Unveiling a Hidden Gem: Exploring the Rising Star Within Alibaba’s Extensive Empire and Why Investors Should Take Note


A customer shops for clothes. © Getty Images Alibaba's overseas e-commerce business Alibaba is generally known for its flagship e-commerce businesses, Tmall and Taobao. But its e-commerce empire goes well beyond its home turf, focusing mainly on two types of business models. The first part relates to cross-border e-commerce business operating under AliExpress and Alibaba.com. The former is a global retail marketplace, available in 17 languages besides English, focusing on selling products from China to overseas consumers. Amazon Great Republic Day Sale - New Beginnings, Big Savings Amazon Amazon Great Republic Day Sale - New Beginnings, Big Savings Ad The latter is a wholesale marketplace focusing mainly on selling products in bulk to overseas customers, especially merchants who resell these products locally. According to Alibaba, over 47 million buyers from over 190 countries sourced business opportunities or completed transactions on Alibaba.com in the year ended March 31, 2023. The second part of Alibaba's overseas e-commerce empire stems from its majority ownership in local marketplaces Lazada and Trendyol. Lazada is one of the leading e-commerce platforms in Southeast Asia, behind the leader, Shopee. It also operates an e-commerce logistics network in this region, complementing its e-commerce marketplace offerings, similar to the symbiotic relationship between Tmall and Taobao with Cainiao. Trendyol, on the other hand, is the leading e-commerce platform in Turkey in terms of GMV and order volume. It serves consumers with a broad selection of products and services through its e-commerce business and offers local consumer services such as food and groceries. Like Lazada, Trendyol also operates its logistics service under Trendyol Express and Trendyol Go. Trendyol also helps Turkish merchants sell across six continents. Related video: Analyst explains why Alibaba's recent results 'don't matter that much' (CNBC) positive or negative impact Current Time 0:21 / Duration 3:31 CNBC Analyst explains why Alibaba's recent results 'don't matter that much' 0 View on Watch View on Watch More videos SoftBank said it is shifting from 'Alibaba to AI' — here's what that means CNBC/CNBC SoftBank said it is shifting from 'Alibaba to AI' — here's what that means 3:23 Alibaba shares tumble after revenue miss CNBC/CNBC Alibaba shares tumble after revenue miss 1:46 Alibaba Shares Fall in US as Weak Core Business Offsets Buyback Bloomberg/Bloomberg Alibaba Shares Fall in US as Weak Core Business Offsets Buyback 2:22 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 business might be small -- its revenue is around one-fifth of the group's China e-commerce business -- but its prospects are vast. Its relatively small size means it has significantly more room to grow before reaching the size of its sister companies. Besides, the overseas e-commerce market is massive (and growing). For perspective, the Chinese e-commerce industry is estimated at $2.9 trillion, accounting for around 50% of global e-commerce. But as China was the world's most penetrated e-commerce market in 2023 (about 50%), its peer countries will likely see higher growth rates in the coming years as they catch up on market penetration. Suffice it to say that the growth opportunities should be tremendous for Alibaba's international e-commerce group as it focuses on this growing pie. Grow your Money With HDFC Sky - Enjoy MTF At 1% P.M. - Options Trading at ₹20/Order hdfcsky.com/HDFC-SKY/Signup Grow your Money With HDFC Sky - Enjoy MTF At 1% P.M. - Options Trading at ₹20/Order Ad For instance, the recent surge in cross-border e-commerce led by companies like Temu (owned by PDD Holdings), Shein, and Alibaba's AliExpress is a significant tailwind that will remain for years. Leveraging the extensive supply chain in China and their experience in China, leading Chinese e-commerce platforms turn their attention to overseas consumers to sustain growth, especially as competition in China intensifies. Internally, Alibaba's recent reorganization of its massive empire into separate (and independent) operating units provides the international business group the leverage it needs to chart its path toward success. With its management team and board in place, the overseas e-commerce business unit can set a long-term strategic direction, make better decisions, and execute faster to win in its respective markets. Unsurprisingly, this segment reported the fastest growth among all the business groups within Alibaba, with revenue up by 44% in the quarter ended Dec. 31, 2023. Comparatively, groupwide revenue was up by just 5%. This trend could continue in the coming quarters if not years. What it means for investors The Chinese e-commerce industry has become hyper-competitive in recent years thanks to the rise of next-generation e-commerce players like Pinduoduo and Douying. While Alibaba's e-commerce businesses (Tmall and Taobao) remain the most prominent player in China, it is increasingly more difficult for them to grow on their home turf. Understandably, the conglomerate is emphasizing its international e-commerce business more to sustain its growth ambitions. It will not be surprising for this business unit to sustain its high-double-digit growth rate in the next few quarters (or even years). Investors should, therefore, start paying more attention to this rapidly expanding business. SPONSORED: Should you invest $1,000 in Alibaba Group right now? Before you buy stock in Alibaba Group, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alibaba Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*. See the 10 stocks *Stock Advisor returns as of February 20, 2024 Lawrence Nga has positions in Alibaba Group and PDD Holdings. 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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.

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