everybody is still going to be buying sunscreen and razors.
Gallagher: Yeah. I've never seen the movie, but I agree.
Hill: [laughs] Maria, always good talking to you, thanks for being here.
Gallagher: Thanks so much for having me.
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you on Monday.
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