Despite challenges in its core business, Alibaba Group (NYSE: BABA) finds promise in its cloud computing division, Alibaba Cloud. Amid government scrutiny and increased competition, Alibaba Cloud remains a bright spot, showing resilience and growth potential. With a strategic focus on expanding market presence and innovative initiatives, Alibaba Cloud could emerge as a significant revenue driver for the company. Despite recent setbacks, including its weakest growth in the last fiscal year, Alibaba Group sees Alibaba Cloud as a key component in navigating uncertainties and driving future growth in the ever-evolving tech landscape.
Alibaba’s overseas e-commerce business:
Alibaba’s expansion into the overseas e-commerce market is multifaceted. Firstly, Alibaba.com serves as a wholesale marketplace catering primarily to bulk purchases for international customers, particularly merchants who intend to resell these goods locally. With an impressive user base of over 47 million buyers from more than 190 countries, Alibaba.com offers a vast array of business opportunities and facilitates transactions on a global scale.
Secondly, Alibaba has bolstered its presence in overseas markets through strategic investments in local e-commerce platforms. Lazada, operating primarily in Southeast Asia, stands out as one of the region’s key players, notwithstanding competition from the likes of Shopee. Beyond merely providing an online marketplace, Lazada extends its services with an e-commerce logistics network, mirroring the symbiotic relationship observed between Tmall, Taobao, and Cainiao in China.
Similarly, Alibaba’s ownership of Trendyol has solidified its foothold in Turkey’s e-commerce landscape. Trendyol distinguishes itself as the leading e-commerce platform in Turkey, boasting significant GMV and order volume. Offering a diverse array of products and services to consumers, including local amenities like food and groceries, Trendyol also operates its logistics services under the banners of Trendyol Express and Trendyol Go. Furthermore, Trendyol facilitates Turkish merchants in expanding their reach across six continents, aligning with Alibaba’s overarching vision of global commerce expansion.
Collectively, these businesses form Alibaba’s International Digital Commerce Group. In the first nine months of the fiscal year ending March 31, 2024, this group delivered a 46% increase in revenue, significantly outpacing groupwide revenue growth of 9%.
International digital commerce has bright prospects
Alibaba’s international e-commerce division, while currently smaller in revenue compared to its China-focused counterparts, holds immense potential for future growth. With its revenue currently constituting around one-fifth of the group’s China e-commerce business, there’s ample room for expansion.
The overseas e-commerce market presents vast opportunities, especially considering its significant size and ongoing growth trajectory. For context, China’s e-commerce industry alone amounts to a staggering $2.9 trillion, representing approximately half of the global e-commerce market.
Moreover, while China leads in e-commerce market penetration, with approximately 50% penetration as of 2023, other countries are on the path to catch up. As peer nations increase their market penetration rates, there’s a strong likelihood of higher growth rates in these regions. This scenario positions Alibaba’s international e-commerce arm for substantial growth as it taps into these expanding markets.
In essence, the outlook for Alibaba’s international e-commerce business appears promising, fueled by the vast potential of the global e-commerce landscape and the opportunities presented by emerging markets with increasing market penetration rates.
The surge in cross-border e-commerce, driven by companies like Temu (owned by PDD Holdings), Shein, and Alibaba’s AliExpress, represents a significant growth opportunity that is expected to persist for years to come. Chinese e-commerce giants, leveraging their extensive supply chains and experience gained in the domestic market, are increasingly targeting overseas consumers to sustain their growth momentum, particularly amidst intensifying competition within China.
Alibaba’s recent restructuring of its vast business empire into separate and independent operating units has provided its international business group with the autonomy and flexibility needed to pursue its strategic objectives effectively. With a dedicated management team and board in place, the overseas e-commerce unit is empowered to set long-term strategic directions, make agile decisions, and execute initiatives swiftly, positioning itself for success in diverse markets around the globe.
Notably, this segment has demonstrated remarkable growth, outpacing all other business groups within Alibaba. In the quarter ending December 31, 2023, its revenue surged by an impressive 44%, significantly surpassing the groupwide revenue growth rate of just 5%. This trend underscores the substantial potential of Alibaba’s international e-commerce business, suggesting that its rapid growth trajectory could persist in the coming quarters, if not years, as it continues to capitalize on the global cross-border e-commerce boom.
What it means for investors
The intensifying competition within the Chinese e-commerce landscape, fueled by the emergence of next-generation players like Pinduoduo and Douying, has created a hyper-competitive environment for established giants like Alibaba. While Alibaba’s flagship e-commerce platforms, Tmall and Taobao, continue to dominate the Chinese market, sustaining growth domestically has become increasingly challenging.
In response to these market dynamics, Alibaba is strategically shifting its focus towards its international e-commerce business as a key driver of future growth. Given the constraints and saturation in the domestic market, Alibaba sees significant potential in expanding its presence and capturing market share globally.
Given the strong performance demonstrated by its international e-commerce segment, with sustained high-double-digit growth rates, it’s reasonable to expect this trend to continue in the foreseeable future. Investors would be wise to take note of the rapid expansion and success of Alibaba’s international e-commerce ventures, as they are poised to play a pivotal role in driving the conglomerate’s growth trajectory moving forward.
