Alibaba sales soar on international expansion
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Alibaba sales have soared in the first quarter of its new fiscal year, with overall revenue growth pushing even higher than last quarter’s stellar result.
Streaming entertainment and cloud computing boosted the business, driving revenue up 59 per cent in the June quarter to 32.15 billion yuan (US$4.8 billion).
In a contrast to the last reporting period, it is international that has shown the most growth, with revenues rising by 123 per cent. Although this figure is aided by the consolidation of the Lazada business, it is also the result of some good numbers from AliExpress.
That said, China retail remains the largest part of the group, accounting for just over 73 per cent of revenues. Here performance was strong, with revenues rising by 49 per cent – partly thanks to a combination of the addition of 11 million more active buyers and higher average transaction values over the prior quarter. A sharp increase in marketing spend by those brands and merchants using Alibaba’s various sites also made a significant contribution to the hike in revenues.
Alibaba’s role as a facilitator for Western brands wanting to sell into China continues to be the company’s main commercial advantage. Its ability to work closely with those merchants to improve performance will benefit the revenue streams of both parties, as well as creating a more attractive and compelling offer for consumers.
“In a contrast to the last reporting period, it is international that has shown the most growth, with revenues rising by 123 per cent.”
Despite its success at home, Alibaba has struggled to gain traction in already established markets like the US. While this was once a stated ambition, and perhaps remains a long term goal, it is off the agenda for the short term. This is the correct strategy: chasing lower margin, profit eroding international gains for the sake of vanity makes little sense.
That said, this does not mean that Alibaba’s international ambitions are entirely on hold – as the latest results show. Tactically, Alibaba has decided to focus on high growth markets where commerce is more embryonic. The acquisition of a controlling interest in Lazada, the Southeast Asian eCommerce group, is testament to this.
While Lazada has grown into a sizeable business, it has a number of challenges including on the delivery, payment and fulfilment front, where it has struggled to optimise the offering. Alibaba, through its expertise and financial muscle, should be able to remedy this. It will also, over the medium term, strengthen the international brands available making the site more compelling and interesting for shoppers.
The Lazada model represents the approach Alibaba is likely to take to international growth and expansion, and this will yield good long term results.
With both international and domestic sales forging ahead, and with new areas like cloud computing making a better contribution, Alibaba is firmly on an upward trajectory.
Questions & Answers
Q.What specifically contributed to the strong performance of China retail operations?
What specifically contributed to the strong performance of China retail operations?
Strong performance in China retail was partly due to 11 million new active buyers and higher average transaction values. Increased marketing spend by brands and merchants on Alibaba's sites also played a significant role.
Q.Why has Alibaba decided to put its ambition for markets like the US on hold?
Why has Alibaba decided to put its ambition for markets like the US on hold?
Alibaba has paused its US ambitions, considering it the correct strategy. Chasing lower margin, profit-eroding international gains purely for prestige makes little commercial sense in the short term.
Q.How does the acquisition of Lazada fit into Alibaba's international strategy?
How does the acquisition of Lazada fit into Alibaba's international strategy?
The Lazada acquisition reflects Alibaba's tactical focus on high-growth markets where e-commerce is less developed. Alibaba aims to use its expertise to address Lazada's challenges and strengthen its international offerings.
Q.What challenges does Lazada currently face despite its growth?
What challenges does Lazada currently face despite its growth?
Lazada, while sizeable, faces several operational challenges. These include optimising its offerings in delivery, payment, and fulfilment, areas where Alibaba hopes to apply its expertise.
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