Daily Brief: Johnson & Johnson Is About To Become Johnson… And Johnson

Daily Brief: Johnson & Johnson Is About To Become Johnson… And Johnson

over 2 years ago3 mins

Mentioned in story

Healthcare giant Johnson & Johnson (J&J) announced plans to split into two separate companies on Friday, as its consumer goods division stands out in all the wrong ways.

What does this mean?

J&J’s star segments – drugs and medical devices – made up 83% of the company’s revenue last year. That really one-upped its consumer goods division: it brought in just 17% of the company’s total revenue, and sure contributed more than its fair share of problems. Crucially, there’s that allegedly cancer-causing baby powder: it brought along a stream of lawsuits and forced J&J to funnel billions of dollars into dealing with the allegations.

Revenue
Source: The Wall Street Journal, S&P Capital IQ

Makes sense, then, that J&J wants to spin off its consumer products segment within the next two years. The healthcare giant announced the plan on Friday, saying it wants to focus on its booming drugs and medical devices business. The move mirrors pharmaceutical giants GSK and Pfizer: they also plan to separate their consumer segments and focus on innovating in their more profitable areas like specialist drugs.

Why should I care?

For markets: Investors love a break-up.

J&J’s announcement came just days after General Electric said it would be splitting up its own business. The two are both conglomerates – big firms that operate several unrelated businesses under one roof – and cautious investors often value conglomerates lower than the sum of their parts. So investors were gleeful about the split: they sent both companies’ share prices up after they announced their break-ups.

JJ stock
Source: Google Finance

The bigger picture: Bigger is sometimes better.

There is one type of conglomerate that investors like, mind you. Big tech firms like Alphabet, Microsoft, and Amazon have spent billions on acquiring other firms, and investors don’t seem to mind. That’s because tech firms tend to snap up smaller companies with unrelated businesses, and use them to further expand their dominance.

Keep reading for our next story...

Alibaba And JD.com Reported Record Singles’ Day Sales

Singles Day image

Chinese ecommerce giants Alibaba and JD.com reported record Singles’ Day sales late last week, as shoppers showed some love to themselves – and the economy.

What does this mean?

Once an excuse for single shoppers to buy themselves gifts, Singles’ Day is now the largest shopping event in the world. And during this year’s sale, ecommerce titans Alibaba and JD.com saw the value of the products they sold jump by 8% and 28% respectively, compared to last year. That meant the duo sold a total of around $139 billion worth of goods during the event – a new Singles’ Day record for them.

Alibaba sales

Those sales were no easy feat, mind you: the tech giants were under pressure to adhere to the government’s sustainability drive, and put more effort into green initiatives like recycling and reducing emissions. After all, Singles Day isn't a great match for China's environmental goals: Greenpeace estimates the shopping event generates tens of thousands of tons of carbon dioxide each year.

Why should I care?

The bigger picture: Not so single.

Shopping events like Singles’ Day used to run over, well, a single day, but nowadays they often last for much longer. It’s a win-win: retailers get more time to make sales, plus they can manage deliveries and demand better. That’s been especially helpful this year: businesses can struggle to get stock delivered in time for these events during normal times, and current supply shortages will only have made matters worse.

For markets: China wants a rebound.

China reported worse-than-expected economic growth last quarter, sparking worries that consumer spending might be taking a hit. But this record-breaking Singles’ Day suggests people are spending like there's no tomorrow, which might be why an index tracking US-listed Chinese companies jumped more than 5% after the news. And sure, that index is still down 26% this year after government crackdowns hurt Chinese businesses, but investors are hopeful this could be a sign of a turnaround.

Index surge
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