Alibaba, Farfetch, and Lauder: China’s Still Good to Some — But Not All

In the beauty and online retailing spaces, Alibaba, Farfetch, and Estée Lauder all saw high double-digit growth in the quarter ending in September — and not all of it was compared to weak 2020 earnings either. While it looks like Asia’s star faded a little based on growth, China remains a guiding light in the run-up to the holidays and beyond. Alibaba The online e-commerce giant saw revenue grow by 29 percent, year-on-year, to hit 31.2 billion in the quarter ending September 30. This jump was assisted by the number of active global consumers rising to 1.24 billion. However, the company's net profit fell by 87 percent to 524 million. Within the so-called "Alibaba ecosystem," that active consumer number was for the 12 months ending September 30, with 953 million of them in China and 285 million overseas. The company also saw an increase of 62 million versus the rolling 12 months that ended June 30. A growing percentage of newcomers came from lower-tier cities, particularly via Taobao Deals (淘特), where Alibaba has incentivized bundled purchases from self-operated warehouses to reduce company costs and improve delivery experiences. “We are on track to achieve our longer-term target of serving two billion consumers globally,” said Alibaba Group CEO Daniel Zhang. The company, he stressed, was continuing to invest in its three strategic pillars: domestic consumption, globalization (using regional e-commerce platforms like Lazada, Daraz, and Trendyol and stepped up through a new structure announced on December 6), and cloud computing. Across those segments, domestic consumption accounts for roughly 75 percent of revenue, global markets for 15 percent, and cloud computing for 10 percent. But investors were still not convinced. China’s crackdown on tech players weighs heavily on markets, and Alibaba’s share price has fallen since its results were announced on November 18. Not helping was a low-key Single’s Day event this November. The festival generated 84.7 billion in gross merchandise value from a record 290,000 brands. But year-on-year growth fell to single digits (8.5 percent) for the first time since it launched more than a decade ago. Year-to-date, Alibaba's stock is down 48 percent and dropped 26 percent over the past month. Estée Lauder In its first fiscal quarter ending September 30, Estée Lauder Companies reported net sales of 4.39 billion, up 23 percent versus the prior-year period. Meanwhile, profits rose significantly from 523 million to 692 million year-on-year. Sales increased in every region and product category, led by a huge 37-percent spurt in the Americas and 22-percent growth in EMEA, which largely reflects a recovery in brick-and-mortar stores. The Asia-Pacific region came in last for a change (only a 15-percent lift) as it got hit by COVID-related retail closures. Fortunately, Greater China and Korea kept the region's momentum going. Estée Lauder’s CEO, Fabrizio Freda, told analysts that “Mainland China achieved double-digit organic sales growth owing to skincare and fragrance — with online and brick-and-mortar both higher. Internal travel restrictions during July and August slowed Hainan sales temporarily, but when restrictions lifted, traffic rebounded. Chinese consumers are really strong, and we are serving them in a variety of locations in every channel.” To underline China’s potential, Lauder created a direct reporting line for the new President and CEO of China, Joy Fan, to the president of the international business, Peter Jueptner, rather than into Asia-Pacific. The change starts next February and is an important evolution, elevating Lauder’s commitment to China and Chinese consumers. Continuing more broadly with Lauder’s Q1 results, 13 brands contributed to sales growth versus the prior-year period. Two standouts, Estée Lauder and MAC, helped drive a makeup renaissance in China after a tough few months. La Mer and Clinique also generated strong results in skincare, while fragrances achieved double-digit growth in all regions, led by Tom Ford Beauty and Jo Malone London. Estée Lauder’s stock immediately rose after it announced its Q1 22 results in early November. But over the past month, it slipped by two percent. Year-to-date, it is up 28 percent. Farfetch Global e-commerce platform for luxury fashion, Farfetch, delivered a third-quarter revenue increase of 33 percent, year-on-year, to 583 million and turned a 10 million loss in adjusted Ebitda in Q3 2020 into a 5 million profit. The London-based, New York-listed company has three platforms: digital, brand, and in-store, which generated 1.02 billion in gross merchandise value (GMV) together during the quarter, more than double the same quarter in 2019. The vast bulk came from its digital platform at 828 million, up 23 percent, year-on-year, led by key luxury markets, including the US, Mainland China, the UK, the Middle East, Germany, and Russia. At the heart of the digital platform is Farfetch Marketplace, which offers customers a broad selection of luxury fashion from over 1,400 multi-brand retailers and e-concession partners. The brand platform GMV hit 165.3 million, driven by strong demand for current-season collections from New Guards, which develops new brands, and a greater mix of shipments over last year. Meanwhile, the doubling of in-store GMV to 23.6 million was helped by additional New Guards stores opening over the past 12 months and strong growth from existing stores. Farfetch founder and CEO José Neves believes there is “strong industry traction” behind the company’s platform strategy. “We remain on track to achieve our goal of full-year adjusted Ebitda profitability and GMV growth above our long-term 30-percent CAGR target,” he said. In the past month, Farfetch stock fell by 13 percent, with the tipping point being the company’s Q3 results announcement on November 18. Year-to-date, its stock is down 48 percent — in line with Alibaba, which invested in the UK company.

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Alibaba, Farfetch, and Lauder: China’s Still Good to Some — But Not All