Once standing tall in the Chinese technology realm, Alibaba Group (NYSE: BABA) has navigated through turbulent waters in recent times, facing formidable challenges like competition and governmental scrutiny that took a toll on its performance. Witnessing a meager 2% growth in the last fiscal year only dampened investor sentiment further, casting shadows of doubt over Alibaba’s future.
Yet, amidst the chaos, a hidden gem is quietly blooming within its vast empire, emerging as a beacon of hope and growth for the conglomerate.
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Alibaba’s Global E-Commerce Expansion
Though renowned for its flagship e-commerce platforms, Tmall and Taobao, Alibaba’s e-commerce reign transcends beyond the Chinese borders, centering around two key business models.
The first model features cross-border e-commerce operations under AliExpress and Alibaba.com. AliExpress serves as a multinational retail hub, available in 17 languages apart from English, focusing on providing Chinese products to consumers worldwide.
On the other hand, Alibaba.com serves as a wholesale hub, primarily catering to bulk sales for overseas buyers, particularly merchants who resell these goods locally. Alibaba reveals that in the year ended March 31, 2023, over 47 million buyers from 190 countries engaged in business transactions on Alibaba.com.
The second model stems from Alibaba’s ownership stakes in local e-commerce platforms Lazada and Trendyol. Lazada stands as a prominent e-commerce player in Southeast Asia, trailing the leader, Shopee, as it operates an e-commerce network and logistics services in the region, mirroring the symbiotic relationship between Tmall, Taobao, and Cainiao.
Conversely, Trendyol dominates the Turkish e-commerce sphere in terms of GMV and order volume, offering a wide array of products and services, including local consumer amenities like food and groceries. Much like Lazada, Trendyol runs its logistics operations under Trendyol Express and Trendyol Go, extending support to Turkish vendors seeking to expand their reach globally.
These enterprises collectively form Alibaba’s International Digital Commerce Group, which exhibited a remarkable 46% revenue surge in the initial three quarters of the fiscal year ending March 31, 2024, significantly outperforming the group’s overall revenue growth of 9%.
Promising Horizons for International Digital Commerce
While Alibaba’s global e-commerce sector may currently be dwarfed by its Chinese counterpart, its potential for expansion is boundless.
The relatively smaller scale of this segment indicates ample room for growth before it reaches the stature of its domestic counterparts. Moreover, the overseas e-commerce market presents an enormous opportunity for growth, given that the Chinese e-commerce sector clocks in at a staggering $2.9 trillion, constituting around half of the global e-commerce market.
With China leading the world in e-commerce penetration in 2023 at approximately 50%, other nations are expected to experience rapid growth rates as they catch up in market penetration. It is evident that Alibaba’s International E-commerce Group stands to benefit significantly from this burgeoning market.
For instance, the recent surge in cross-border e-commerce, spearheaded by companies like Temu (owned by PDD Holdings), Shein, and Alibaba’s AliExpress, presents a formidable tailwind that is poised to endure for the coming years. Leveraging China’s robust supply chain and e-commerce expertise, leading Chinese e-commerce platforms are now targeting global consumers to sustain growth, especially amidst intensifying competition within China.
Internally, Alibaba’s strategic reorganization of its extensive empire into independent operating units grants the international business group the autonomy necessary to forge its path to triumph. With a dedicated management team and board in place, the overseas e-commerce unit can steer its long-term strategies, make informed decisions, and swiftly execute plans to dominate their respective markets.
Not surprisingly, this sector exhibited the most rapid growth amongst all Alibaba’s business units, with a staggering 44% revenue spike in the quarter ending December 31, 2023, overshadowing the group’s overall revenue growth of just 5%. This trend appears poised to persist in the upcoming quarters and possibly beyond.
Implications for Investors
The Chinese e-commerce landscape has morphed into a hyper-competitive arena in recent times, courtesy of the ascent of next-gen e-commerce players such as Pinduoduo and Douying. While Alibaba’s domestic e-commerce entities, Tmall and Taobao, retain their dominance in China, their growth trajectory is fraught with increasing challenges.
Hence, it comes as no surprise that Alibaba is bolstering its international e-commerce focus to sustain its growth aspirations. Investors would be wise to keep a keen eye on this rapidly expanding business, given its potential to maintain a robust double-digit growth rate in the forthcoming quarters and possibly, years ahead.
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Lawrence Nga has holdings in both Alibaba Group and PDD Holdings. The Motley Fool endorses Alibaba Group. The Motley Fool upholds a propitious disclosure policy.
The author’s viewpoints expressed herein do not necessarily align with those of Nasdaq, Inc.
