Alibaba Group Holding Ltd
NYSE: BABA
COMPANY DESCRIPTION
Alibaba
Group Holding Ltd. engages in providing online and mobile marketplaces in
retail and wholesale trade. It operates through the following segments: Core
Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation
Initiatives and Others. The Core Commerce segment comprises platforms operating
in retail and wholesale. The Cloud Computing segment consists of Alibaba Cloud,
which offers elastic computing, database, storage and content delivery network,
large scale computing, security, management and application, big data
analytics, a machine learning platform, and other services provide for
enterprises of different sizes across various industries. The Digital Media and
Entertainment segment includes the Youko Tudou and UCWeb media properties. The
Innovation Initiatives and Others segment involves in the YunOS, Auto Navi,
Ding Talk, and other businesses.
The
company was founded by Chung Tsai and Yun Ma on June 28, 1999 and is headquartered
in Hangzhou, China.
RECOMMENDATION
We rate Alibaba Group Holding Ltd a BUY. Below are the basic reasons to
recommend this stock as a BUY.
·
Alibaba serves about 80% of the Chinese
e-Commerce market where population density is very high. E-Commerce Index
reveals which developing markets hold the most potential for online growth, and
China is now leading the race in terms of maximizing the potential of the
Internet compared with the West. The low-cost, widely available
telecommunication infrastructure in China has increased the popularity of
online shopping. According to a research report, China's E-Commerce market is
expected to pass $1.132 trillion in 2018. Therefore, Alibaba that dominates the
world’s largest e-Commerce market has an edge over its competitors.
·
Alibaba’s GMV remains solid. GMV or gross
merchandise value is defined as the total value of transactions made across the
company’s marketplace. It is a very important metric for e-Commerce companies.
Alibaba’s Tmall platform is well positioned to capture the rising demand for
high-quality products and services. It accepts only verified stores and sells
only genuine products, helping build consumers’ trust and in turn increase
conversion rates. To further expand its GMV, Alibaba launched Tmall global, an
extension of Tmall.com, in 2014. This B2C online platform allows foreign
merchants to operate their store and deal with Chinese consumers directly,
increasing the number of active buyers on its platforms, thus boosting
Alibaba’s GMV. The company aims to achieve US$1 trillion in GMV by fiscal year
2020.
·
Alibaba continues to witness increasing
monetization rates. It is the amount Alibaba earns from the sale of goods on
its platforms. The company’s focus on foreign brands and other high-quality merchants
on its platforms continue to increase the online marketing inventory on both
mobile and the PC, thus further improving the monetization rate. Moreover, as
the mobile platform offers immense growth potential, monetization for mobile is
gaining momentum driven by new and advance mobile apps launched by the company.
In fact, management expects mobile monetization rate to approach or exceed that
of PC, expanding profits for the company. Talking about the numbers, mobile
contributed less than 40% of the company’s GMV at the time of its IPO which has
now increased to more than 75% at the end of fiscal 2017.
·
Alibaba has been supplementing organizational
growth with strategic acquisitions. The company spent billions on acquisitions
in varying sectors ranging from film production to taxi-booking services to
professional soccer. Recently, Alibaba Group announced the acquisition of the
remaining outstanding shares of a China-based food delivery start-up, Ele.me. The
latest acquisition will help Alibaba expand product offerings in the food
delivery market. Last year acquired Chinese Internet TV platform Youku Tudou
Inc., targeting the substantial opportunity in the web video content market. We
believe that a video content service is one of the important mediums through
which Alibaba can launch new products and services. According to a report by
Internet consultant iResearch, China’s market for online video will jump to
36.6 billion yuan in 2017. Alibaba has invested $700 million in Intime Retail
Group Co., which owns department stores and supermarkets in China. The
acquisition was intended to bolster Alibaba’s mobile and distribution
businesses and strengthen Alibaba's position in the e-Commerce market.
Additionally, it agreed to acquire AutoNavi (AMAP) Holdings for $1.5 billion,
bolstering its Internet mapping service. Alibaba is leaving no stone unturned
to extend its e-Commerce reach to mobile, video and distribution business.
·
We expect Alibaba’s payment platform will
continue to grow, driven by the move toward online shopping all over the world.
Its online payment platform includes a lot of services like bank transfers,
Alipay account transfers, payment of credit card and utility bills at no extra
cost, mobile top-up with credit, bank balance check, bus ticket purchases,
online checkout on many sites and in-store payments. Moreover, Alibaba has made
full use of the exponential increase in smartphones and tablets for making
payments. Though Alibaba’s services are currently available only in China, the
company is making all efforts to expand internationally.
·
Alibaba is also taking steps to strengthen its
position outside China. The company has been looking to international markets
to expand its business and its current strategy is to generate earnings through
investment in the U.S. In pursuance of this strategy, Alibaba made its first
foray into the U.S. retail market in June this year with the launch of a
low-profile website with an American name — 11Main.com — a platform for smaller
sellers to hawk their wares. The e-Commerce market in the U.S. are expected to
grow at double-digit rates over the next few years and this is the potential
that the company wishes to tap. However, to be successful in America, Alibaba
needs to understand the mindset of U.S. consumers.
·
Increased competition and market saturation have
forced Alibaba to move beyond hawking goods online. The company is trying to
build its business as an ecosystem of retail, cloud and artificial
intelligence. Having been around long enough to establish logistical
relationships through Cainiao, payments processing through Ant Financial and a
solid core commerce model, Alibaba has been guzzling data that it is in an
increasingly better position to use for improving customer experience and
feeding its AI initiatives.
·
Alibaba is working on the development of what it
calls “New Retail” to bridge the gap between online and offline shopping using
its big data capacity. It expects that the system will offer brick-and-mortar
retailers’ new ways to evolve across marketing, inventory and distribution
networks. These look promising and will not only reshape the retail landscape
but also help Alibaba fend off competition. Alibaba’s partnership with Bailian
is a part of this “New Retail’ strategy. It plans to leverage on its big data
capacities to explore new retail opportunities across outlet design, technology
research and development, customer relationship management, supply chain
management, payment and logistics.
LAST EARNINGS
Alibaba Group Holding Limited
reported fourth-quarter fiscal 2018 (ended Mar 31, 2018) earnings of 91 cents
per share, surpassing the Consensus Estimate by 3 cents. However, earnings
increased 44.4% year over year.
Alibaba reported revenues of
RMB61.9 billion (US$9.87 billion), down 25.4% sequentially but up 61% from the
prior-year quarter. Also, revenues came in above the Consensus Estimate of
US$9.18 billion.
The increase was driven by
continued revenue growth in the China and International commerce retail
business, strong improvement in Alibaba’s cloud business and the consolidation
of Cainiao Network.
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