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Singles’ Day Hits a Home Run for Online Retail

18 November 2015 in Trading Ideas

When one e-commerce company can take advantage of a 20-year-old holiday to sell more than $14 billion of goods in a single day, you know online retail is a force to be reckoned with.

Last week, Alibaba Group Holding Ltd (NYSE:BABA) said it generated sales of $14.3 billion on Singles’ Day – 11/11 (the multiple “1”s resemble an individual that is alone) – a sort of anti-Valentine’s Day that was invented by Chinese students in the 1990s.1

Transactions passed last year’s record of $9.3 billion before midday in China, the company said. The top-selling items by retailers using Alibaba’s platform included baby-related and nutritional products, Nike sneakers and Levi’s jeans, according to Bloomberg.

“Chinese consumers have a lot of money in their hands,” Chen Xingdong, chief China economist at BNP Paribas, told Bloomberg. “Online retailers need to customize their products to serve these increasingly savvy urban consumers.”

Alibaba got a boost as China’s retail sales accelerated in October, overcoming the slowest economic growth in 25 years. Retail sales climbed 11%, the quickest gain this year and beating the median projection of economists, as the nation’s leaders seek to re-balance the economy away from investment and infrastructure and toward consumption and services.

Alibaba began promoting a Singles’ Day tie-in in 2009, which was soon copied by rivals – and has now morphed into China’s version of Cyber Monday.

Alibaba estimated that 1.7 million deliverymen, 400,000 vehicles and 200 airplanes would be deployed to handle packages. Purchases using mobile devices accounted for 69% of Wednesday’s transactions, the company said.

To boost traffic on its platforms, Alibaba is focusing on attracting US retailers to China, and the company is considering bringing the 24-hour Nov. 11 event to the US and the UK.

That move would undoubtedly set up a fiercer competition between Alibaba and Amazon.com, Inc. (NASDAQ:AMZN), which itself has rewarded investors recently while expanding its online commerce reach.

In fact, Amazon generated strong results in its most recent quarter with the help of a promotion of its own: the company announced that orders during its Prime Day event in July rose 266% from the same day a year earlier and were up 18% from Black Friday — the retail industry’s traditional blowout sale.2 More customers also signed up for Prime memberships on than any previous day in the company’s history.
Revenue in the quarter gained 23% to $25.4 billion, compared with analysts’ projections of $24.9 billion. Operating expenses increased 18%, the company said.

As Bloomberg suggested, Amazon shows no signs of a consumer spending slowdown hurting its business, differentiating it from retail competitors. Its Prime Day sales event added 2% to the company’s global revenue growth rate.3

What’s more, its current quarter – the one with Christmas, of course — could be even better. Amazon said it expects fourth-quarter net sales to grow between 14% and 25% from a year earlier – to as much as $36.75 billion.4

And the company will hire 100,000 seasonal workers for this holiday season, up 20,000 from just a year ago.

Amazon’s recent results prompted many cheers from Wall Street analysts, many of whom upgraded the stock and/or raised their price targets.

Stifel analyst Scott Devitt, for example, raised his price target on the stock to $750 (it had closed at $560 before its earnings report), writing that the “rapid adoption in Prime membership has been a boost to [North American] retail and is in the early stages of driving international retail… Overall we believe this quarter’s results indicate that Amazon has reached a critical level of scale which allows it to build a robust global ecosystem while maintaining profitable top-line growth.”5

Since its earnings report in October, shares of Amazon have climbed more than 16%. Its 23.9% weighting in the Couch Commerce motif has helped the motif perform well recently. The motif has increased 5.3% in the past month. In that same time frame, the S&P 500 has increased 1%.

Over the last 12 months, the motif has risen 20.5%; the S&P is up 0.7%.

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