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Note: At the time of writing, the AtlasTrend Online Shopping Spree Fund owns shares in Alibaba.
Is Alibaba just another Amazon but based in China?
Not quite. Arguably, it has an even better business model.
Alibaba is a clever combination of elements from eBay, Amazon and PayPal. Like eBay it connects sellers and buyers of products through its online sites and similar to Amazon, it is mostly new goods that are being sold. However, unlike Amazon, it doesn’t actually carry inventory to sell to customers. Goods are sold by third party merchants and businesses on Alibaba’s websites.
Alibaba essentially operates huge online shopping centres. Hundreds of millions of products are available for sale and whenever a product is sold, Alibaba receives a commission. From the smallest businesses through to huge global brands such as Nike and Zara, they all have a shop front on Alibaba’s online shopping mall sites.
So how many people online shop on Alibaba’s sites?
454 million people bought goods from Alibaba’s sites in 2016. That is more than the entire population of the United States. Yes, it is a hugely popular and currently shows no sign of slowing down.
Does Alibaba make much money?
Yes, the company has been generating substantial profits for a number of years.
For financial year 2017, Alibaba made a net profit of US$6.0 billion from revenues of US$23.0 billion. A very handsome
margin which is explained by the company’s business model of being primarily an online shopping mall operator rather than an online retailer carrying inventory. Alibaba also continues to grow at astonishingly rapid rates for a company of its size.
Prior to a recent investor day, analysts in the market had forecast Alibaba would grow revenues by 35% for financial year 2018. The company blew that out of the water, forecasting revenue growth instead of 45% to 49%, which took the market by complete surprise.
The share price rocketed 13.3% the following day, giving Alibaba a market value of US$360 billion, 50% larger than the worlds largest traditional retailer Wal-Mart.
All of Alibaba’s growth is happening while approximately half of China’s population still does not have access to the internet. Imagine what will happen when the rest of China starts online shopping.