Alibaba - Global e-commerce leader with diverse revenue streams

Taobao has firmly established itself as a household name in online shopping over the years. 

Alibaba, the company behind Taobao and Tmall, is unsurprisingly one of the world’s largest e-commerce retailers, given the success of the shopping platform since its launch in 2003. 

Over the years, Alibaba has expanded from being an e-commerce retail platform in China to owning diversified businesses such as cloud providers, smart logistics fulfilment and entertainment content to consumers.

Diversification of business

Alibaba has been investing aggressively in other businesses and is no longer a pure e-commerce platform. 

It owns Alibaba Cloud, the leading cloud computing and service business, which is the largest in China and Asia Pacific, and Ele.me, an on-demand delivery service platform in China. 

These businesses help to diversify Alibaba’s business and serve as a long-term growth driver beyond e-commerce. 

Alibaba's #1 market share in China under threat

Alibaba has been the dominant e-commerce platform in China, accounting for almost half of the industry’s GMV (gross merchandise value) in 2020. 

However, intense competition from Douyin, which incorporates short-form videos with shopping, started to emerge. Douyin gained popularity among Chinese consumers rapidly, especially during the COVID period. 

Alibaba’s market share has quickly been eroded and now only accounts for 32%. 

Pinduoduo (PDD), which was a small player back in 2020, has also been gaining market share in the industry in recent years. 

PDD has been differentiating its business model by offering a group buy function, aggregating purchases from different consumers, resulting in lower prices from bulk purchases. 

High growth in Southeast Asia e-commerce 

Bain & Co, a consultancy firm, expects e-commerce industry GMV in Southeast Asia to more than double from $159b currently to $370b by 2030, driven by the rising popularity of video commerce and reinvestments by the e-commerce players to increase market share. 

Alibaba owns Lazada, a leading e-commerce platform with a significant presence in Southeast Asia, and it is likely to benefit from the growth. 

Cloud infrastructure growing strongly in Asia

Alibaba is currently China’s largest public cloud provider, offering a complete suite of cloud services, including servers, computing storage, data analysis, security and machine learning. 

Cloud spending is expected to increase by an average of 17% per year in Asia Pacific until 2027, driven by increased spending on Generative AI. 

Alibaba has already deployed its proprietary large language model, Tongyi Tianwen, which has been used to enhance customer experience and is well-positioned to capture the strong cloud spending growth in Asia 

Q3 2024 results – Higher investment income and impressive cloud segment Margins

In Q3 2024, Alibaba reported an impressive 58% year-over-year increase in net profit of RMB 43.8b, due to higher interest and investment income from mark-to-market from Alibaba’s investments

Alibaba’s revenue only increased +5% year-on-year to RMB 35.2b, as Alibaba’s China e-commerce retail revenue did not grow. 

However, other segment businesses such as Cloud Intelligence Group, saw its revenue increase by 7% year-on-year. 

Cloud Intelligence Group's adjusted EBITDA also rose by an impressive 89%, as Alibaba is now more focused on profitability by reducing the number of lower-margin projects. 

Key Risks

One key risk of Alibaba would be the continued market share loss, as evidenced by Alibaba’s GMV (gross merchandise value) growth of 2.5% in Q3 2024, which is below the industry’s growth of +6% during the same period. 

Alibaba also faces the challenge of increasing spending in its overseas businesses, such as Lazada in Southeast Asia and Trendyol in Turkey, to offset its relatively mature Chinese business. 

While the outlook for its overseas businesses has tremendous long-term potential, Alibaba may need to incur more losses in the near future as it keeps increasing its investments to grow its overseas presence.

P/E Valuation below global e-commerce peers

Alibaba currently trades at 8.8x price-to-earnings ratio, below the average of global e-commerce peers. This is despite the company being a global leader with diversified business segments. 

We will be looking out for Alibaba restarting the listing process of Cainiao, its logistic business, and Qiniu, a cloud company in which it has invested. We will also be awaiting more details of China's economic stimulus programme targeting promoting consumption, which could improve Alibaba’s domestic e-commerce business.

You can now trade Alibaba through Hong Kong Singapore Depository Receipts (SDRs).

These HK SDRs offer investors a more accessible way to invest in five Hong Kong-listed companies, including Tencent.

In particular, Alibaba can now be purchased with a lower minimum outlay through SDRs. These SDRs will also be custodised in your CDP account. 

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