Is L'Oreal Still Worth It?

Published 2020/08/12, 10:02
Updated 2023/07/09, 12:32
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Market Scorecard

Markets had a rough day yesterday as traders worry about the deadlock in Washington around a new stimulus package. The new money from the government is intended to replace the spending of companies and consumers who have lost their spending ability. The idea is that the government props up the economy while things are slow, and then as normality returns, the government slowly steps back. The government spending ensures that money keeps circulating in the economy because one person's salary creates a salary for someone else. If that circular flow is disrupted, then the whole system breaks down.

Exciting news from Tesla overnight is that they will also do a stock split. At the end of August, there will be 5 extra Tesla shares for every 1 currently in existence. On the news of the stock split, the share shot up by 6%. Stock splits make shares more affordable and easier to buy. In the case of Tesla, each share is worth around R25 000, which can be tricky to buy for most people. Now we just need Amazon to do a stock split, as their shares are worth around R54 000 a share!

Yesterday the JSE All-share closed up 0.72%, the S&P 500 closed down 0.80%, and Nasdaq closed down 1.69%.

One Thing, From Paul

Quite a few clients in New York own L'Oreal shares, and their most recent quarterly results were a bit mixed. For the first half of the year sales of 13.1 billion Euros were recorded, which is a decline of 11.7% on this same period in 2019.

CEO Jean-Paul Agon said: "The consumption of beauty products over the period was strongly impacted by the closure of millions of points of sale (hair salons, perfumeries, department stores, airport stores, etc.), which caused a real crisis of supply rather than demand, with consumers temporarily unable to purchase products and services."

On the plus side, sales grew by 17.5% in China, and sales online rose by 64.6%.

L'Oreal's chief digital officer, Lubomira Rochet (pictured below) noted that the lockdowns have sparked broad changes to how women discover and shop for beauty products by pushing more activity online, especially among older customers. "In e-commerce, we achieved in eight weeks what it would have otherwise taken us three years to do."

L'Oreal, which is the world's biggest cosmetics maker by sales, believes many of these behaviours will last after the pandemic goes away. New marketing tools, such as virtual try-ons for make-up and hair colour and one-on-one beauty consultations via Zoom, also proved their usefulness while stores were closed.

About 20% of L'Oreal's revenues now come from its own branded websites or those of online retailers such as Amazon or Walmart. L'Oreal has apparently shifted its advertising and marketing spending online, taking it to about 70 per cent of the total from 50 per cent before the pandemic.

The stock price has done well, about as well as Nike over the last 5 years. In other words, it has doubled (up about 100%) in that time. This is definitely a stock to hold, if you own them already.

Byron's Beats

Gaming is hot property at the moment. It has been thriving for a while but since lockdown it has exploded. Amazon's exposure to that world is through their video service called Twitch. Twitch allows people to watch other people gaming live. The service receives 140 million viewers a month.

New York Times has reported that Amazon is rebranding Twitch Prime in another attempt to crack the video game market.

The new product called Prime Gaming will offer exclusive access to Twitch as well as access to free games and discounts for large gaming titles. Amazon will attempt to launch some of its own games through this service. In the past, Amazon original games have been a flop.

Using a huge network like Twitch certainly gives them an immediate audience. Now they just have to get the gaming formula correct. With their budget I wouldn't be surprised to see them succeed.

Michael's Musings

This is a brilliant idea from Amazon. I have been writing about how shopping malls are being repurposed for a few years now, and this idea never occurred to me. Amazon is looking at turning the space once occupied by department stores into fulfilment centres - Amazon reportedly wants to take over JCPenney and Sears stores to turn malls into giant fulfilment centres .

Two main reasons why this is a good idea is because shopping malls are already designed to handle large amounts of delivery traffic, and they are centrally located. Amazon is now able to get even closer to its customers.

I would assume that the possibility of walking to a collection point at the fulfilment centre will be an option. Imagine doing your online shopping while at work, and then during your lunch break walking down to where the JC Penny store used to be, and collecting your order.

The expectation for shopping malls is that many will be converted into mixed-use spaces, where residential properties and business offices will start to take over where retail stores used to be. Having an Amazon outlet in the middle of this would be very valuable to the people around. Not to mention the money Amazon would save on shipping.

Signing Off

At lunchtime today Tencent will release its latest numbers. Expect Prosus and Naspers to be volatile post the release. Then at 13:00 there is South African retail data and this afternoon there is US CPI data. The JSE All-share is higher this morning and the Rand is a bit stronger than yesterday. Currently trading at $/R 17.49.

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