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Alibaba Group Holding Ltd (NYSE: BABA and SEHK: 9988) is the second largest e-commerce company in the world by market capitalization after Amazon (as of October 2022). It is the fifth-largest internet company in the world and the fourth-largest Chinese enterprise overall, after tech giant Tencent, liquor giant Kweichow Moutai, and ICBC, the nation’s largest bank.
Alibaba was founded on June 28, 1999, in Hangzhou, Zhejiang, by Jack Ma. Although headquartered in China, the company is incorporated in the Cayman Islands. As of March 31, 2022, the group had a total of 254,941 full-time employees, a substantial majority of them based in China.
Alibaba’s initial public offering (IPO) on the New York Stock Exchange (NYSE) on September 19, 2014, raised $25 bn, giving the business a market value of $231 bn and making it the largest IPO in the world.
Alibaba Group’s business model
The company, which started as a China-based business-to-business marketplace website, has developed into an established global enterprise. Alibaba’s businesses now comprise China commerce, international commerce, local consumer services, Cainiao (logistics), cloud, digital media and entertainment, among others. Alibaba has developed an ecosystem around its platforms and businesses that consists of consumers, merchants, brands, retailers, third-party service providers, strategic alliance partners and other businesses.
The China commerce retail businesses primarily comprise Taobao and Tmall, which together constituted the world’s largest digital retail business in terms of gross merchandise value for the twelve months that ended March 31, 2022, according to Alibaba’s annual report.
The international commerce retail businesses, including Lazada, AliExpress, Trendyol and Daraz, are modelled after an attempt to empower brands and merchants with local market insights and commerce infrastructure. Alibaba.com was China’s largest integrated international online wholesale marketplace in 2021 by revenue, claims the company. During the fiscal year 2022, buyers who sourced business opportunities or completed transactions on the website were located across over 190 countries.
Local consumer services leverage mobile and online technology in an attempt to enhance efficiency, effectiveness and convenience for service providers and their customers in two distinct scenarios: “To-Home” and “To-Destination.” The “To-Home” businesses include Ele.me and Taoxianda. The “To-Destination” businesses include Amap, Fliggy and Koubei.
Cainiao leverages native and logistics partners’ capacities and capabilities to offer domestic and international one-stop-shop logistics services and supply chain management solutions. Cainiao also attempts to use data insights and technology to digitalize the entire logistics process and enhance efficiency.
The cloud segment is comprised of Alibaba Cloud and DingTalk. Alibaba says it was the world’s third-largest and Asia Pacific’s largest infrastructure-as-a-service provider by revenue in 2021. The company also says it was China’s largest provider of public cloud services by revenue in 2021, including PaaS and IaaS services.
Alibaba says its digital media and entertainment segment is a natural extension of its strategy to “capture consumption” beyond its commerce businesses. Youku was the third largest online long-form video platform in China in terms of monthly active users in March 2022, according to the company.
Other businesses in the segment include Quark, Alibaba Pictures newsfeed and literature platforms. In addition, the company develops, operates and distributes mobile games through Lingxi Games.
Alibaba’s other initiatives include DAMO Academy, a global research program; and Tmall Genie smart speaker.
Domestic and global relevance
For the fiscal year 2022 (ended March 31), Alibaba served approximately 1.31 billion annual active consumers through its global consumer-facing businesses, including over 1 billion in China and 305 million consumers outside China.
Total GMV transacted in the Alibaba Ecosystem was $1,312 bn for the fiscal year 2022, which included $1,258 billion of gross merchandise volume (GMV) generated from its China consumer-facing businesses, including those in China commerce, Local consumer services and Digital media and entertainment segments, and $54 bn of GMV generated from its international commerce retail business.
The company says it serves millions of enterprises through its cloud business, and many of its customers are “reputable industry leaders in their respective verticals”. In the fiscal year 2022, Alibaba Cloud served more than 60% of A-share listed companies in China, Chairman and Chief Executive Officer Daniel Zhang said in the group’s annual report.
Stock dynamics
In January 2018, Alibaba became the second Asian company to break the $500 bn valuation mark, after Tencent. It reached a peak valuation of $837.84 bn in October 2020 but has since plummeted to $198.69 bn.
Pressures on the company’s stock over the period included China’s increased regulatory scrutiny over big tech, geopolitical tensions, and general global economic trends.
BABA reached an all-time high of $317.14 per share in late October 2020. Shares fell in the final months of the year before stabilizing in early 2021. However, by the middle of 2021, selling pressure had resurfaced, owing partly to a regulatory crackdown by Chinese authorities seeking tighter control over companies with stock listings in the US.
The selling continued throughout the rest of 2021, with BABA recording a year-low of $108.70. For a while, the stock found support near that level and moved in a range during early 2022. However, selling pressure has resumed, fuelled by concerns about revenue growth and ongoing squabbling with Chinese regulators.
In August, Alibaba reported results for the quarter that ended June 30, 2022, that beat analyst expectations and briefly sent shares higher. Revenue was $30.68 bn, flat year-on-year; while earnings per American depositary share were down 29% year-on-year.
Despite Alibaba beating estimates, it was the first time the company posted flat growth in its history. BABA has continued to tumble amid revenue concerns and worries about global inflation and the risk of a recession, which has sent global stock markets falling.
What does the future hold for Alibaba?
Alibaba hopes to still be around by 2101, as “lasting for 102 years means we (Alibaba) will have spanned three centuries, an achievement that few companies can claim”.
But opinion is divided about the company’s outlook. While it remains a solid growth prospect on account of the potential of big tech, the uncertainties stemming from political pressures at home and abroad are a “serious threat”.
Case in point, Alibaba had planned to list its fintech unit, Ant Group but postponed indefinitely due to pressure from Chinese officials.
