Michael Norris is a TechNode contributor and Research and Strategy lead at AgencyChina. He owns stock in Meituan, mentioned in this article.
A version of this article originally appeared in the Dispatch, Michaelโs monthly newsletter, on November 12.
Alibabaโs 2019 Investor Day came and went without any of the fanfare that marked Alibabaโs 20th-anniversary celebrations in September.
In fact, the companyโs Investor Day was so low key that it hardly made a dent in the companyโs share price, which was up 3% a week after the relevant announcements.
This yearโs Investor Day, hosted by CEO Daniel Zhang and CFO Maggie Wu, consisted of 13 presentations covering marketplaces, logistics, retail, cloud, and financial services.
Taken together, the presentations showcased Alibabaโs tightening grip over consumersโ wallets. All indicators show Alibaba is the dominant e-commerce and payments player, and the operative question is what supports or hinders it converting that leadership into O2O dominance.
First, a few topline numbers.
Alibabaโs marketplaces now report 693 million annual active consumers. If that numberโs accurate, it means that around 80% of Chinaโs internet users are active on one or more of these platforms.
Around 20% (~140 million) of annual active consumers in Alibabaโs retail marketplaces spend more than RMB 10,000 ($1,400) per year. Thatโs 1.5 times the average monthly salary in China.
This user base, plus strong growth in other business units, means big bucks.
Alibaba has increased its revenue seven-fold over the last five years, which beats out digital peers in both the United States and China (see figure below).
And, even when you strip out proceeds from businesses acquired or consolidated in the last year, that momentum has continued over the last twelve months.
Hereโs what I took away from Alibabaโs Investor Day.
None of the below should be construed as investment advice. Repeat, this is not investment advice. Do your homework before you invest in anything. There, Iโve made it clear.
- Alibabaโs retail marketplaces still have room to add users.
- Alibaba has still got a way to go to connect marketplace shoppers to other services in its ecosystem.
- Meituanโs not out of the woods yet, but its position looks strong versus Aliโs Ele.me.
Letโs rip into it.
Growth in the tank
China has around 850 million internet users, but not all of them have tried online shopping, according to the China Internet Network Information Center. In its August report, the center counted about three-quarters of mobile internet users as e-commerce users, and a little under half as on-demand food delivery users.
The folks at QuestMobile reckon that thereโs a good spread of these potential e-commerce users across different city tiersโabout 74 million in first- and second-tier cities, and 128 million in tiers three and below.
To put that into perspective, JD (Chinaโs third-largest e-commerce player) has approximately 320 million active customers.
Additionally, my colleagues and I at AgencyChina have used demographic modeling to estimate that an additional 170 million Chinese internet users will come online in the next five years.
Added together, that means thereโs potentially somewhere between 360 and 380 million online shoppers who are either on the cusp of shopping online or will be in the very near future. Although itโs got a fight ahead of it for these consumersโ minds and wallets, Alibabaโs core commerce growth still has plenty of runway left.
Connecting the ecosystem?
Alibabaโs ability to connect marketplace shoppers to other services in its ecosystem is a glass half-full or a glass half-empty proposition, depending on your perspective.
According to the reports, 25% of Alibabaโs annual active consumers are active on its on-demand food delivery platform Ele.me and lifestyle discovery service Koubei. A little less than half that proportion (12%) are paying subscribers to Youku, Aliโs digital media and entertainment platform.
At this point, if youโre the glass half-full type, youโd be pretty satisfied with that current level of penetration and optimistic that Alibaba will strengthen synergies across its ecosystem over time.
However, if youโre a little more pessimisticโlike meโyouโre looking at those figures and thinking that somethingโs not quite right. Two possible explanations come to mind:
- Propositions outside Alibabaโs core commerce marketplaces and financial services platform arenโt quite strong enough to attract and retain core commerce customers; and/or
- Integration between propositions isnโt strong enough
Consumer cross-over across the Alibaba ecosystem is something to keep an eye on going forward.
Local consumer struggles
Alibabaโs local services business unit encompasses on-demand food delivery platform Ele.me and lifestyle discovery directory Koubei, which merged last year.
Alibabaโs Investor Day presentation and subsequent quarterly earnings didnโt offer too much detail on how its local services business is doing, outside what itโs legally required to disclose.
From this, we can at least glean that Ele.meโs reported 245 million annual transacting users are significantly fewer than Meituanโs 423 million.
However, each playerโs respective year-on-year transaction growth is roughly on par (Ali claims ~40% and Meituan claims ~30%).
That means Ele.me, even with its Koubei tie-up, is a firm second in the on-demand food and services sector.
Thatโs good news for Meituanโs share price, which has doubled since January this year. That signals the market is increasingly convinced about Meituanโs grip on the food delivery market and its ability to leverage its services marketplace to generate profit.
At the same time, the market is keen to know what Aliโs secondary listing in Hong Kong means for the services scrimmage.
Meituanโs stock is down 7% since news broke that Alibaba is eyeing up a late November listing to the tune of $15 billion. Presumably, some of these funds may be used to fuel a further โsubsidy warโ to pinch consumers and merchants from Meituan.
To me, it underscores that for all the mess fast-flowing capital and loose valuations have caused, markets acknowledge that access to capital remains a key disruptive force.
As goes Aliโฆ
Investors and markets have long seen Alibaba as a bellwether for Chinaโs economy-at-large. However, Alibabaโs Investor Day presentation and subsequent quarterly earnings show that mental shortcut must be rejected. In fact, Alibabaโs marketplaces substantially outperform the โreal economy.โ China retail sales have grown only 8.2% year to date, and online sales 17%โwhile Aliโs (not entirely comparable) year-on-year core commerce revenue growth is a whopping 40%. Try chewing on that and see how the market looks.
