by Alibaba: Finding International Success where Amazon Falls Short
INTRO:
Alibaba, commonly referred to as “The Amazon of China”, has been a mainstay on the international side of the Laker Asset Management portfolio since the Spring of 2018. LAM bought just in time, as BABA revenue has nearly doubled just in the two years of ownership. Let us take a statistical glance at the e-commerce and cloud computing company’s success in China, and why the stock remains a great buy.
Alibaba has effectively turned China into an online shopping nation, but it really could have been any company to do it. In 2020, the number of online shoppers in the country stands beyond 710 million as, the number of internet users closes in on the one billion mark. The country is tremendously advanced in the organization of its public services—this is an important theme to think about. During the beginning of the COVID-19 outbreak when the virus was only thought to be in China, citizens of the republic could get groceries delivered in about thirty minutes, and larger consumer supplies within just a few hours of clicking that order button.
COVID Response:
In 2020, analysis of a company’s actions during the virus is a prerequisite for any research. Alibaba and its subsidiaries not only maintained revenue growth through the outbreak, the company led the private sector, offering relief through a variety of platforms. Not only did Alibaba launch B2B today, a support system for small businesses, the behemoth also launched an international B2B logistics platform to speed up the delivery of medical supplies and essential items. The cutting edge cloud-computing company also opened up its highly-modular computational platform worldwide for vaccine research, as well as to small and medium sized businesses disrupted by COVID-19.
Throughout the spring and summer, BABA saw nothing but growth following a short two-month bear trend in February and March. The company had started the year with an all-time high share price of $227.43 on January 17th that took a steep fall to $176.34 on March 23rd—but wind has been moving through the Alibaba sails ever since. The company nearly hit the $300 price point on a September 1st peak, and now stands at a modest $269. The 52% increase over the course of the summer has kept my confidence in the company, and the future is surely bright.
The Not-so-Niche Niche:
As mentioned, BABA is often compared to Amazon when international competition is concerned. The Amazon platform is much larger globally, but this does not mean that Alibaba is out of the running. In fact, the percentage of Alibaba’s revenue coming from online retail is declining year to year. More and more of the company’s income today is coming from Cloud computing and B2B logistical services.
In the direct comparison to Amazon, though, we are primarily looking at AliExpress. While there remains plenty of consumer to consumer transactions on Amazon, the online shopping place has become increasing corporate over the last few years. It has become a hub for big name manufacturers to distribute goods that already line the shelves of brick and mortar locations across the country. In this way, AliExpress can be more closely related to eBay. The site has been increasingly popular among price-conscious consumers in relatively low-income countries with widening internet access and infrastructure, becoming a household name when shopping for second-hand computer parts and other electronics. While there may be some hoops to jump through, AliExpress reaches a core income demographic that Amazon simply cannot.
AliExpress is a lot like going fishing. Some days you catch, and others you do not. There are plenty of scams and selling of illegitimate goods, but this is all par for the course. If anyone you come across knows anything about the site, the first word that comes to the top of their head is probably “cheap”—and the company is aware of that. As much garbage as there is on the site, there are plenty of gems as well. The low price point and expansive selection of items has turned AliExpress into a dominant force in Brazil, the Commonwealth of Independent States, as well as in Southern Europe. Alibaba has chosen Spain to be its entry into the European market, as the country is the third largest foreign market by revenue after the US and China. Madrid got AliExpress’s first-ever brick and mortar location and is set to reach 10,000 local vendors in the Spanish capital.
A Focus on Developing Markets:
The clear theme behind AliExpress’s market segmentation in the last few years has been the development of business where big tech has yet to leave its digital footprint. China alone has 102 cities with over one million people, and plenty of these are nowhere in comparison with the likes of Beijing, Shanghai, or Guangzhou as far as internet culture and general userbase is concerned. The outskirts of the European Union alongside Turkey and Russia have been the epicenter of AliExpress’s ‘local-to-global’ strategy. The company’s plan with this expansion model is to allow small and medium-sized businesses to tap into ecommerce and online salesmanship for the first time. I have already mentioned the efforts in Spain, and this is a great example for what the plan looks like in action. As more and more vendors in these “smaller” ecommerce markets use the Alibaba network and increase the AliExpress market share, we can plan to see a growth trend among outside sellers as well. As much as the company would like to become the premiere online shopping platform among multinational corporations, CEO of Alibaba Jack Ma understands the importance of public perception and name recognition.
While the United States and Western Europe have had their roots in internet access over the entirety of the twenty-first century, Alibaba’s developing markets are still getting their footing. By implementing the local-to-global market development strategy, Alibaba seeks to help mom-and-pop shops across the globe get their toes in the water with online retail. If tight-knit, smaller communities across the globe can identify AliExpress as an easy-to-use service that can benefit the community at-large, the Chinese company is off to the races. Even in the company’s developed international markets such as the US, it stands as a wildcard, niche-service, with an astounding cult-like following.
Where Alibaba Stands Today:
The massive conglomerate today stands at a market cap of $729.41B with an annual revenue of $72B, a 28% increase from last year. In the last five years, the number of active customers across Alibaba’s many online storefronts has doubled, from 367 million in Q2 of 2015 to 742 million in Q2 of this year. While there is not exact to-date information, Alibaba is thought to have control of about 60% of China’s domestic online retail market share. In my eyes, Alibaba has become too large to fail, and the expanding Chinese online retail market looks all Alibaba for years to come. The company could be prosperous with its domestic revenue alone, but the unique approach in targeting developing internet nations will prove to be a great success very soon.