Better Off Apart?

In a post-Jack Ma era of slower growth, Chinese e-commerce giant Alibaba is turning to financial engineering to drive value. 📝

Today the company outlined the most significant reorganization in its history, designed to unlock shareholder value and foster market competitiveness. The business will be split into six separate companies, each led by its own CEO and board of directors. 🧑‍💼

They each revolve around strategic priorities, including:

1. Cloud Intelligence Group – Cloud and artificial intelligence (AI) activities.
2. Taobao Tmall Commerce Group – Online shopping platforms, including Taobao and Tmall.
3. Local Services Group – Food delivery service Ele.me and mapping.
4. Cainiao Smart Logistics – Alibaba’s logistics service.
5. Global Digital Commerce Group – International e-commerce businesses, including AliExpress and Lazada.
6. Digital Media and Entertainment Group – Streaming and movie business.

Each unit will be able to pursue independent fundraising and public listings if/when ready. However, Taobao Tmall Commerce Group will remain a wholly-owned subsidiary of Alibaba. 🛒

With growth slowing across the business, the move should give each unit the flexibility to win in its competitive markets. It should also reduce the regulatory headwinds Alibaba dealt with as a massive conglomerate.

$BABA shares rallied 15% on the news. However, they’re still trading at their late-2014 IPO levels. 🔻

Apple is continuing its push into the services business, this time targeting the popular “buy now pay later” (BNPL) space. Today the consumer tech giant introduced its “Apple Pay Later” feature, allowing consumers to pay for purchases over time. 💳

Soon, Apple Pay users can split purchases into four payments at no cost. The four payments will be spread over six weeks without interest, fees, or immediate impact on their credit score. Users can apply for loans ranging from $50 to $1,000, which can be used for online and in-app purchases and at merchants that accept Apple Pay.

Apple says there’s no one-size-fits-all approach to how people manage their finances. And as more people look for flexible payment options, the company wants to help fill that need…with some guardrails. 🦺

The company will use a “soft credit pull” to judge the borrower’s creditworthiness before approving the requested loan. And since users will view and manage their loans straight within Apple Wallet, Apple says they’ll have all the information they need to make responsible borrowing decisions. They’ll also be required to link a debit card to ensure timely payments and prevent them from paying back the debt with other forms of debt. 🏦

As for consumers, the six-week “free” loan is an alternative to longer-term offerings from Affirm and other BNPL competitors that are often higher cost. Apple plans to begin reporting the loans to the three major credit bureaus in the fall. That means consumers who don’t pay what they owe will see an impact on their credit score, as they would with most other credit products. 📝

The Mastercard Installments program enables Apple Pay Later, with Goldman Sachs acting as the issuer of that program. That means merchants who already accept Apple Pay will not need to make any changes to participate in the new service offering. 📱

With consumers demanding more payment flexibility, it makes sense that Apple would offer it. Of course, they already have the Apple credit card, but this could be an attractive alternative for those that don’t qualify or would prefer not to open another account. 

Apple shares barely budged after the announcement. However, BNPL stock Affirm saw its shares fall more than 7% as investors weighed the impact of further competition. 🔻

Athletic-wear retailer Lululemon’s stock is going for a run after reporting better-than-expected holiday-quarter sales. 

The company’s adjusted earnings per share of $4.40 on revenues of $2.77 topped the expected $3.26 and $2.7 billion. 👍

Other important stats included:

1. Comparable store sales rose 15% YoY (17% constant dollar basis)
2. Direct-to-consumer net revenue rose 37% YoY (39% constant dollar basis)
3. Direct-to-consumer net revenue as a percentage of total revenue rose 3% YoY to 52%
4. Adjusted operating margin rose 50 bps YoY to 28.3%
5. Inventories grew 50% YoY to $1.4 billion (down from +85% YoY growth in Q3)

The company took a significant write-down on its acquisition of MIRROR, now rebranded as Lululemon Studio. Executives say they will build on the two-tier membership program launched in October 2022, expanding features to guests at a lower price point. They hope this will drive digital app-based services in the future.

Looking ahead, executives expect fiscal 2023 revenue of $9.3 to $9.41 billion and earnings per share of $11.50 to $11.72. Both forecasts topped consensus estimates of $9.14 billion and $11.26 per share. They continue to focus on delivering sustained growth and long-term value. 💪

There was not much mention of the macroeconomic environment or a consumer slowdown. Maybe the company’s focus on middle to higher-income consumers has isolated it from much of the slowdown other retailers are experiencing. Nevertheless, changes in the company’s outlook are something investors will likely watch for in the coming quarters.

$LULU shares rallied 13% after hours. 📈